The number of employment tribunal hearings has soared 35% this year and will continue to rise rapidly next year, according to Manchester-based law consultant Peninsula.
New legislation, such as the working-time directive and the minimum wage, has caused a huge surge in the number of cases in which employees take their employers to tribunal.
Peninsula handled more than 3,800 cases to the end of November this year, compared with 2,847 last year. Unfair dismissal cases have almost doubled in number in two years, up from 548 in 1997 to 923 this year.
Peninsula believes these figures are reflective of the country as a whole. But the situation is likely to worsen for employers as the Government continues to introduce more red tape, warned managing director Mike Huss.
"You will see tribunals covering parental leave, time off for emergencies and so on, measures which will be introduced over the next 12 months or so," Huss said.
Moreover, owner-managers of businesses with 21 or more employees will have to recognise trade unions after Easter next year if a majority of the workforce demands it.
Huss added that many small businesses could face ruin in the new litigious environment. Failure to pay the minimum wage, for example, can result in hefty fines for employers.
"Realistically, the fines could mean the end of a small business," he said.