The 60-year-old spent five years in prison in Communist East Germany for attempting to flee to the West. In 1982, West German authorities paid for his release and he was later awarded compensation, as well as a pension.
But in 2009, when authorities discovered the man had worked as an informer for the Stasi while in prison, they demanded that he return the €18,000 he had received in compensation, as well as €13,000 in accumulated interest. The former prisoner maintained that he had been forced into becoming a spy.
Friday's ruling by the Constitutional Court in Potsdam, Brandenburg, overturns a decision by a lower court to deny the man the right to a personal hearing to argue his case.
The case has sparked questions about how to deal with the almost 200,000 so-called "unofficial" Stasi collaborators, known in German as "Inoffizieller Mitarbeiterinnen" - some of whom subsequently moved to western Germany where they received state support.
Many East Germans were coerced into becoming informers, with authorities threatening and in some cases torturing those who refused. Others, however, volunteered to help the Stasi, either in the hope of accruing favours from the Communist Party or simply because they believed in Communism as an ideology.
"These kinds of cases are complex. That's why it's important that courts and authorities tasked with rehabilitation look at these cases on an individual basis and bring in outside expertise," Petra Morawe, a rehabilitation consultant, told the Märkische Allgemeine. "At the end of the day, there aren't that many cases, so having a hearing isn't unreasonable."
The man in question successfully argued that authorities should not have been able to make the decision to take his money away without first giving him the chance to fight his case.
The ruling by the Constitutional Court affords victims of the East German regime who were later found to be spies a constitutional right to a make personal appeal against the loss of compensation payments.
The case represented a moral as well as legal grey area. "Of course the kind of psychological pressure was different from that outside of custody," historian Tobias Wunschikas, who works at the Stasi archives in Berlin, told the Märkische Allgemeine.
However he conceded that some East Germans chose to help the Stasi. He believes such cases need to be processed individually and that all available sources need to be considered.
At least five percent of prisoners in East Germany are thought to have become Stasi spies.