Mr Hoyle said people who lose their jobs need more help
A backbench move to increase payoffs to people who are made redundant has cleared its first Commons hurdle.
Lindsay Hoyle is backed by 149 fellow Labour MPs in his bid to link statutory redundancy pay to average earnings.
But he accused government whips of using "shameful" tactics to block his private member's bill in the Commons.
Minister Pat McFadden said he had sympathy with the bill's aims but said it would be too costly on firms already facing pressures during the recession.
The bill was given a second reading by 85 votes to 17 - although it could be killed off later in its detailed committee stage.
Labour MPs turned out in force to back Mr Hoyle's bill - which has attracted support from 185 MPs across all parties.
Currently employers have to offer a week's pay for each full year's service to people aged 22 to 41 - older workers get a week and a half's pay per year.
But the statutory payment is capped at a maximum of £350 a week for up to 20 years - limiting compulsory payouts to £7,000, or £10,500 for older workers.
Mr Hoyle argues the value of the payout has decreased in value as the cap is linked to inflation - via the retail price index (RPI).
Opening the debate in the Commons, he said that during the recession the RPI could drop "below zero" and in theory redundancy payouts could decrease.
"That is why this bill is so important, and that would be an absolutely absurd situation for us to be in at this time when people need help," he stressed.
He said the government should be doing everything possible to help people who lose their jobs "through no fault of their own" adding: "It is strange that the top of the tree, the management ... are the ones who get paid off."
Mr Hoyle said ministers had seemed sympathetic to the bill until earlier this week when some "very strange tactics" had been used against it.
He said the Labour whips' office had sent out letters to MPs asking them to speak against the bill. "I find that quite appalling and quite underhand," he said.
But business minister Pat McFadden said he was "puzzled" by the accusation and denied any such tactics had been used.
He said it would be a mistake to judge the government's position on helping working people from its response to the bill - which he said was "flawed" and would be too costly for employers, who were already hard hit by the recession.
Raising the cap on redundancy payments could increase costs by about £500m a year, he said.
But he said: "I can assure supporters of the bill that the issues raised are under consideration - although I'm sure you will understand that I cannot today set out what the conclusions are on government discussions about these issues."
For the Conservatives, Jonathan Djanogly said the party would not support the bill because of the "damaging effect on workers in the longer term".
"In diverting money away from the running of businesses, which could lead to more insolvencies, the bill could undermine and damage the very workers that it actually seeks to protect," he said.
Lib Dem spokeswoman Lorely Burt said the government had made a manifesto commitment in 2005 to link statutory redundancy pay to average earnings.
"Labour has failed to fulfil its promise to its union paymasters," she said.
She said while it was the "worst time possible" for the bill for employees, it was the "best time" for employees and urged the government to bring forward their own legislation or allow the bill to progress for further amendment.
As well as Labour backbenchers, the government also faces pressure from the unions on the issue - Unite says it is a "disgrace that UK workers can be so cheap to sack".
The Financial Times reported on Friday that one option ministers were considering was imposing an absolute legal minimum amount - rather than increasing the existing cap.
The British Chambers of Commerce said the bill would impact on struggling firms. Director general David Frost said: "Businesses are already having cash-flow problems and this will simply add to that.
"It will be business that drives the UK out of recession. Instead of threatening firms with extra financial burdens, politicians should be concentrating on helping employers retain their staff."