IT was one of the most bitter disputes Southampton had ever seen.

Piles of rubbish were left to fester on the city’s streets as hundreds of city council employees walked out on strike in response to controversial pay cuts.

Now, following a legal challenge by the union Unite, the Daily Echo can reveal that the council is paying back £2.8m to thousands of employees, bringing to an end a bitter three-yearlong dispute.

The Conservative opposition claim Labour civic chiefs have “capitulated” to the unions, cutting 100 jobs and putting up taxes to make up the difference.

But council leader Cllr Simon Letts says the payout would only be the equivalent of about 25 jobs, saying that much of the money will come from cash set aside by the Tories to fight the union’s legal challenge.

It comes at a time when the cash-strapped council has announced £13.5m of savings for 2014/15, with 93 jobs set to be lost over the next year.

The row was sparked by pay reductions of up to 5.5 per cent proposed under the Conservative administration in 2011.

Workers were threatened with the sack if they did not sign up to the new contracts, while there were also cuts to allowances and a freeze on pay progression.

The cuts sparked widespread industrial action, which was coordinated by unions Unite and Unison, and bin men and traffic wardens were among the council employees to walk out on strike.

But the unions believed that the council had failed to consult with them for 90 days, as was required by law at the time, and Unite challenged the cuts on behalf of its own members along with those from other unions.

Labour bosses in Southampton had pledged to restore the pay before they swept into power last May, and entered into discussions after their election victory.

Union members voted to accept a deal to end the dispute last October, but the final settlement of the legal challenge has been held up for more than a year due to legal wrangles.

But after a final agreement was reached, the legal challenge from the unions has now been settled without the need to go to an employment tribunal.

The city council will pay out £2.8m to about 2,600 staff in total, and has already paid many of them.

Most staff will have their pay restored before April, while high earners, some of whom are on annual wages of more than £65,000, will have it restored after April.

And 90 council workers made redundant as a result of the 2011/12 city council budget will share a one-off compensation payment of £65,000.

Cllr Letts said: “I am pleased that we have settled the challenge.

It’s nice to get over the final hurdle and it’s a good sign that industrial relations have improved.”

He said that paying back the money had been spread across three years, with much of it coming from funds set aside by the previous Conservative administration to fight the union’s legal challenge but never used.

He said that after factoring in which pots of money the £2.8m would come from, the real number of jobs that would be lost by 2014/15 as a result of the payout was “about 25”, but this has been disputed by Tory chiefs.

Tory deputy leader Cllr Jeremy Moulton said: “We think the real number is about 100.

“Our aim was always to try to protect the services that were perhaps not the highest paid people, so it was binmen, street cleaners and those sort of roles that we would have sought to protect but Labour have cut.”

When asked if he believed his administration had acted correctly, former Conservative council leader Cllr Royston Smith said: “We acted entirely properly.

“Our modest pay cuts for those that earned the most was to protect jobs and services. As a result of Labour's capitulation to the unions hundreds of people have lost their jobs and taxes and charges have been hiked across the city.

“No one wants a pay cut but ultimately ask the people who are now jobless. We wouldn’t do it again but we would have implemented it had we stayed in office.”

Mark Wood, Unite branch secretary at the council, said: “The settlement of this legal challenge provides the final piece in a very significant and successful three-pronged strategy involving industrial, political and legal action to gain justice for our members from Southampton City Council.

“Not only did we secure a restoration of pay and compensation for Unite members, we also sent a very clear message to our employers and other local authorities that Unite is willing to fight back and that we will do so to win.”

When asked whether job losses under Labour were a fair price to pay for the restoration of the pay, a Unite spokesman said: “The current Labour administration is doing everything it can to protect jobs and services, despite the ruthless cuts which have been ordered by the central coalition Government.”