The man had alleged he was discriminated against by Catholic charity the Apostleship of the Sea because he is gay. The charity had offered him a job as lay chaplain, but subsequently withdrew the offer when it discovered that he was living with his male partner.

The charity, however, maintains that they did not discriminate on the grounds of his sexual orientation, but objected to his living with another person out of wedlock, in contradiction to the beliefs of the Catholic Church.

Alexander King, director of fundraising and media at the charity, stressed that the AOS did not make any payment to the individual to settle out of court. "We would like to restate that we did not discriminate against the applicant on grounds of his sexual orientation or on any other grounds," he said. "AOS has at all times acted fairly and lawfully with regard to his application for employment."

The settlement follows a recent High Court ruling upholding religious organisations' exemption to the Employment Equality (Sexual Orientation) Regulations 2003, which outlaw discrimination in the workplace on the basis of sexual orientation. Section 7 of the regulations provides for an exception where being of a particular sexual orientation is a "genuine occupational requirement".

The Secular Society and a number of trade unions had challenged the UK's interpretation of the EU Directive, which they claim allows churches to discriminate against potential employees if their lifestyle is contrary to the teachings of the religion or a view widely held by adherents of the faith. The Secular Society is now making a formal complaint to the European Commission over what it describes as the UK employment regulations' "non-compliance" with the EU Directive.