Employers can bar workers from wearing Islamic headscarves or any obvious religious or political symbols such as the burka, the European Court of Justice has ruled.
The court gave a joined judgment in the cases of two women in France and Belgium who were dismissed for refusing to remove their headscarves.
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However it ruled that the company must have a policy that bars religious signals and requires employees to "dress neutrally".
If there was no such policy in place, dismissal over wearing an Islamic headscarf would constitute discrimination, it said.
The Open Society Justice Initiative, a group which supported the two women in the cases, told Reuters it was disappointed by the ruling which it said "weakens the guarantee of equality that is at the heart of the EU's anti-discrimination directive."
"In many member states, national laws will still recognise that banning religious headscarves at work is discrimination. But in places where national law is weak, this ruling will exclude many Muslim women from the workplace," said the initiative's policy officer, Maryam Hmadoun.
In Belgium, Samira Achbita was fired when, after three years of employment, she began wearing a hijab to work at the security firm G4S, reports the BBC.
The company said she had broken an "unwritten rule" prohibiting religious symbols.
The ECJ ruled that a company's wish to project a neutral image was legitimate, reports The Guardian.
In France, Asma Bougnaoui was fired from an IT company after a client requested she remove her headscarf while on their premises.
The court ruled that the Frenchwoman had suffered discrimination and that customers' wishes did not give companies an excuse from complying with EU anti-discrimination law.
The ruling comes on the eve of a Dutch election in which "Muslim immigration has been a key issue and a bellwether for attitudes towards migration and refugee policies across Europe," says Al Jazeera.
In Germany, the government is considering a partial ban on full face veils. Switzerland's upper house of parliament this week voted down similar plans to ban all veils in public places.
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