A university graduate has won her Court of Appeal claim that requiring her to work for free at a Poundland discount store was unlawful.
Three judges in London ruled that the regulations under which most of the Government's back-to-work schemes were created are unlawful and quashed them.
Cait 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.
Their solicitors said later the ruling means "all those people who have been sanctioned by having their jobseeker's allowance withdrawn for non-compliance with the back-to-work schemes affected will be entitled to reclaim their benefits". The ruling was made by Lord Justice Pill, Lady Justice Black and Sir Stanley Burnton.
In November 2011, Miss Reilly had to leave her voluntary work at a local museum and work unpaid at the Poundland store in Kings Heath, Birmingham, under a scheme known as the "sector-based work academy". She was told that if she did not carry out the work placement she would lose her jobseeker's allowance. For two weeks she stacked shelves and cleaned floors.
Mr Wilson, a qualified mechanic, was told that he had to work unpaid, cleaning furniture for 30 hours a week for six months, under a scheme known as the Community Action Programme. He objected to doing unpaid work that was unrelated to his qualifications and would not help him re-enter the jobs market. He refused to participate and as a result was stripped of his jobseeker's allowance for six months.
After the ruling, Public Interest Lawyers, who represent Ms Reilly and Mr Wilson, said the Court of Appeal's unanimous decision was a "huge setback for the Department for Work and Pensions, whose flagship reforms have been beset with problems since their inception". They said that "until new regulations are enacted with proper parliamentary approval, nobody can be compelled to participate on the schemes".
Ms Reilly said: "I am delighted with today's judgment. I brought this case because I knew it was wrong when I was prevented from doing my voluntary work in a museum and forced to work in Poundland for free for two weeks as part of a scheme known as the sector-based work academy.
"Those two weeks were a complete waste of my time as the experience did not help me get a job. I wasn't given any training and I was left with no time to do my voluntary work or search for other jobs. The only beneficiary was Poundland, a multimillion-pound company. Later I found out that I should never have been told the placement was compulsory. I don't think I am above working in shops like Poundland. I now work part-time in a supermarket. It is just that I expect to get paid for working.
"I hope the Government will now take this opportunity to rethink its strategy and do something which actually builds on young unemployed people's skills and tackles the causes of long-term unemployment. I agree we need to get people back to work but the best way of doing that is by helping them, not punishing them."