The government's employment strategy lies in tatters after judges declared that almost all work-for-your-benefit schemes were unlawful due to a lack of basic information given to the unemployed.

A three-judge panel at the royal courts of justice ruled that the secretary of state for work and pensions had acted unlawfully by not giving the unemployed enough information about the penalties they faced and their rights to appeal against being made to work unpaid for, in some cases, hundreds of hours.

University graduate Cait Reilly won her claim that requiring her to work for free at a Poundland discount store was unlawful. Reilly, 24, from Birmingham, and 40-year-old unemployed HGV driver Jamieson Wilson, from Nottingham, both succeeded in their claims that the unpaid schemes were legally flawed.

The court ruling means tens of thousands of unemployed people who have been sanctioned under schemes such as Work Experience and the Work Programme are entitled to a rebate. However the Department for Work and Pensions (DWP) said it would not be paying out money until all legal avenues had been exhausted.

On Tuesday morning the DWP issued fresh regulations that would abide by the new judgment. The court refused the government leave to appeal but the DWP said it would take the matter to the supreme court.

Speaking just after the judgment was delivered, Reilly said she was "overjoyed and relieved". "Obviously I don't want to get rid of the government helping people get into work because that's what we want, that's what we've been fighting for really. But we wanted to get rid of the aspect of punishment about it, where people are forced into things that they necessarily don't need to be doing. [That] has just been great," she said.

The geology graduate, a quiet and often shy figure, approached the Guardian with her story of forced labour in Poundland in November 2011. She said her worst moments during the legal fight against the DWP came when she was lambasted in the media by rightwing commentators who questioned her worth ethic and labelled her a scrounger.

"All the really negative press where they've … focused on me being a scrounger or workshy or some crazy human rights campaigner. It's been tough. It's not something I'm used to … But then it all makes up for it when you see all the public support, that's been fantastic and got me through a lot of it."

Responding to the court ruling, the minister for employment, Mark Hoban, said: "The court has backed our right to require people to take part in programmes which will help get them into work. It's ridiculous to say this is forced labour. This ruling ensures we can continue with these important schemes.

"We are, however, disappointed and surprised at the court's decision on our regulations. There needed to be flexibility so we could give people the right support to meet their needs and get them into a job. We do not agree with the court's judgment and are seeking permission to appeal, but new regulations will be tabled to avoid any uncertainty.

"Ultimately the judgment confirms that it is right that we expect people to take getting into work seriously if they want to claim benefits."