A fee for bringing an employment tribunal will be charged for the first time from April 2013, Chancellor George Osborne has announced.
There will be a refund for any individual who wins their case.
The amount that will be charged and how it should be paid will be subject to consultation starting by the end of November.
There is currently no fee for an applicant who wants to make an employment tribunal claim.
The low-paid, or those without an income, may also have the fee waived or reduced at the start of the process, under the new scheme.
"We are ending the one way bet against small businesses," Mr Osborne told the Conservative conference in Manchester.
The chancellor also confirmed that, from April 2012, the qualifying period for a claim for unfair dismissal will be that the individual must have been in the job for at least two years.
At present they only need to have been working for one year.
"We respect the right of those who spent their whole lives building up a business, not to see that achievement destroyed by a vexatious appeal to an employment tribunal. So we are now going to make it much less risky for businesses to hire people," Mr Osborne said.
Last year there were 236,000 employment tribunal claims - of which only some were unfair dismissal claims, with an average award for successful complainants of £8,900.
Under Mr Osborne's plan, workers will still be able to take action immediately if they suffer discrimination, but by reducing the risk of tribunals for unfair dismissals the government hopes bosses will feel more confident about hiring people.
The GMB union has criticised the plan.
"The very notion that reducing the rights of workers of between 12 months and two years service to bring unfair dismissal claims will create a single new job is quire frankly absurd. Job creation is not the real reason the Tory party want to take away these rights," said Paul Kenny, general secretary of the GMB.
TUC general secretary Brendan Barber said the move was a "charter for bad bosses".
However, business lobby the CBI, welcomed it.
"We have been urging the government to do everything it can to make it easier for firms to grow and create jobs, and this will give employers, especially smaller ones, more confidence to hire," said director general John Cridland.
In 2010-11 the cost to the taxpayer of running employment tribunals and the Employment Appeal Tribunal in England, Wales and Scotland was more than £84m, according to the Ministry of Justice.
The Treasury said that more than 80% of applications made to an employment tribunal did not result in a full hearing.
Almost 40% of applicants withdrew their cases, but employers still had to pay legal fees in preparing a defence. More than 40% settled out of court and there was no record of how much applicants settled for, it added.
Martin Edwards, employment law expert at law firm Weightmans, said: "The changes may have mixed results. Someone who has not worked long enough to claim unfair dismissal may claim they are a whistleblower or a victim of discrimination instead, causing employers even more hassle than before.
"But people who have to pay to bring a claim may regard that as a significant disincentive to litigating a dispute."