Trade union Unison has reached a £3.7m settlement with Greenwich LBC over the way annual leave was calculated for about 5,000 low-paid school and nursery staff.
A council report, discussed last night, warned that letting the dispute go on to an employment tribunal would be far costlier.
Other councils could be affected, Unison has said, with one other case in progress and two being examined to see if action can be taken.
Unison assistant general secretary Christina McAnea said: “This is a victory for all low-paid women working in the public sector. What started out as just one case could soon be having an impact far beyond south east London.
“Other employers may have made similar errors with their holiday calculations. If they have, we’ll be on to them to make sure all term-time staff are paid what they’re due.”
A Unison spokeswoman said it was pursuing a case concerning school support staff formerly employed by Suffolk CC who had since been transferred to contractor Vertis. Two further cases were being investigated.
Unison said part-time cleaners, teaching assistants, catering, administrative, school meal workers and other staff were affected by the row over incorrect calculations of annual leave.
The deal agreed by Greenwich this week has been backdated to January 2013. Unison said 94% of those affected are female.
A council report by Christine Grice (Lab), cabinet member for finance and resources, said the cost of the proposed settlement would be £3.7m.
“If the legal claims are determined by the employment tribunal, the cost could be considerably higher as the employment tribunal has the authority to make an award which is ‘just and equitable’ having regard to the infringement to which the claimants’ legal complaints relate and any loss attributable to the infringement.
“This could be substantially in excess of six years’ back pay. Additional legal fees estimated to be approximately £85,000 would be incurred.”
Cllr Grice’s report said the settlement would be paid using reserves.
“The authority’s strong financial standing enables the payments outlined… to be made initially from reserves, but on the understanding that the sum is repaid by secured future income revenue streams over a number of years, in order that reserves can be replenished to their initial level,” she said.