The pay changes will be phased in within three years
A Greater Manchester council sent letters to 4,000 workers telling them they would be sacked unless they accepted a new pay structure.
Bury Council sent the notices to staff on Tuesday telling them they would be dismissed and re-hired under new terms.
The authority has been forced to review its salaries to comply with a national local government equal pay agreement.
The council has now told trade unions it has rescinded the notices of dismissal and will resume talks.
Chief Executive Mark Sanders said the letters were part of the "process" of implementing the new structure.
All local authorities have had to carry out a pay review as part of the drive for equality in local government and Bury announced its changes in August.
It left more than 1,000 council workers facing pay cuts of up to 25% - or up to £7,000 in some cases - although some staff would get salary rises.
Discussions with the union Unison subsequently broke down. The letters were sent out on Tuesday.
Unison regional manager Chris Jenkinson said: "Sending such a letter when workers had just returned from the festive break was a callous act.
"This is indicative of an uncaring council that fails to value its staff and the quality public services that they deliver to local communities."
Mr Jenkinson said the council had now agreed to rescind the notice of dismissal and enter into talks with the union, after it contacted lawyers.
'Part of process'
He added: "We have always been seeking talks and we are now pleased to see that the council has agreed to them, although it is regrettable that the council has had to be brought back to the table and that such a large amount of time and money has been wasted unnecessarily."
Chief executive Mr Sanders said the letters should not have come as a surprise to Unison or its staff.
"It's been part of our programme to ensure that by 31 March this system is properly implemented," he told the BBC.
"Unison are aware of that time frame, staff are aware of that time frame and indeed we have written on a number of occasions and talked to staff about what that is, how it would take place and why it is taking place in the way that it is."