Then Lord Chancellor Chris Grayling introduced the fees for employment and employment appeals tribunals, requiring people bringing cases to pay up to £1,200, which was recoverable if they succeeded.
Unison, which took the case to the Supreme Court, argued the fees were unlawful under both domestic and EU law as they obstructed access to justice.
General secretary Dave Prentis said: “The government is not above the law. But when ministers introduced fees they were disregarding laws many centuries old, and showing little concern for employees seeking justice following illegal treatment at work.
“It's a major victory for employees everywhere. Unscrupulous employers no longer have the upper hand.”
In its judgment, the Supreme Court said the fees had been introduced to transfer some of the tribunal service’s cost from taxpayers to users and to deter unmeritorious claims.
But the justices decided the fees had the effect of preventing access to justice.
“Since it had that effect as soon as it was made, it was therefore unlawful and must be quashed,” the judgment said.
“The constitutional right of access to the courts is inherent in the rule of law: it is needed to ensure that the laws created by Parliament and the courts are applied and enforced.
“As a matter of domestic law, the fees order is unlawful if there is a real risk that persons will effectively be prevented from having access to justice.”
Judges said evidence put before them showed “a dramatic and persistent fall in the number of claims brought in employment tribunals”, since the introduction of fees.
They added: “Where households on low to middle incomes can only afford fees by forgoing an acceptable standard of living, the fees cannot be regarded as affordable.
“Even where fees are affordable, they prevent access to justice where they render it futile or irrational to bring a claim, for example where in claims for modest or no financial awards no sensible claimant will bring a claim unless he can be virtually certain he will succeed, that the award will include recovery of fees, and that the award will be satisfied in full.”
The judges also held the fees indirectly discriminatory under the Equality Act 2010 because the highest levels were charged for cases more likely to be brought by women, for example dismissal in cases of pregnancy.
Justice minister Dominic Raab said: “In setting employment tribunal fees, the Government has to consider access to justice, the costs of litigation, and how we fund the tribunals.
“The Supreme Court recognised the important role fees can play, but ruled that we have not struck the right balance in this case.
“We will take immediate steps to stop charging fees in employment tribunals and put in place arrangements to refund those who have paid.”
