Employment equality rules could land Birmingham City Council with a #200 million bill.
The huge sum is the maximum estimated cost of delivering the Government's single status initiative, which aims to ensure that local authority employees receive fair and equal pay and conditions for a working week of 37 hours or less.
Single status, devised in 1997 when Labour came to power, is designed to do away with the distinction between blue and white collar workers, scrap the maze of different wage grades and ensure that everyone is paid at the same rate for the job they perform.
The task of delivering single status has proved troublesome for most of Britain's councils. Only one out of 35 metropolitan authorities has managed to implement the new system.
Birmingham is in the process of evaluating the jobs and salaries of each of its 39,500 non-teacher employees to decide whether staff are being paid a fair rate for the job they are doing.
Many employees will receive a pay rise and back pay, estimated at an average 17 per cent increase.
However, the evaluation process will also identify people who are being paid too generously for the tasks they are performing. These employees may have future wage increases reduced until their pay is deemed to be at the correct rate for the job.
The process is a minefield which the city council hopes it can pick its way through by reaching an agreement with the trade unions.
Failure to complete the job evaluation exercise by March 2007 could result in legal challenges from staff, triggering employment tribunals and a potential #200 million bill for the council to meet wage rises and back pay.
Andy Albon, the council's director of human resources, admitted union leaders were concerned.
He said: "The nature of the new job ranking resulting from job evaluation inevitably produces both gainers and losers.
"This has been problematic for the local trade unions, particularly in relation to losers."
Mr Albon added: "There is a legal precedent that the council is likely to have a liability for back pay. Discussions are taking place with the unions on the extent of this back pay."
Alan Rudge, cabinet member for equalities and human resources, said he hoped to reach agreement with the unions.
Coun Rudge (Con Sutton Vesey) said: "It is early days to forecast the cost. It depends on how many people go up and how many go down.
"Some people may be better off than is merited from the job they do. We wouldn't dream of asking them to drop their salary in one go. The rate of increase in pay would slow until it has levelled out."
Coun Rudge said he was determined to avoid legal challenges over the issue.
He added: "We are consulting with the unions because, obviously, significant sums of money are involved.
"There are possible repercussions so we are doing it very methodically.
"We are proceeding carefully, cautiously and, we hope, correctly.
"It is a mammoth task, over which we have no choice because we have been told to do this by the Government."