The Forum of Private Business has slammed plans to abolish the default retirement age as "crippling".
The Government said this week it intends to press ahead with plans to remove an employers' option to retire staff at the age of 65.
If the proposal goes ahead, businesses could be forced to start keeping on staff indefinitely in little over a year's time.
Currently, there is nothing to stop an employee working on past 65, providing his or her employer agrees to it.
However, if the default retirement age is scrapped, business owners will be forced to keep on workers past the age of 65, whether they want to or not.
The move could also open the door to costly and painful employment tribunals, as an employers' only means of ending employment will be through a "capability dismissal" based on the declining competence of the worker.
In a recent survey, just 4% of Forum members felt removing the default retirement age was justifiable.
"Many small businesses are happy to keep on members of staff well into their late 60s and 70s — indeed, many Forum members themselves are well over 65," said Forum spokesman Chris Gorman.
"However, removal of the default retirement age will cripple some small businesses by removing the tools that help them to plan for the future."
He added: "In the absence of a default retirement age, the only viable option available to an employer is a capability dismissal based on the declining competence of the worker. We believe this would be an undignified and humiliating end to a career for most staff."