The GMB union may have to pay out £1m after more than 100 female workers won a sex discrimination case.
The union told the women to accept a deal with their employers
A tribunal ruled the Middlesbrough Borough Council workers had been inadequately represented by the union in a dispute over equal pay.
The panel said the union wrongly advised them not to take legal action and may have "duped or frightened" them into giving up their rights.
The union said it was "surprised" at the ruling and would appeal.
The women sought advice from the union after discovering that employees doing work of equal value were getting paid up to 40% more because of bonuses.
The GMB advised them to accept a deal instead of taking legal action - which could have resulted in higher compensation.
Last year they won the dispute with the council, which agreed to change its practices.
But the female workers decided to take action against the GMB on the grounds of discrimination and victimisation.
The tribunal ruled the union had "rushed headlong" into accepting an "ill-considered" back-pay agreement and had accepted the council's plea of poverty "without question".
The tribunal said this led to a "devaluation" of the women's back pay claim and said the women may have been "duped or frightened" into giving up their rights.
The union's national officer, Brian Strutton, said: "The GMB is very surprised at the tribunal's decision. We do not believe they have got it right and we intend to appeal.
"The GMB has always been at the forefront of equal pay issues and we are adamant we have not discriminated against our members in Middlesbrough."