An influential group of City grandees, led by Sir Michael Snyder, has told ministers that employment law must be overhauled, with tribunal awards for discrimination cases capped at £50,000.
At present, an employee who successfully sues for discrimination, be it racial, sexual orientation or gender, can get unlimited awards. There is a growing belief that this has led to employees without genuine grievances making discrimination claims.
Sir Michael, the former City of London Corporation policy chief, chairs the Government's professional services group. Christopher Satterthwaite, the chief executive of Chime Communications, Ian Powell, the chairman of PricewaterhouseCoopers and Steve Ingham, the chief executive of Michael Page International, are among the members of the 25-strong group.
It is understood that the issue has been discussed with a number of members of the coalition, including Chancellor George Osborne, the Business Secretary, Vince Cable, and the employment relations minister, Ed Davey. Mark Prisk, the business and enterprise minister, regularly attends the group's meetings.
Sir Michael said: "At present, claims for discrimination are occurring with monotonous regularity in situations that are clearly spurious. We also need to avoid excessive pre-tribunal settlements that some commentators have described as 'legalised extortion'."
The group has also suggested that should an employee lose a discrimination case, then they should pay some of the employer's legal costs, which can typically be about £35,000. The proportion could be just a small part of the employee's annual salary – not enough to put someone off making a genuine claim, but meaning that there is a financial risk in taking action with no grounds.
The group is also pressing for a slight reduction in the cap on all other employment tribunal compensation awards to £50,000. There is concern that employers do not have appropriate guidelines to deal with employees who sign off with stress, which means that they are unable to contact staff during this absence.
Sir Michael said: "I think that it is really important that we take this opportunity to get the employment laws and supporting regulations and practices so that they are fair to employees, but release employers and staff from ridiculous burdens and, frankly, unpleasant-to-operate process that benefits neither party."
The group is powerful, as when all professional services are clubbed together, the industry is the biggest in the UK. It has influenced aspects of the Bribery Act and the coalition's plans for an immigration cap.
Sir Michael, who is the senior partner at Kingston Smith chartered accountants, is understood to have told Mr Osborne last year that proposals to cut the number of skilled non-European Economic Area workers in the UK by half from 200,000 was deeply flawed.
He argued that the policy would hurt the economy and lead to a further brain drain as multinationals would relocate to countries where they would be allowed to hire the best people, regardless of their nationality. Shortly afterwards, the Government altered the policy.
Other current concerns are understood to include the amount of European Union regulation, which members believe could benefit rival financial centres such as Geneva to the detriment of the City, and the high level of corporation tax.
The group meets four or five times a year and is occasionally attended by Cabinet ministers, notably Mr Cable. There were fears that the group would lose its power after the general election last May, as it was established by Lord Mandelson under Labour Party rule.