Pub chain Bass has conceded that its bar managers should be covered by the Working Time directive following a drawn-out union battle.
Bass Leisure Retail, which owns more than 3,000 pubs, had previously argued that its managers were "autonomous decision makers" which would make them exempt from the directive.
The climbdown was welcomed by the National Association of Licensed House Managers, which said it was surprised by the company's change of heart.
The NALHM has argued since the directive became law in October 1998 that pub managers should be covered because their autonomy in decision making is limited.
But because Bass and the union have reached an agreement no legal precedent has been set.
Chris Mordue, associate solicitor at legal firm Pinsent Curtis, said Bass had made a pragmatic decision because the scope of the exemption was unclear. He added that a ruling from the European Court of Justice or the Employment Appeal Tribunal will be needed to clarify the situation.
NALHM spokesman Peter Love said test cases against Whitbread, Scottish and Newcastle and Wolverhampton and Dudley were still on track but it is waiting to see their reaction to the Bass move before proceeding.
Bass spokeswoman Janice Clark said amendments to the regulations in December which "clarified" the exemption category had influenced its decision.
Bass has let all managers know and is talking to them individually to discuss the situation.
"They have the opportunity to opt out if they want to, it is a personal choice. Some won't want the hassle of keeping hours records if they stay in," she said.
By Dominique Hammond