He has been besieged by calls from worried local authorities after the Employment Appeals Tribunal upheld the case of seven teachers, a care worker and a gardener working in a home for young offenders, who have fought for the restoration of pay and conditions which were changed when control of the home transferred to St Helens from Lancashire County Council.

“A lot of local authorities are wondering how the decision will affect them,” said Mr Blackburn. “So far Unison [representing the care worker and gardener] are claiming it as a triumph for employees but there is a lot of doubt in legal circles whether that is the case. Employers faced with this difficulty are more likely to dismiss employees than do what St Helens did and transfer them. ”

The point of dispute centres on the fact that transferred staff were required to work to new contracts, which led to substantial losses in salary for some teachers. Ron Wilson, one of the teachers, lost as much as Pounds 7,000 a year in extraneous duties payments when Red Bank Controlled Community Home was taken over by St Helens from Lancashire in 1992. Another teacher has lost Pounds 27,000 in deducted allowances.

St Helens admits that should it accept the judgment of Mr Justice Mummery who presided over the appeals tribunal, back payments will be “substantial”. The National Association of Schoolmasters Union of Women Teachers estimates them to be about Pounds 300,000.

Peter Bentley, the NASUWT regional official for the North-west, said staff at Red Bank were experienced and committed to working “with these very difficult children” and that losing substantial amounts of salary “overnight” had caused serious financial hardship.

At the time the teachers were faced with no job or a job on a lesser salary. At most they would have received Pounds 14,000 to Pounds 15,000 in redundancy with little prospect of gaining other jobs.

Staff felt embittered that they were being paid substantially less for working “in the same workshops, with the same lads”, Mr Bentley said.

Although St Helens has lodged an application with the Court of Appeal, it is still considering whether or not to take the matter further as the costs involved will be substantial. If both council and union are convinced of the strength of their case the matter could end up in the House of Lords.

As things stand, the case has caused ripples of anxiety among councils across the country, particularly in those areas where control of services is being transferred to unitary authorities, many of whom are seeking to negotiate new contracts with employees.

Last year, a Liverpool industrial tribunal dismissed the claims of Ron Wilson and others that St Helens had made unlawful deductions from their wages in contravention of Section 1 of the Wages Act 1986.

The industrial tribunal ruled that, under 1981 regulations, the voluntary agreement by staff to a variation in their pay and conditions constituted a binding contract. It concluded that employees had been paid everything that was properly payable and that the council was not in breach of the Wages Act. Moreover, it was accepted that because employees continued to work for many months under the new contracts, that in itself constituted affirmation of the revised terms and conditions.

At the Employment Appeals Tribunal (EAT), however, Justice Mummery drew attention to the decision by the European Court of Justice in the case of Daddy’s Dance Hall - a bar in Denmark in which new owners had attempted to pay a barman on a fixed wage rather than commission. It had established that employees cannot accept new terms of a contract, even if those are more beneficial, at the point of transfer.

“The application of this case as a precedent has very significant implications,” said Mr Blackburn for St Helens. “Even though staff were doing a completely different job with different terms and conditions under St Helens, the effect of the EAT decision is to bring across some of the terms and conditions that existed under Lancashire. Since it will be easier to dismiss staff rather than transfer them I fear many organisations will opt for the former.”

Red Bank School is situated on a 20-acre site near Newton-le-Willows. Established by the Liverpool Juvenile Reformatory Association in 1868 it was built as a farm school for children in trouble.

Until 1992 it included training and assessment units for behaviourally disturbed children and a secure unit which represented 10 per cent of national provision for violent boys convicted of extremely serious crimes such as rape, manslaughter and murder.

In 1990 Lancashire decided to withdraw from Red Bank, which was expensive and, apart from the secure units, was underused, in favour of community-based alternatives.

Red Bank’s trustees finally accepted St Helens’ proposal to manage the home without incurring costs to the council, which would be achieved by offering the existing level of secure places on a fee-paying basis and reducing open provision from 80 to 24 places.

In the event more than 100 staff were either redeployed by Lancashire County Council, made redundant or, as in the case of seven teachers, transferred to St Helens. During this transfer three teachers had to give up on-site homes as well as losing salary through changes in allowances. Some were promoted from teacher to senior teacher, but they have lost special allowances.

Peter Bentley feels that the EAT ruling could protect other staff in similar circumstances. He said: “This ruling means that an employer, a new unitary authority for example, cannot say at the point of transfer we need to save money in this school and therefore staff on three salary points, say, will now be put on two.”