The case was brought by eight men who lost their jobs with Stirling DC when the DLO privatised.
The court of session agreed with an industrial tribunal that the men had no remedy for unfair dismissal against the council because the local authority's responsibilities were transferred to the company.
The contract was awarded to Brophy in 1992. On the same day notices of dismissal were issued to the employees.
Although the IT found against the workers the employment appeal tribunal had reversed the finding, ruling that a proper construction of the regulations did not exclude the liability of the council. That ruling was overturned yesterday.
Lord Morison said there was no ambiguity in the relevant regulations, which provided that on completion of a transfer all the liabilities under it were transferred.
The judge pointed out that there was provision in the regulations for joint liability of transferor and transferee, but the UK had chosen not to exercise that power, reports The Herald.