A multinational company that was one of the pioneers of the government's employment programme has pulled out of the scheme, saying it was no longer prepared to face further bad press and in-store protests and would now pay all its workforce.

Holland & Barrett, which used about 1,000 unpaid jobseekers over the last year throughout its 250 stores, was one of the first large companies to join the government's work experience scheme in June 2011.

The health and nutrition specialists, owned by NBTY Europe, said the decision was due to pressure from activists, which it alleged included assaults on staff and the prospect of further disruption at its stores this weekend.

Chris Grayling, the employment minister, called the campaign against the company a "disgrace". Holland & Barrett's withdrawal came at a time when the government had been thought to have successfully relaunched the scheme after severe difficulties at the start of the year.

In a statement, a version of which went up on its Facebook site on Thursday night, the company said the 60 people undertaking work experience would be the last to complete the eight-week placement.

"After this time Holland & Barrett will not participate further in the scheme," it said, adding that from it would henceforth only take apprentices paid at the national rate of £2.60 an hour.

The retailer said that during protests over the year, staff had faced abusive telephone calls, assault, human barricades preventing them entering and leaving, and damage to its stock.

The company said it was not aware that police had charged activists in connection with the allegations but added: "We take our responsibilities as a retailer and employer very seriously, and any possible compromise to the safety of our staff and customers from opponents of our work experience scheme is treated with great importance."

Activists from Boycott Workfare and SolFed, which have been organising protests against the company for its use of unpaid labour, dismissed the allegations out of hand.

"Holland & Barrett's claim that pickets of stores could offer a possible compromise to the safety of staff and customers is completely baseless," said Jim Clarke, national secretary of the Solidarity Federation.

"On our pickets, the first people we spoke to were the staff, many of whom told us they agreed with the aim of our campaign and that overtime was no longer available in some stores as it was being done by unpaid workfare labour instead."

Clarke said Holland & Barrett's use of unpaid labour over an eight-week period was "outrageous" and added that the company's withdrawal "isn't just a victory for claimants, it is a victory for all of us as workfare undermines pay and conditions".

A statement from Boycott Workfare said: "It is disingenuous in the extreme to suggest that peaceful protests pose any risk to anyone. It is a convenient way of distracting from the company's ethical responsibility for using unpaid work on a massive scale.

"The protests are peaceful and legitimate, and have been supported by a massive public response on social media.

"Grayling and the companies profiting from his workfare schemes need to face up to the uncomfortable truth: workfare is failing.

"It does not help get people into work; employees know that it takes paid work away from them; the public do not want to support shops which don't pay their staff."

In February, Grayling was forced to change the rules for the scheme after a number of large companies including Tesco, Waterstones and TK Maxx, said they were pulling out or suspending their involvement in the scheme because of similar protests over forced, unpaid work.

Under previous rules, jobseekers had their benefits sanctioned if they dropped out in the first week of the eight-week placements. New rules announced by Grayling and recognised in guidance to job centres, made the scheme "entirely voluntary" by removing sanctions except in cases of gross misconduct.

The Guardian was told that Holland & Barrett had received numerous assurances from the Department of Work and Pensions that no one who had worked in their stores under the scheme had ever been threatened with having their benefits stopped.

In a statement, Grayling said: "It is a disgrace that anyone should seek to target a company that is trying to help young unemployed people in this way.

"The people involved in these protests have absolutely no idea of the damage they're doing to the job prospects of the next generation. I'm determined to stand up firmly against these protesters. What they're doing is totally unacceptable."