An earlier ruling stated that employees must have the opportunity to make representations before they are placed on the "provisional list", which currently results in immediate exclusion from the workplace and a wait of up to a year or more before they can be heard.
But the Department of Health - who could be liable to pay millions of pounds in compensation to people who had been wrongly removed from the workforce - took the issue to the House of Lords.
Law Lords rejected the appeal, ruling it was unfair and incompatible with human rights law. The decision was welcomed by the RCN.
RCN chief executive Dr Peter Carter said: "I am delighted the highest court in the land has upheld the principle that care workers have a right to have their side of the story heard before losing their livelihoods, often for more than a whole year.
"Until now, nurses placed on the list provisionally were banned from working in any care setting - sometimes on the flimsiest of evidence or on the basis of malicious accusations, without the fundamental right to a hearing."
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