The Government today claimed that changes to unfair dismissal rules could save business almost £6 million a year amid continued anger from unions over the "attack" on workers' rights.
Ministers said the qualification period for the right to claim unfair dismissal will be extended from 12 months to two years from next April, adding that the aim was to increase business confidence to take on more workers.
But the GMB union published a new study showing that most unfair dismissal claims were settled or withdrawn before getting to an employment tribunal.
Fewer than one in four claims to tribunals related to unfair dismissal in the year to March 2010, said the union, adding that extending the qualifying period would not create a single job.
Chancellor George Osborne said in his keynote speech to the Conservative Party conference in Manchester: "I know it's important to respect employment rights.
"But we also respect the right of the unemployed to get a job and not be priced out of the labour market, and we respect the right of those who spent their whole lives building up a business not to see that achievement destroyed by a vexatious appeal to an employment tribunal.
"So we are now going to make it much less risky for businesses to hire people. We will double to two years the amount of time you can employ someone before the risk of an unfair dismissal claim."
The Chancellor also announced that for the first time a fee will be introduced for taking a case to a tribunal that litigants only get back if they win, adding: "We are ending the one-way bet against small businesses."
Business Secretary Vince Cable said in a statement: "The priority of this Government is to increase growth in our economy. We have one of the most flexible labour markets in the world but there is more we can do to give British business the confidence it needs to create more jobs and support the wider economy to grow.
"Businesses tell us that unfair dismissal rules are a major barrier to taking on more people. So today we have announced that only after working for the same employer for two years can an employee bring an unfair dismissal claim."
Paul Kenny, general secretary of the GMB, said: "The very notion that reducing the rights of workers of between 12 months and two years service to bring unfair dismissal claims will create a single new job is quire frankly absurd. Job creation is not the real reason the Tory party want to take away these rights.
"The real reason is that the Tory party is increasingly being funded by asset strippers and predators who resent workers having any rights to challenge their exploitative ways.
"Tory claims are on job creation. Out of 24.2 million employees in the UK there are between 50,000 and 60,000 claims for unfair dismissal each year. That is less than one claim for every 400 workers or a claim from 0.2% of the total workforce.
"More than two-thirds of these cases get settled before they reach the tribunal. Only about 5,000 unfair dismissal claims succeed at tribunals each year. That is a successful claim for one in every 5,000 employees in employment in the UK. Successful claims attract a median level of compensation of £4,900."
Dr John Philpott, chief economic adviser at the Chartered Institute of Personnel and Development, said: "While watering down unfair dismissal rights is seen as a way to boost recruitment and improve job prospects for young people and the long-term unemployed, the short-run impact will be limited by the overall weak state of the labour market, while in the long-term any positive effect on hiring is likely to be offset by a corresponding increase in the rate of dismissals.
"The vast weight of evidence on the effects of employment protection legislation suggests that while less job protection encourages increased hiring during economic recoveries, it also results in increased firing during downturns. The overall effect is thus simply to make employment less stable over the economic cycle, with little significant impact one way or the other on structural rates of employment or unemployment."
John Cridland, the CBI's director general, said: "Extending the qualifying period for unfair dismissal is a very positive step.
"We have been urging the Government to do everything it can to make it easier for firms to grow and create jobs, and this will give employers, especially smaller ones, more confidence to hire."
The fee for going to an employment tribunal will be levied in all cases, while the two-year qualification relates only to claims of unfair dismissal, said Treasury aides.
Workers will retain protection against discrimination on grounds of race or gender "from day one" of their employment.
The Government will consult on the level of of the fee to be charged from April 2013, which is expected to be around £150-£250 to launch a case and upwards of £1,000 if it goes to a hearing.
Higher fees could be charged where litigants are seeking £30,000 or more in compensation, and the fee would be returned only if the case was successful.
Mr Osborne's aides acknowledged that the policy would be "controversial" and that he would face accusations of letting down people who suffer racial or sexual discrimination at work.
But they said that allaying employers' fears of vexatious tribunal cases should make them more willing to take on staff, including women and members of ethnic minorities.
There were 236,000 employment tribunal claims last year, with an average award of £8,900 for successful claimants and an average cost of £4,000 for businesses defending cases.
Employment tribunals and appeals are currently free to complainants, but cost the taxpayer in England, Wales and Scotland more than £84 million a year, according to Ministry of Justice figures.
Almost 40% of applicants withdraw their cases, but employers still have to pay legal fees to prepare a defence, said Conservatives.
More than half (51%) of businesses taking part in an Institute of Directors survey said that the one-year qualifying period for claims was a significant factor when they considered taking on a new member of staff.
TUC general secretary Brendan Barber said: "Making it easier to sack people without any reason is simply a charter for bad bosses. This will do nothing to boost growth and will not create a single extra job.
"It will also deny the majority of young people in work any redress from unfair dismissal, at a time when youth unemployment is rising again.
"Introducing fees for employment tribunals will particularly penalise low-paid workers who have not been paid or not received the minimum wage.
"If the Chancellor was serious about jobs, he would be announcing new investment in infrastructure and help for the young jobless."
Victoria Phillips, head of employment rights at trade union law firm Thompsons, said: "This is a complete sop to the business lobby and gives employers the green light to employ staff for one year and 11 months before getting rid of them, and all to save less than £6 million.
"The Government has conceded that it will only reduce claims by 2,000 a year, so there is absolutely no justification for it. It isn't about cutting red tape, it's about making it easier to sack people.
"Coupled with the introduction of employment tribunal fees - a chilling proposal which means a large number of people won't be able to enforce their rights - this is another vindictive attack on vulnerable people which has nothing to do with flexibility but about pandering to the vested interests of employer bodies."
Steve Radley, director of policy at the Engineering Employers Federation, said: "Business will welcome any commitment by the Government to reducing the burden on employers from employment legislation.
"However, on its own, whilst it may make a marginal difference, it has to be placed in the much bigger context of reducing the overall burden on business, especially with some big ticket items still in the pipeline.
"It is less the qualifying period that inhibits employers, rather the overly complex procedural obligations necessary to establish a 'fair' dismissal regardless of the time period involved.
"This is of particular concern in relation to cases of poor performance/capability which is likely to be an increasing issue in the case of an ageing workforce."
John Walker, chairman of the Federation of Small Businesses, said: "The Chancellor has announced some welcome measures to help small businesses, including doubling the amount of time a member of staff has before they can take their employer to unfair dismissal tribunal.
"However, it is difficult to regard the Conservative party as the party of small businesses only two days after it introduced a raft of new and costly employment regulations which will hinder small firms' growth plans and burden them with yet more red tape."