The high street book store Waterstones has pulled out of a government scheme that employed unpaid jobseekers in its stores after a Guardian investigation uncovered the practice at one of its outlets.

More than a dozen other high street chains have been taking on unemployed workers for weeks without pay as part of the government's Work Experience scheme and others like it.

In a case lodged in the high court, the government has defended itself against claims that the unpaid work experience schemes are contrary to Human Rights Act legislation on forced labour.

Cait Reilly, a 22-year-old geology graduate, brought her case against the Department for Work and Pensions, saying she was made to work in her local Poundland store branch for three weeks without pay.

In court papers filed on Wednesday, the DWP admitted that it made a mistake by not telling Reilly she had a chance to opt out of the placement. But it says her scheme and others like it are not contrary to the Human Rights Act, and the department is "strongly resisting" the case.

In an 11-page document setting out a provisional defence for a case that could affect the position of hundreds of thousands of jobseekers in a similar position, the DWP has argued that having benefits docked does not equate to forcing the unemployed to work.

"Where a person is required to perform a task and, if he or she does not do so, loses benefit, that is not forcing a person to work."

The Guardian understands that the department is facing multiple legal challenges to the terms of various unemployment programmes, including the recently announced Community Action Programme in which those out of work for a number of years must work for six months unpaid, including at profit-making businesses, in order to keep their benefits.

The Guardian has found that Tesco, Sainsbury's, Argos, Asda, Maplin, TK Maxx, Matalan, Primark, Holland & Barrett, Boots, McDonald's, Burger King and the Arcadia group of clothes stores, owned by the billionaire Sir Philip Green, have all taken staff via "work-for-your-benefits" programmes.

James Moorehead, who recently finished an eight-week stint working unpaid for the electronics retailer Maplin, said he found his jobcentre-organised placement exploitative.

Moorehead, 24, who holds a degree in computer games programming, said he found Maplin staff to be very helpful but resented the idea of stacking shelves, taking deliveries and doing stock-taking for no wage.

"While I understand the need to gain experience to get a job I think the whole idea of unpaid placements like this are unfair," he said. "We're doing the same amount of hours and work as actual employees and temp staff are doing, and we're doing it just as well and there is no guarantee of a job at the end of it, meaning it could potentially be all for nothing."

Moorehead said after finishing his placement on 20 January, the DWP then asked him to work in their own local office for a further eight weeks, again without pay. On hearing this, Moorehead said Maplin staff offered him 12 hours of paid shift work a week so he could be exempted.

Another young graduate jobseeker, who wanted to be known only as Thomas, said he worked at Waterstones from late August until early October without pay and after a few weeks was doing the work of other employees.

"They got me to do a lot of the grunt work, such as moving entire book sections around the store. I never saw anybody else do this kind of work. I was also shelving a great deal, which regular employees didn't bother with too much.

Thomas said this impacted on his ability to search for other jobs. "Technically, I had time to look for other jobs. When I finished a day's work, or on the weekends I could browse graduate sites and send off emails. However, when you work a physical job full-time it's very difficult to put much effort in when you're finally home."

Waterstones said that after the Guardian highlighted the practice at one of its stores, it initiated a review and no longer allowed branch managers to take on work experience people as it did not want to encourage working without pay.

In his autumn statement in November, the chancellor, George Osborne, announced that the number of eight-week work experience placements would be massively extended to 250,000 places over three years to be funded from the £940m youth contract.

Under the previous Future Jobs Fund set up by the Labour administration, subsidised work placements were restricted to public bodies and charities and work experience was limited to only two weeks.

A spokesperson for the DWP said: "Our priority is to help people off benefits and into work. We are looking to help people get practical experience that will give them a better chance of getting into work.

"It is simply absurd to suggest that we should not be providing this support and effectively leaving people at home doing nothing. The DWP is strongly resisting this challenge."

Many of the big chains involved in the scheme say they do not know how many unemployed people have been working for free in their stores because the placements are arranged at a local level and not through head office.

One of the companies involved in rolling out work experience placements is the health store Holland and Barrett, which has 1,000 such placements across 250 stores.

A full-time employee at one Holland and Barrett store, who did not want to be identified, said they believed the placements were starting to replace paid work.

"We have had a number of placements in our store and have noticed that the hours for part-time staff have been reduced. Staff are upset because we are all struggling to make ends meet," the employee said.

"The real benefactors of this scheme are the companies who receive millions of pounds worth of labour absolutely free of charge and the losers are the jobseekers who see potential jobs being filled by workfare placements for months at a time and the loyal part-timers who find their regular overtime hours savagely cut."

Holland and Barrett said it had taken on about 50 work experience jobseekers as paid employees. "We have committed to working with JobCentre Plus to make available 1,000 work placements available for young people aged between 16 and 24 years. We have 250 stores taking part in the scheme as well as our head office and distribution and packaging site," it said.

"We ensure they are given skills and confidence to move forward with their job search and of course a valuable reference.

In a statement, Maplin said: "We are more than happy to get behind the different work experience schemes nationwide. We fully support, where possible, placements initiated by the local employment offices to get individuals into the working environment.

"This is by no means a way of replacing our current paid employees as all the individuals involved are shadowing a full-time member of staff."

A spokesperson for the Arcadia group, which includes Topshop, Burton, BHS and Miss Selfridge, said: "Arcadia are committed to providing both work experience and career opportunities in both head office and retail. Our stores currently work with the local Jobcentre Plus contact and any work placement arrangements are agreed at a local level. Our stores also work on an ongoing basis to support the community."

• This article was amended on 3 February 2012. In the original, James Moorehead's name was misspelt. This has been corrected.