The Ministry of Business Innovation and Employment is to tell staff it wants to restructure its nationwide mediation network.
The Ministry runs employment mediation services from seven centres nationwide.
Its mediators help resolve disputes between employers and employees without involving the legal system.
Ministry Resolution Services manager Ross van der Schyff told RNZ it had assessed the cost effectiveness and efficiency of its mediation services and was about to release a "proposal for change" document to staff.
No final decisions had yet been made, he said.
The Labour Party said it feared close to half of the country's mediation centres would be axed, leaving businesses and workers in regional New Zealand abandoned.
Economic development spokesperson David Clark said he understood three of the country's mediation centres would go.
"The restructuring proposal, as I understand it, involves getting rid of the dispute resolution services in Napier, Dunedin and Palmerston North, which are smaller urban centres with very specialised and effective services in place.
"I know that people are frustrated that this good service might be let go."
He said if the centres did go, it would be a terrific loss to the business community.
"Well, the risk if these services go is that more disputes will end up in the court process.
"Lawyers who make money out of this situation may be happy, although my understanding is that some lawyers feel that this is really unprincipled and would be a sad step for the government to take."
First Union southern regional secretary Paul Watson said it would be absolutely crazy for the Ministry to shut its regional mediation centres.
"Wow, we're shocked and appalled to hear that news, it's quite remarkable, and the rationale behind it seems to be driven by cost-efficiencies - but putting it up to the light of day it just seems to us to be counterproductive.
"It's hard to imagine how it can be more efficient to take out local mediators from a main centre like Dunedin and then to fly in mediators from other parts of the country - it's just extraordinary."
Mr Watson said it would lead to long waits for mediation.
The Ministry of Business Innovation and Employment would not say how many jobs could be affected by the restructure, but said a final decision would be made in the New Year.