New mothers will be able to share leave with their partners and all workers will have the right to flexible hours under radical reforms.
Changes announced by Deputy Prime Minister Nick Clegg will mean mothers could return to work two weeks after childbirth and hand over their leave to the father.
Every employee in the country will also be given the right to ask for flexible hours to encourage different work patterns for parents and help more women back into work.
Mr Clegg believes that enabling relatives and friends of working parents to alter their working patterns will boost the economy.
The Government estimates around a million women are effectively locked out of employment because of problems balancing work and childcare.
The plans to allow anyone to ask for flexible hours are an extension of the rights introduced in 2009 for parents of children aged 16 and under.
They also mean that grandparents will be able to apply so that they can look after their grandchildren.
Under the changes, a mother could decide to stop her maternity leave at any point and hand over the rest of the year to her partner instead.
Parents will be able to "chop up" time between them or take time off together, as long as no more than 12 months is taken in total and no more than nine at guaranteed pay.
Fathers-to-be will also be given a legal right to take unpaid leave to attend two antenatal appointments.
Mr Clegg will claim that the plans could transform opportunities for young people who want to start a family.
"You won't get to 30 and suddenly have to choose - motherhood or work - because we're making the changes that give you a route back," he has said.
The Lib Dem leader rethought the reforms after being warned that extending paternity leave from the current two weeks would be too difficult for businesses.
Flexible leave will be reviewed by 2018 and extending paternity leave will be re-examined then, Mr Clegg has pledged.
"These are major reforms and, at a time of continuing economic difficulty, it's sensible to do them in a number of steps, rather than one giant leap," he added.
"More and more men are taking on childcare duties, or want to, and flexible leave builds on that."
A study last year of eligible parents showed 28% of women and 17% of men had asked to change their work patterns in the previous two years, with 80 to 90% of requests accepted.
At Odyssey Systems on Teesside, a telecommunications company with 30 employees, management says it has helped parents to change working hours, but extending the scheme to everyone will be a burden.
Sales director Christine Gilbert said: "We're still here because we think about customers first. To say that everybody in the whole company has to have flexible working is just going to be a massive managerial nightmare."
Adam Marshall, director of policy at the British Chambers of Commerce, believes the new proposals could cause "unnecessary friction" in the workplace and "unrealistic expectations about the level of flexibility most businesses will be able to accommodate".
But the TUC welcomed the proposals, with General Secretary Brendan Barber describing them as common sense.
He said: "These reforms will make life easier for millions of working parents. Businesses will also benefit from a more engaged workforce and a larger pool of people to recruit from."
The entitlement to ask for flexible hours will be introduced in 2014 at the earliest and employers will have to provide good reason for refusing a request.
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