Plans to toughen up laws on sexual harassment in the workplace will be watered down after a compromise was reached between the Government and Conservative peers.

The Worker Protection (Amendment of Equality Act 2010) Bill will no longer make employers liable for harassment of their employees by third parties and the duty on employers to prevent sexual harassment will also be weakened.

The changes come after Conservative peers had raised concerns about free speech and employers becoming at risk of costly lawsuits, threatening to choke the Bill’s progress through Parliament.

During committee stage in the House of Lords, the Government accepted the need for compromise in order to ensure the Bill’s passage and indicated the two amendments tabled by Tory peers would be added into the final version.

Communities minister Baroness Scott of Bybrook said: “We hear the level of concern that has been raised around the reintroduction of third party harassment.

“Whilst the Government does believe that it is important that workers are protected against this form of harassment, having heard the debate, I recognise that there are strongly held views held by those who have spoken.”

On the second amendment, which weakens the duty on employers to prevent sexual harassment by changing the requirement from taking “all reasonable steps” to simply taking “reasonable steps”, Lady Scott said: “While it could be said that the duty to take reasonable steps is a lower bar than all reasonable steps, it has to be remembered that this will be a new duty which has not existed before.

“And as such, a duty to take reasonable steps is still an improvement for employees in respect of sexual harassment compared to the state status quo.”

She confirmed the Government would seek to accept the amendments at report stage.

The amendments proposed today will change and ultimately attenuate the provisions of this Bill. However, I'm a firm believer of not allowing the perfect to become the enemy of the good.

Conservative peer Lord Hannan of Kingsclere, who had tabled the amendment on employer liability for harassment of employees by third parties, expressed his satisfaction with the compromise, saying: “This is what we are here for.

“Finding these compromises and I think we have done so on this issue.

“It goes too far for some of us and not far enough for others, but all sides can at least live with it.”

The other amendment was tabled by Tory peer Baroness Noakes, who told peers: “Let me just reiterate that this is not intended to water down what is currently in the Equality Act, where employers are responsible for the acts of employees in relation to harassment unless they have taken all reasonable steps.”

She added: “All reasonable steps seems to imply an almost infinite number of steps that employers could take.

“And we have to think about the impact on employers and in particular, small businesses, who struggle to cope with things like that.”

The Bill’s sponsor in the Lords, Liberal Democrat Baroness Burt of Solihull, said: “The amendments proposed today will change and ultimately attenuate the provisions of this Bill.

“However, I’m a firm believer of not allowing the perfect to become the enemy of the good.

“Whilst it’s disappointing that the Bill sent to us would be changed by these amendments, I recognise the need for compromise to retain its core purpose while allowing it to progress.”

The Bill has already cleared the House of Commons and will return to the upper chamber at a later stage.

The Trades Union Congress (TUC) said the concessions “let down working women”.

General secretary Paul Nowak said: “Ministers promised to bring in new laws to tackle sexual harassment at work by customers and patients.

“It is disgraceful that they’ve given in to Tory backbenchers and let down working women across the country.

“Every day we hear stories about sexual harassment in our workplaces.

“Many women in frontline jobs – like shop workers and GP receptionists – suffer regular abuse and harassment from patients and customers.

“This new law could have put the onus on employers to keep their staff safe from this type of abuse. They have abandoned working people – again.”