The council is facing tens of thousands of pounds in legal costs bills after its former director of environmental services, James Foster, of Baldwin Avenue, Eastbourne, won the latest round of his campaign.
Lord Justice Rix told the court Mr Foster, a civil engineer, took up his post with the council in 1993 but was told five years later that his department was to be abolished.
He chose to take redundancy and early retirement but faced a problem because he was then just short of his 49th birthday and could only qualify for an enhanced pension if he left the job after reaching the age of 50.
In the end, he reached a 'compromise agreement' with the council who allowed him to stay in his job, on a part time basis, until 31 August 1999, nine days beyond his 50th birthday.
Lord Justice Rix, sitting with Lord Justice Aldous and Lord Justice May, said it was not now disputed that the council had had no power to enter into the agreement.
But, in a ruling which will have wide implications, he nevertheless ruled the council should, in effect, be held to its bargain and that Mr Foster's employment had continued until 31 August 1999.
The decision means the way is now open for a High Court hearing at which Mr Foster will seek a formal declaration that the council must reconsider his bid for enhanced retirement and redundancy benefits.
The council was ordered to pay the legal costs of the action to date and was refused permission to appeal to the House of Lords.
Mr Foster's counsel, Mr Michael Curtis, said he was also pursuing a claim against the council in an Employment Tribunal, a hearing which was delayed until after today's Appeal Court ruling.
He is also suing the council for injuries allegedly caused by work stress and that trial is due to take place next year.
Although the council was refused leave to appeal to the House of Lords, it may stil petition the Law Lords directly for an appeal hearing.
STRAND NEWS SERVICE