The government's claim that the 90-day trial period for workers was boosting employment has been shown to be a fabrication, Labour Party leader Andrew Little says.
A report commissioned by Treasury said 90-day trials had not significantly stimulated employment or helped struggling job-seekers.
Read the Treasury-commissioned report here. (PDF, 899KB)
The trial period, which came into force for small firms in 2009, allows employers to fire new staff within the first 90 days without giving a reason, and without facing legal action for unfair dismissal.
The government argued the system would create more jobs by encouraging businesses to take a chance on new employees who otherwise may not have been taken on.
The government extended the policy to all companies in 2011, and the Labour Minister at the time, Kate Wilkinson talked up its success.
"An independent report has suggested it's responsible for about 13,000 new jobs and we have anecdotal evidence from employers who say 'well actually we wouldn't have taken on this particular person if it hadn't been for the trial period.'"
But the Treasury report found no evidence that hiring had significantly increased because of the policy and no evidence that firms were more likely to employ disadvantaged job seekers such as recent immigrants or people under 25.
Labour leader Andrew Little said he was not surprised.
"All the claims that the government has made consistently that this was all about creating jobs was complete fabrication ... all it's done is add a level of unfairness," Mr Little said.
After the report was published, Workplace Relations Minister Michael Woodhouse said the 90-day trial was never intended to boost jobs.
"The policy wasn't put in place to materially increase the number of jobs in the economy ... and for that reason, the report is actually of reasonably limited use in assessing the successful outcome or otherwise of the trial periods," Mr Woodhouse said.
"The policy effect of increasing the number of jobs in the economy was never a material part of the 90-day trial."
Mr Little said Mr Woodhouse was making a mockery of his government.
"Well if Michael Woodhouse thinks that the law change was not about creating jobs then he has now just denounced the last eight years of every other employment minister or labour minister the National government has thrown up.
"The whole argument was this would help us create jobs especially for young people."
United Future supported the government's 90-day trials and its leader Peter Dunne said he was surprised by the report showing it to be largely ineffective.
But Mr Dunne said he did not regret voting for it.
"No I don't, I think it was a bill that enabled certain people to get employment and get a start in their career that's good.
"If it hasn't been as effective as its proponents claimed - but equally it hasn't been as disastrous as those antagonistic to it claimed either ... if it's not actually a dramatic piece of legislation one way or the other I suspect it will gradually fall into disuse."
The 90-day trial was described as the fire-at-will law by unions and opposition politicians who feared businesses would take advantage of workers.
However, the Treasury report found for firms that use the trial period "dismissals within the 90 days are relatively infrequent".
ACT Party leader David Seymour said that was important.
"This is an enormous defeat for the unions, the Labour Party and the Greens because they told us that this would be the end of the world as we know it.
"What the report's shown is that there's been no exploitation as a result of this law and it also says that actually there have been some minor improvements in industry's, such as construction, where the law is more relevant."