Vince Cable warned that controversial "fire at will" proposals would "scare the wits" out of workers before the plans were even published yesterday.
The Business Secretary's remarks highlighted deepening divisions between the Liberal Democrats and their Conservative Coalition partners over the issue.
LibDem MPs lined up to attack the proposals by venture capitalist and Conservative party donor Adrian Beecroft, which were condemned by the STUC as an "attack on employee rights". But Conservative MPs and business leaders defended the recommendations, warning reform was necessary because business red tape was costing thousands of jobs.
The Beecroft report has gained almost mythical status in recent months after ministers refused to publish its contentious proposals.
Last night the Coalition admitted that among Mr Beecroft's suggestions was the introduction of a so-called "no-fault dismissal".
The report also recommends that small businesses be allowed to opt out of laws on unfair dismissal, the right to request flexible working (other than for parents and carers), flexible parental leave and equal pay audits.
Mandatory 90-day consultation periods for redundancies should also be cut to 30 days, or even five days if a company is particularly struggling, it proposes.
Even before the report was released Mr Cable had condemned no-fault dismissal.
"Britain has already got a very flexible, cooperative labour force. We don't need to scare the wits out of workers with threats to dismiss them," he said.
"It's completely the wrong approach."
LibDem peer Lord Oakeshott, a close ally of Mr Cable, described the idea as "frankly, the economics of the madhouse". David Cameron said he was not "wedded" to the reforms. But last night the report was backed by members of his party who said the laws governing hiring and firing were affecting jobs.
Adam Marshall, from the British Chambers of Commerce, said the proposals could encourage firms to hire more staff. "We are not saying that businesses should be able to 'fire at will', but the fear of not being able to dismiss a troublesome employee prevents many businesses from recruiting," he said.
Mr Cable himself avoided having to defend the Beecroft report in the House of Commons after Labour was granted an urgent question on its contents.
His department said the Business Secretary was on his way back from an engagement in the north of England, leaving junior minister Mark Prisk to face MPs. He emphasised the more controversial parts of the report were part of a consultation process not due to end until next month.
But Labour sought to exploit the differences between the Coalition partners, accusing ministers of presiding over a "complete and utter shambles". The party also warned that the proposals could backfire and endanger growth because workers would have less confidence in their future.
Labour's Shadow Work and Pensions Minister Anne McGuire also said no-fault dismissal would take the UK back to a time of "allowing people to be dismissed because someone doesn't like the look of their face."
Labour leader Ed Miliband called for an economy "based on long-termism, investment and training, not the short-term, fast-buck, take-what-you-can culture that caused the financial crisis in the first place".
Ian Tasker assistant secretary of the STUC, said: "This is just an attack on employment rights, specifically the idea of no-fault dismissal."
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