Former employees of West Midlands regional health authority, who lost their pensions after being transferred to the private sector in the late 1980s, have won a multi-million pound settlement from the Department of Health.

Forty-nine Unison members, and 36 other staff, will receive compensation.

Unison has estimated this will total at least£4m.

The claim for compensation was settled on Friday, three days before a two week High Court case was due to begin. Staff can expect to receive 70 per cent of the amount they lost.

A statement from West Midlands regional office said 'the weight of legal argument' had convinced ministers to settle. 'Ministers are happy with the settlement. They listened to advice and the settlement is weighted in favour of the pensioners while protecting the public purse.'

The legal case against the health secretary, led by Unison, was sparked by one of the most notorious episodes at the scandal-ridden RHA - the collapse in 1991 of Qa Business Services, the region's privatised management services division and computer operations bureau.

The transfer of about 350 NHS staff into Qa, created through a management buy-out, was forced through by the RHA in the face of strong opposition from unions who warned that the scheme was financially unsound and driven by Thatcherite ideology.

Paul Vaughan, Unison's regional head of health, said the West Midlands case would make trusts think twice before exposing their staff to financial risk.

'This gives a very clear warning statement to all employers: if they are negligent in protecting people who they put into private companies, and it goes wrong, they will have to face the financial consequences.'

The agreement with DoH lawyers was 'stage one of the victory', he said.

Complex calculations will follow to establish how much each claimant receives.

Mr Vaughan said the union would also be applying to have its£300,000plus costs paid for by the DoH, costs which could have been avoided if a 'political resolution' had been reached in the months after Qa went into receivership.

'We are very concerned that we were ever put in this position - that money could have been far better used providing treatment, ' he said.