Workers face a drastic cut in how much compensation they can win in unfair dismissal cases but "fire at will" reforms are being officially abandoned, Vince Cable is to confirm.
Company bosses will, however, be given stronger legal protections to get rid of under-performing staff under a shake-up of employment laws.
The Business Secretary will announce 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.
Mr Cable 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 package and also incentivises bosses to offer 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% receive more than £30,000 and 1%-2% 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.
Mr Cable said he was "trying to strike a balance" between helping employers and protecting employees. He told ITV1's Daybreak: "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 added: "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."