The anti-strikes bill has been branded "shoddy and unworkable" after an independent watchdog ruled the impact assessment of the policy was "not fit for purpose".
The Regulatory Policy Committee (RPC), a panel that analyses new laws, said ministers have not considered all the effects of its controversial Minimum Service Levels Bill and has not backed up its assumptions with evidence.
The legislation seeks to ensure a legally mandated level of service across key sectors like the NHS, and will allow bosses to fire employees who ignore notices ordering them to work on strike days.
Unions and Labour fiercely oppose the bill, which they say is an attack on the right to strike.
The legislation has passed through the Commons and is now facing scrutiny in the House of Lords.
The RPC criticised ministers for not submitting the impact assessment (IA) of the legislation before it was debated by MPs - as is required under the government's "own policy for timely submission".
The watchdog said it received the assessment several weeks later and what was produced was not good enough - resulting in a "red rating".
"The RPC found that the IA is not-fit-for-purpose and, therefore red rated," it said.
The body said the rating "reflects the insufficient assessment of the impacts of the bill on small and micro-businesses".
Labour called it a "damning judgement by independent experts on the government's 'Sacking Nurses' Bill".
Deputy leader Angela Rayner said: "Tory ministers have failed utterly to do due diligence on this shoddy, unworkable policy, breaking their own rules and failing to provide evidence for their claims.
"Clearly the government is trying to hide the severe and disproportionate impacts its legislation will have on small businesses.
"It's little wonder they're trying to rush this legislation through parliament because not one bit of it stands up to scrutiny. This is a complete dereliction of ministerial duty."
Ministers 'should drop bill entirely'
Pat Cullen, chief executive of the Royal College of Nursing (RCN), said: "This is a damning assessment of the government's attempt to stifle the rights of workers. The independent committee is saying it is not fit for purpose and should essentially go 'back to the drawing board'.
"The government is ploughing ahead with an ill thought through bill that allows for nursing staff to be sacked for taking otherwise lawful strike action.
"Ministers would be better listening to the mounting opposition, drop the bill entirely and work with unions to resolve these disputes."
The government has insisted the legislation - being tabled at a time of widespread action across the public sector - hits the right balance between the right to strike and ensuring public safety during walkouts.
The RPC noted that while work notices have been proposed to stop employees from striking to ensure minimum service levels, the IA "does not consider these impacts in any detail".
It said the government "must ensure that all direct business impacts (including those to trade unions) have been clearly identified and discussed" and called the cost-benefit analysis of the policy "weak".
A Downing Street spokesperson said further impact assessments on the bill will be published by the government.