Business Secretary Vince Cable will announce that "no-fault dismissal" proposals are being dropped after a lack of support for the idea among the business community.
Workers instead face a drastic cut in how much compensation they can win in unfair dismissal cases, the Business Secretary will confirm today.
Company bosses will be given stronger legal protections to get rid of under-performing staff under a shake-up of employment laws.
Mr Cable has made no secret of his opposition to the recommendation, which many Tories backed, but aides were keen to stress the proposal was being ditched because there was "no significant evidence" that it would help employers.
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.