The employment tribunal hearing, which considered the legality of lecturers' conditions, was brought by lecturers at Havering College who refused to sign new college contracts.
The case effectively pits the independent Lecturers Employment Advice and Action Fellowship (LEAF) against the Association of Colleges. It was adjourned last month until December.
The issue dates back to 1993 when colleges left local authority control to become independent corporations. Thousands of lecturers were removed from old style Silver Book contracts and onto new agreements demanding longer teaching hours. LEAF is arguing that pay and conditions of service should not have been affected by the handover.
During the hearing in London, employers conceded that colleges were "emanations of the state" - a legal definition giving them particular protection under European law. The change of employer from local authority to corporation was subject to the Acquired Rights Directive which protects staff conditions of employment when an organisation is taken over.
When it resumes, the tribunal will consider whether employees were unfairly compelled to vary their terms and conditions, whether changes in their contracts were related to the transfer and if compensation should be awarded.
In addition to back-dated pay and holiday claims, one applicant is claiming pound;10,000 compensation for childcare costs incurred.
A final decision in the case is expected in the New Year and ministers are known to be taking a keen interest. In a letter leaked to The TES, former lifelong learning minister George Mudie said: "We will wish to consider very carefully the outcome of the employment tribunal."
Up to 4,000 lecturers are still thought to be on Silver Book contracts. Many of them have had no pay rise in six years because of their refusal to sign a new agreement with their college. If LEAF is successful, colleges could face back pay claims running into many millions of poundsin compensation.