The 220 former staff of software development house TelesensKCSL received no salary for June and were made redundant without notice, consultation or redundancy payments by receivers Deloitte & Touche.
Because employees on maternity and sick leave were among the group, the class action is seeking recompense for both unfair dismissal and sex discrimination.
The action has gained the support of MPs in both the UK and Scottish Parliaments and has been the subject of an early day motion in the Scottish Parliament, with a call for a Department of Trade & Industry inquiry.
TelesensKCSL, which was among the leading developers of telecoms billing systems, with customers including 02, announced to staff on 25 June that it was to be put into receivership.
The news came despite assurances just days before that there was more than c6m (£3.8m) in the bank for staff salaries and a number of interested potential buyers.
Three days later, the company was sold for $10m (£6.4m) to US firm Convergys and the receiver Deloitte & Touche made 220 staff redundant, informing them that there was no money in the bank to pay them.
The action is being fought by employment law firm Roydens and is being investigated by the Equal Opportunities Commission and the DTI.
Lawyer David Royden said, "This is a case of plain bad behaviour on the part of Deloitte & Touche. Legislation making it illegal to dismiss employees during a transfer of employment has been around for nearly 20 years.
"It is possible for exceptions to be made for economic, technical or organisational reasons as long as it is carried out in a fair and reasonable manner. Gathering 220 people in a room and summarily dismissing them without notice or pay is clearly unfair and unreasonable behaviour."
Former TelesensKCSL employee Mike Cicero, a spokesman for the class action group, said, "Not only are we seeking the money that is owed to us, we are also hoping that by taking this action we can force changes in the law so that this does not happen to anyone else ever again."
Nigel Griffiths, MP for Edinburgh South and minister for small business, said, "The information given to me by my constituents makes me highly suspicious of the motives and operations of the company. I have asked the DTI to investigate the collapse of TelesensKCSL and advise on what action, if any, can be taken."
Edinburgh-based KCSL was acquired by German-headquartered Telesens in 2000 in a £129m deal. The cash crisis at the merged company arose when the firm's bankers Royal Bank of Scotland and Bank of Scotland refused to allow the Scottish arm to transfer funds to Germany.
Deloitte & Touche and Convergys declined to comment on the case.