The ex-workers or their surviving spouses had their pensions cut three years ago after council auditors found long-service award payments could not be lawfully included in the calculation of pension benefits.
But following a successful high court challenge on behalf of one ex-worker, the council has been ordered to pay both backdated arrears and interest to all 178 pensioners.
Because the arrears have been frozen in the fund for the past three years, any losses are expected to be small.
?It has been a difficult case and we have done all we can to ensure our former employees and their families are not affected any more or any longer than they should be,? she said.
Dave Prentis, general secretary of Unison, which took out the test case against the council, said the decision would help restore faith in pension schemes.
?It sends out a clear warning to auditors who seem to be conducting witch hunts against pension rights that they cannot get away with it,? he said.