Stephanie Villalba lost a claim for �7.5m against Merrill Lynch in 2004

It follows the publication of figures which show the number of employment tribunals has increased.

Two years ago it was deliberately made harder for individuals to take their employers to a tribunal hearing.

But this year there has been a 30% rise - to 115,000 - in the number of cases being heard, with ministers now saying the system should be improved.

Trade and Industry Secretary Alistair Darling said the system should be made to work better for both employers and their staff.

"By reducing the number of disputes, and resolving those that do happen more quickly, we can raise the UK's productivity and ensure better employer relations," he said.

"We can also cut the cost of dealing with disputes, which can be substantial," he added.

Red tape

We welcome this fundamental review of the system which is still not working two years on from the last attempt to improve it John Cridland, CBI deputy director-general

The review, led by a former Powergen executive Michael Gibbons, will include employers' organisations, trade unions and other interested bodies.

Its recommendations will be submitted to the government next Spring.

The announcement was welcomed by the employers' organisation the CBI.

John Cridland, its deputy director-general, said employers lacked faith in the system.

"We welcome this fundamental review of the system which is still not working two years on from the last attempt to improve it," he said.

"The statutory discipline and grievance procedures have not improved dispute resolution - rather they have added to red tape and have elevated process over the merit of a case."

The CBI's own study of the issue, published in 2005, found that many small firms settled claims even when they had legal advice that they might well win.

As a result 45% of firms felt the system was ineffective, with half of all firms saying they had been faced with more claims that were either weak or vexatious.