Mr Lang is preparing a compromise plan to preserve employees' rights, but to provide arbitration, to cut the number of cases going to industrial tribunals.
Mr Heseltine's defence of late payments to small businesses was also rejected by Mr Lang with the backing of the Prime Minister, who announced a package of measures to encourage firms to pay their bills on time.
The Government has rejected the idea of legislation to force firms to pay interest on late payments, but John Major announced government depart- ments will be asked to set an example by paying their bills promptly to small business.
Stephen Byers, the Labour spokesman, said: "It has been a bad day for Heseltine. He has clearly lost out in the battle over employees' rights, and Major has rejected his approach to late payments."
The use of aribtration was seen at Westminster as a clever move by Mr Lang to tackle the problem caused by too many cases going to expensive industrial tribunals. Another Labour source said: "We have been looking at stepping in before cases go to industrail tribunals. It is a bit like the step before going into divorce, by seeking reconciliation."
Ministers are studying the possibility of using the arbitration service, Acas, to conciliate before cases go to tribunals.
Mr Heseltine had proposed to deny millions of employees of small firms the legal right to take their bosses to a tribunal for compensation, a move designed to ease the administrative burden on small firms.
Unveiling a package of new measures to help small firms, Mr Lang said there were "no serious differerences" between him and any of his colleagues.
Mr Lang added: "What we are seeking to do is to reduce the burden on businesses - and indeed on employees - that industrial tribunals now create.
"I think that we can achieve a conciliation and arbitration service that will help reduce this very considerably - without in any way undermining the interests either of the employer or the employee."
Mr Major said the government would look at whether big companies should be forced to publish data on how late they paid their bills, rather than the present requirement - introduced only in January - to report on their policy for payment.
Ministers are considering publishing "more rigorous" league tables of the payment performance of departments and looking at extending this to local authorities.
The Lord Chancellor is to announce improved ways for small businesses to collect debts after court orders. The Prime Minister also announced a review aimed at streamlining government support for small business.
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