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Brits who had their benefits stopped after refusing to do unpaid work experience are closer to compensation after the Government lost a crucial legal battle.

Three Court of Appeal judges in London have dismissed its challenge against an earlier High Court ruling.

The Government had appealed in a bid to prevent thousands of individuals who had jobseeker payments stopped from clawing back millions of pounds in lost benefits .

The scheme - dubbed workfare - was introduced in the wake of the financial crash, when jobs were scarce.

But critics said it was pointless and the work experience offered was of little value. Dr Simon Duffy of the Centre for Welfare Reform dubbed it "modernised slavery" .

In one case, university graduate Cait Reilly was forced to give up her voluntary position at a museum to work for free in Poundland instead.

But while thousands were affected by the scheme, only a fraction are likely to receive a pay out.

Dr Lynne Friedli, who campaigned against the scheme, described the ruling as "a partial victory".

She added: “The money was unlawfully taken and must be returned.”

But Professor Paul Spicker from Robert Gordon University warned: "It is not at all certain that this judgment will help claimants directly.

"The Act that has been challenged is still the law. There is also an 'anti-test-case' rule which means that other people who suffer injustice cannot get redress. The Supreme Court needs to revisit the rules that make this possible."

(Image: @theabingdontaxi/Twitter)

Social media activist I Was a JSA Claimant said: "For people like me who have been campaigning against benefit sanctions and workfare this judgement reinforces what we have been saying for a long time.

"Sanctions are an unfair punitive punishment which does nothing to help people back into work.

"The individuals and families affected will hopefully get the money that was stopped back, but that will not properly compensate for the hardship they had to endure during their sanction."

The judges reached their conclusion on the basis that workfare contradicted the European Convention on Human Rights.

How workfare reached the high courts

(Image: Getty Images)

Friday's decision is the latest in litigation over back-to-work schemes following a Supreme Court ruling in October 2013.

Five justices at the highest court in the land ruled, in what became known as the Poundland case, that the Government's flagship back-to-work schemes were flawed .

They said that sufficient information had not been given to claimants to enable them to make representations before benefits were stopped.

The Government brought in emergency retrospective legislation, the Jobseekers (Back to Work Schemes) Act 2013, to "protect the public purse" and stop the payouts.

It was argued the sanctions had been justified and the claimants would be receiving "undeserved windfall payments".

But a High Court judge, Mrs Justice Lang, declared the 2013 Act "incompatible" with Article 6 of the European Convention on Human Rights, which protects the right to fair hearings.

The Department for Work and Pensions (DWP) decided not to make any payouts pending the Court of Appeal bid to overturn Mrs Justice Lang's decision.

Appeal judges ruled on Friday that when Parliament enacted the 2013 Act in order to retrospectively "validate those sanctions" it was "successful in doing so as a matter of English law".

But Lord Justice Underhill, announcing the ruling of the court, said: "But we have also held - upholding the decision of the High Court - that in the cases of those claimants who had already appealed against their sanctions the Act was incompatible with their rights under the European Convention on Human Rights."

He added: "Under the Human Rights Act that 'declaration of incompatibility' does not mean that the 2013 Act ceases to be effective as regards those claimants; it is up to the Government, subject to any further appeal, to decide what action to take in response."

A DWP spokeswoman said: "It’s only right that jobseekers do all they can to find work while claiming benefits. We are considering the judgment.”