COALITION plans to overhaul employment law, including cutting compensation for unfair dismissals, would allow bosses to "exploit, bully and discriminate against their workforce", union leaders have warned.
In contrast, business leaders welcomed them as a means of reducing the fear of small firms taking on staff only to be later taken to an industrial tribunal.
Business Secretary Vince Cable said contentious US-style "fire at will" proposals had been dropped but explained how companies would receive stronger legal protections to pay off under-performing staff.
He is planning to introduce so-called "settlement agreements" in which staff agree to leave without being able to go to a tribunal yet still get a payoff.
"Our starting point is that Britain already has very flexible labour markets but we acknowledge that more can be done to help small companies by reducing the burden of employment tribunals, which we are reforming, and moving to less confrontational dispute resolutions through settlement agreements," Mr Cable explained.
However, one key proposal he is to consult on is cutting the cap on payouts for unfair dismissal from £72,300 to a year's pay.
The Coalition's political opponents raised fears that the changes would open the door to greater exploitation of workers.
Labour's Chuka Umunna said: "Ministers should be making it easier to hire, not easier to fire people. Sacrificing people's rights at work is not the way to bolster consumer confidence and get our economy moving."
Mike Weir, the SNP's business spokesman, said: "In a department now dominated by the Tories, Vince Cable has clearly got the zeal of the convert.
"His plans to cut the compensation people can hope to get for unfair dismissal are an attack on workers. These proposals illustrate again how a Tory-led Government in Westminster is making decisions that people in Scotland did not vote for."
Chris Keates, of the NASUWT teaching union, said: "While the 'fire at will' proposal has been watered down, the remaining proposals represent an unprecedented and unacceptable attack on the employment rights of teachers and other ordinary working people.
"The LibDems should be ashamed to be associated with the introduction of measures which give employers licence to exploit, bully and discriminate against their workforce."
In contrast, Stephen Robertson, director-general of the British Retail Consortium, welcomed what he called a "measured approach which both preserves vital employee protections and eases unnecessary and unhelpful burdens on employers".
He said the announcement was a "fair balance, rejecting no-fault dismissals, a proposal retailers did not support" and would "help us as we expand opportunities for more people, especially young people".
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