The report, written by venture capitalist Adrian Beecroft, claims that the current employment laws undermine economic growth and competitiveness.
Under these laws, workers are allowed to “coast along”, secure in the knowledge that their employers are reluctant to dismiss them.
It says, “A proportion of employees, secure in the knowledge that their employer will be reluctant to dismiss them, work at a level well below their true capacity; they coast along.”
The document, commissioned by David Cameron, had already received support from the Chancellor and Downing Street, but is most likely to face strong opposition from some Liberal Democrats and trade unions.
Mr Beecroft said in the report, “The terrible impact of the current unfair dismissal rules on the efficiency and hence competitiveness of our businesses, and on the effectiveness and cost of our public services.
“The rules both make it difficult to prove that someone deserves to be dismissed, and demand a process for doing so which is so lengthy and complex that it is hard to implement.
This makes it too easy for employees to claim they have been unfairly treated and to gain significant compensation.”
The writer also stressed that managers were often forced to offer under-performing staff a large settlement in order to avoid costly tribunal rulings.
He says that the unfair dismissal rules made employers “reluctant to dismiss unsatisfactory employees and they “therefore accept inefficiency that they would not tolerate if dismissal of unsatisfactory employees was easier.”
The new policy is said to ease staff problems for small and medium sized businesses, which lack human resources departments and experts who deal with tribunals
However, the report stresses that regulations preventing dismissal on the grounds of a person’s gender, race or sexuality will not be affected.
Mr Beecroft also stressed that simply scrapping the unfair dismissal law would be “politically unacceptable” and has suggested a replacement regulation called ‘Compensated No Fault Dismissal.’
This regulation will allow employers to sack unproductive staff with redundancy basic pay and notice.
The capitalist is aware that employers may take advantage of this new regulation by dismissing staff simply because they dislike them.
He said, “While this is sad I believe it is a price worth paying for all the benefits that would result from the change.