EU ministers have again failed to agree a deal on the Working Time Directive after long talks in Luxembourg.
Under the current directive, employees cannot work more than an average of 48 hours per week - unless they agree to opt-out, a clause secured by the UK government.
The Austrian presidency had pledged to break the stalemate on the drawn-out saga, following failed attempts by three consecutive EU presidencies.
The UK has resisted attempts to remove the opt-out from the directive, while members such as France and Sweden pressed for it to be scrapped.
A source in Brussels said there was a suggestion that the opt-out should remain if its use was "well-founded" but this compromise was not accepted.
David Yeandle, deputy director of employment policy at the manufacturers' organisation EEF, said it was encouraging the government continued to support the opt-out and was not accepting any conditions on its use.
Alastair Darling, trade and industry secretary, said: "We have tried to find a way forward but there were two distinct views: those who oppose the opt-out demanded that the UK and other member states give up their automatic right to implement the opt-out, and wanted to agree a proposal to phase out the opt-out.
"We could not agree to a text saying that we will phase out the opt-out. I am encouraged that we should continue to retain it - and that an increasing number of countries are using it."
Liberal Democrat MEP Liz Lynne backed the UK government's stand, saying: "Those seeking to scrap the opt-out fail to address the real problems that this will cause, especially for those employed in seasonal work or on short-term contracts.
"Removing the opt-out would also lead to more people working illegally and therefore not covered by other health and safety legislation including the one covering working with dangerous machinery. We must clamp down on the black economy not encourage it. "
The issue will now be transferred to Finland's EU presidency, which starts on 1 July.