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England's Court of Appeal ruled Monday that a government scheme requiring unemployed people to work without pay was unlawful, following a claim that it breached laws on forced labour.
Three top judges at the London court ruled that the regulations under which most of the British government's so-called "back-to-work" schemes were created were unlawful and quashed them.
University graduate Cait Reilly took her case to the court, claiming the requirement on her to work for free breached laws on forced labour.
In November 2011, Reilly, 24, from Birmingham in central England, had to leave her voluntary work at a museum and work unpaid at Poundland, a chain store where all items cost £1 ($1.55, 1.15 euros).
She was told she would lose her unemployment welfare payments if she did not carry out the work placement. Reilly stacked shelves and cleaned floors for two weeks.
Reilly said she was delighted with the judgement.
"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," she said.
"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.
"Later I found out that I should never have been told the placement was compulsory.
"I agree we need to get people back to work but the best way of doing that is by helping them, not punishing them."
Stanley Burnton, one of the judges, said: "This case is not about the social, economic, political or other merits of the Employment Skills and Enterprise Scheme.
"This appeal is solely about the lawfulness of the regulations made by the secretary of state."
Employment minister Mark Hoban said the government was "disappointed and surprised" by the judgement and was seeking permission to appeal.
Meanwhile new regulations will be tabled to avoid any uncertainty.
"It's ridiculous to say this is forced labour. This ruling ensures we can continue with these important schemes," he said.
"Ultimately the judgment confirms that it is right that we expect people to take getting into work seriously if they want to claim benefits."
Britain's jobless total fell in the three months to November, striking the lowest level for 18 months despite the country's weak economic growth, official data showed in January.
The number of unemployed people fell from 2.51 million to 2.49 million (7.8 to 7.7 percent) in the three months to the end of October.