Workers will have to pay legal fees if they want to sue their employer for unfair dismissal, George Osborne has announced.
Speaking at the Conservative Party conference in Manchester on Monday afternoon, the chancellor said employees would only get the money back if they won their case.
Under the proposals workers would also only be allowed to claim unfair dismissal once they had been in a job for two years - an increase on the current 12 months.
"We respect the right of those who have spent their whole lives building a small business not to see that achievement destroyed by a vexatious appeal to an employment tribunal," he said.
"So we’re now going to make it much less risky for businesses to hire people."
He added: "I can tell you today we are going to introduce for the first time ever a fee for taking a case to a tribunal that litigants only get back if they win...we’re ending the one-way bet against small business."
Following Osborne's speech Lib Dem business secretary Vince Cable said that unfair dismissal rules were a major barrier to firms taking on more people.
“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," he said.
And Phil McCabe, from the Forum for Private Business, said that while employment rights had to be protected, small business were being hurt by unfair claims against them.
"We know from our members that they are extremely frustrated in their recruitment plans and are effected by even just a few instances of vexatious claimants," he said.
"Something had to be done to control that and this is one step in order to do that."
But Len McCluskey, Unite general secretary, said the change to employment law showed the government had "no care or concern" for the lives of working people.
"How will attacking workers' ability to secure justice create one single job? All it will do is create a hire and fire culture where bad employers cannot be challenged," hesaid.
"When will this government understand that there is not a culture of ‘vexatious’ claims? Proper checks and balances are in place to root out those cases. The vast majority of workers pursuing unfair dismissal are found to have valid claims."