Trade Unions have reacted angrily to proposals set to come into force that will limit the amount employment tribunals can pay out in unfair dismissal claims. The new rules have been condemned as "punishing" victims of ill-treatment at work.
The changes are due to come into effect this summer, alongside a statutory code of practice which will include an explanation of improper behaviour.
Employment relations minister Jo Swinson said in a statement there were no plans to change the compensation limit of £72,000, but maintained that a 12-month cap would provide greater certainty about the maximum liability that can be paid in an unfair dismissal claim.
Swinson said: "We are committed to finding ways to support both businesses and employees when a working relationship breaks down.
"Employment tribunals are costly for everyone, in terms of money but also time and stress. We need to tackle unrealistic expectations about the levels of compensation awards, especially when only one in 350 people who make a claim for unfair dismissal receive an award of more than their own salary, and the average is less than £5,000."
The Trade Union Congress's (TUC) general secretary Frances O'Grady said: "Limiting the amount of compensation victims can get for unfair dismissal to one year's salary will let bad employers off lightly and deter victims from pursuing genuine claims.
"People who have been unfairly dismissed have had their rights breached and deserve compensation that reflects their loss of earnings and length of service. This arbitrary 12-month cap fails to do that and ignores the fact that losing a job, particularly in today's harsh economic climate, is a major blow.
"The government has already made it harder for people to pursue unfair dismissal claims - by increasing the qualifying period to two years and introducing fees for employment tribunals - now it wants to prevent people who've been wronged from getting fair compensation."
Unite's general secretary Len McCluskey added that the changes were "part of a joined-up attack on workers' rights on a scale not seen in decades".
"The truth is that the coalition is turning ordinary hard-working people into scapegoats for the government's disastrous handling of the economy. This government is trying to blame our hard won rights at work for Britain's economic problems. Worse rights at work will not prevent a triple dip recession or create a single job."
Business groups have broadly welcomed the measures. Neil Carberry, the Confederation for British Industries's director of employment and skills, said delays in the current tribunal system are the single biggest confidence killer for firms wanting to grow.
"No one wants disputes to end in tribunals, particularly small businesses, so the system needs to promote early settlement more actively," he said. "The current cap on unfair dismissal payouts is many times higher than the average sums awarded, giving workers unrealistic and inflated expectations of what a claim is worth.
"It's right that the new cap is linked more explicitly to an employee's earnings. This will give businesses clarity about the potential costs and will scrap the perverse incentive for workers not to settle in the hope of getting a higher award."
Dr Adam Marshall of the British Chambers of Commerce added: "The proposed cap will make employers more confident in recruiting and also in defending themselves, if accused of ending employment unfairly. However, given how few people earn £72,300, we question the merits of maintaining this damaging headline figure."
The government has also launched a consultation on reforming TUPE, the legislation which protects workers' rights when they transfer to a new employer. A new independent assessment service was also launched aimed at helping firms tackle long-term sickness absence.
The business secretary Vince Cable came under fire last year when the proposals were first mooted.
Labour's 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 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," he said.