Some 4,400 former staff will get payouts thanks to a victory by the shopworkers' union USDAW at the Employment Appeal Tribunal.
The decision overturns a previous ruling that saw shopworkers employed in stores with fewer than 20 staff denied a payout when the administrators failed to consult with the staff's representatives, which they are obliged to do when a business goes into administration.
As a result of the Employment Appeal Tribunal ruling, shop workers in the smaller stores are entitled to 'protective awards', after being denied redundancy compensation when the high street chains went bust.
Employment law experts have now warned that the decision could have significant ramifications on companies in the UK, as well as much wider implications. The ruling involves the rewriting of UK laws to comply with EU directives - legislation that has been in place for over 20 years.
Michael Ball, employment partner at law firm, Gateley, said: "The general impact of this ruling going forward, will be huge for employers with multiple sites, especially in the retail sector.
"In any 90 day period, if 20 or more employees are affected by redundancies, it will not matter that they are based at several different locations - any potential dismissals will have to be subject to formal collective consultation for the relevant period, with appropriate representatives, prior to being implemented."
Ball added: "This will clearly cause a considerable increase in costs for employers and there is the risk of substantial 'protective awards' for those who fail to comply."
In January 2012 USDAW won compensation worth nearly £70 million for 25,000 former employees of both companies.
But around 1,200 former employees of Ethel Austin and 3,200 former employees of Woolworths were denied compensation because they worked in stores with fewer than 20 staff.
This ruling will now mean that the affected staff at Woolworths will be entitled to up to eight weeks pay and at Ethel Austin up to 12 weeks pay.
Usdaw general secretary, John Hannett, said: "I am absolutely delighted with this decision. It has corrected the clear injustice of denying compensation to staff purely on the basis of the number of employees at each individual store.
"It did not make sense that staff in Woolworths and Ethel Austin's smaller shops were not part of the same collective redundancy situation as their colleagues in larger stores.
"So you could have the ridiculous situation where 21 employees in one store were compensated for the lack of consultation whereas 19 staff in a store nearby received nothing."
Hannett added: "Tens of thousands of retail workers have been made redundant in the last four to five years and, while the administrators have taken their large fees, many workers were not only treated shabbily but denied the additional payment based on the 'failure to consult'."
Woolworths entered administration in November 2008 and by early January 2009 the administrators Deloitte had closed all of Woolworths stores, offices and distribution centres and made nearly 30,000 people redundant.
Administrators MCR closed Ethel Austin's head office and distribution centre in Knowsley and 186 stores across the country in November 2011 making 1,700 staff redundant.