The Employment Appeal Tribunal (EAT) has overturned a decision that would have forced the GMB union to pay out £1m in a sex discrimination claim.
More than 100 female council workers had won complaints of sex discrimination against the union, which took up equal pay claims on their behalf.
A tribunal ruled last summer that the Middlesbrough Borough Council workers had been inadequately represented by the union in a dispute over equal pay.
The tribunal said the union wrongly advised them to accept a deal instead of taking legal action, which could have resulted in higher compensation.
The EAT has now overturned this decision, finding that settlement of the claims was a “legitimate aim” and the means adopted were proportionate.
Brian Strutton, GMB national secretary for public services, said: “This judgment clarifies the fact that collective agreements are the right way to deliver equal pay.
“GMB will now carry on with renewed vigour the task of securing equal pay throughout local government.”