Employment law reforms announced today by Vince Cable will allow company bosses to “exploit and bully” workers, unions claimed.
The Business Secretary confirmed that controversial “fire at will” proposals have been abandoned but firms are to be given stronger legal protections to pay off under-performing staff.
Workers also face a drastic cut in how much compensation they can win in unfair dismissal cases as part of the shake-up aimed at getting businesses hiring again.
Chris Keates, general secretary of the NASUWT, said: “Whilst 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 Liberal Democrats should be ashamed to be associated with the introduction of measures which give employers licence to exploit, bully and discriminate against their workforce.
“However the Coalition seeks to spin this announcement, this emphasises the contempt for working people which pervades the Coalition's policies.”
Mr Cable confirmed that “no-fault dismissal” proposals made in the David Cameron-commissioned Beecroft Report are being dropped after a lack of support for the idea among the business community.
The Liberal Democrat has made no secret of his opposition to the recommendation, which many Tories backed, but aides were keen to stress the controversial proposal was being ditched because there was “no significant evidence” that it would help employers and insisted Conservative as well as Lib Dem ministers were behind the move.
The Business Secretary wants to bolster settlement agreements - where employers can offer under-performing employees a pay off - so they become more widely used to resolve disputes.
Under the proposals if the worker accepts the deal it will become legally protected so it cannot be used later as evidence in any court case or tribunal.
Officials insist the move is fair to employees as they are not obliged to take the offer and also incentivises bosses to come up with a good package, which can include a binding promise of a favourable reference.
Mr Cable will also consult on plans to change the limit on unfair dismissal payouts to a maximum of 12 months' salary or set it at an even lower figure.
He wants to reduce the current £72,300 cap significantly in the hope of encouraging small businesses to start hiring more staff.
The Lib Dem believes the current cap deters firms, particularly small businesses, from hiring because they fear they could be landed with a big bill.
Department for Business, Innovation and Skills' figures show most cases are settled at around £5,000-£6,000 while just 6 per cent receive more than £30,000 and 1-2 per cent receive the maximum payout.
Also among the reforms are plans to giving judges powers to sift through tribunal cases before they reach court to allow them to dismiss weak cases without the need for a hearing.
Paul Kenny, GMB general secretary, said: “The steps being taken here by government, and the 'noises off' about it being easier to sack people, will have a much more profound effect on workers than employers. It will increase feelings of job insecurity and reduce the confidence of workers as consumers to commit to spending.
”Therefore it will have a dampening effect on consumer demand which will in turn further weaken the confidence of businesses who consequently will not take on workers.“
TUC general secretary Brendan Barber said: ”We are very pleased that Adrian Beecroft's proposal to allow employers to fire employees at whim has been ignored. This would have set workers' rights back decades and created huge insecurity in workplaces throughout the country.
“However, reducing payouts for unfair dismissals will let bad employers off lightly and deter victims from pursuing genuine cases. This will feel like another slap in the face following the Government's decision to bring in fees for employment tribunals.
”For all the Government's talk that helping businesses to sack poor performing workers will make them more productive this is little more than a smokescreen to erode hard-won rights. Making it easier for bad employers to get away with misconduct is not the way to kick-start our economy and will not create a single job.“
Mr Cable said he was ”trying to strike a balance“ between helping employers and protecting employees.
”People would feel intimidated if they knew that they could be fired on the spot without good reason and that is why we have said no to those proposals,“ he told ITV1's Daybreak.
”We don't want people to feel insecure, but at the same time small companies have got to feel confident that if they take somebody on they're not going to get caught up in a very elaborate, legalistic, time-consuming tribunal system.“
Shadow business secretary Chuka Umunna said: ”Ministers should be making it easier to hire, not easier to fire people. We are in a double dip recession due to this Government's failed economic policies, not because of the protections people have at work. Instead of adopting a credible plan for growth, this Government is attacking the rights of every employee in this country.
“Sacrificing people's rights at work is not the way to bolster consumer confidence and get our economy moving again.”
John Walker, national chairman of the Federation of Small Businesses said: “We welcome today's announcement because almost half (42 per cent) of our members say employment law is the most difficult area of compliance.
”It shows a balanced package of measures which will help to reduce the fear of taking on staff for small firms.
“It is good news that instant dismissal plans have been shelved. We were against this idea, believing it could create a two-tier labour market and be bad news for worker relations.
”Too many small firms don't take on staff because they fear being taken to an employment tribunal. Other firms fear facing an expensive and lengthy dismissal process. These measures will go some way to addressing the issues, improving the situation for both employers and employees alike.“
Adam Marshall, director of policy at the British Chambers of Commerce, said: ”Employers will be encouraged that the Government is taking steps to reduce the burden of the employment system and create a more flexible labour market.
“Dismissal is always a last resort, but is at times necessary to protect a business and other members of staff. The fear of malicious tribunal claims and an unnecessarily antagonistic dismissal process has a chilling effect on employment.
”We would urge the Government to move swiftly from consultation to implementation on settlement agreements and lower tribunal awards, as these proposals will boost confidence whenbusinesses on the ground can see them in action.“