The Priory chain of clinics, Britain's leading provider of private psychiatric care, famous as a retreat for overwrought celebrities, is being threatened with legal action after cutting sick pay for its staff.

Unions say that they have been inundated with complaints from upset and angry nurses after attempts by managers at the Priory Group to cut costs. Philip Scott, the group's chief executive, wants to cut nurses' employment rights from next month after accusing them of absence levels of “epidemic proportions”. He argues that the Priory's “generous” sick-pay scheme gives no incentive for healthcare workers to come to work.

In a letter sent to all staff he says that sickness absence costs are “just not sustainable” and the firm faces “stark choices” after making a £66million loss last year.

But the Royal College of Nursing (RCN) has now warned the Priory Group that the proposed unilateral variation in contracts would be unlawful. It is threatening legal action for unlawful deductions in salary if the changes, scheduled to begin on September 1, go ahead. Employees may also be entitled to compensation, according to RCN lawyers.

Karen Didovich, senior employment relations adviser at the union, told Mr Scott in a letter: “Simply reducing the sickness absence entitlement will not deal with this problem, it will instead simply reduce morale and motivation of all staff. I understand the problem he's trying to resolve but this is not the solution.”

Mr Scott has yet to reply.

Staff who have worked at the Priory for more than five years are currently entitled to six months off sick on full pay. Employees who have been there less than five years get half pay for the same period.

The Priory wants to reduce this to no pay for the first three days with a maximum of six weeks full pay - half pay for those who have been with the company less than three years.

But staff say that the same terms are standard for the NHS and the public sector - and health workers have higher sickness levels because of the stressful nature of the job.

The Priory group, which owns 53 private hospital units across Britain, currently charges up to £4,000 a week for each NHS patient to occupy one of its beds. Its staff treat patients suffering from depression, schizophrenia, brain and spinal injuries and eating disorders - but most famously, celebrities such as Kate Moss, Pete Doherty and Ronnie Wood have been admitted for rehabilitation treatments after drug and alcohol abuse. Most of its income comes from NHS or local authority referrals, rather than from its more famous patients.

The new rules will not apply to managers or teaching staff at the schools the group runs for pupils with attention disorders. One member of staff, who did not wish to be named, said: “They purport to be one of the best healthcare providers but they can't even look after their own staff. Most are pretty demoralised. The management has an attitude of total disrespect to nurses.”

Mr Scott said in his letter, sent to all staff in June, that staff sickness was costing the firm £8million a year. He told nurses that the choice was either not to increase salaries, close some “underperforming” hospitals or target the casual abusers. But because absence levels were so high, targeting offenders would take up too much management time, he said. “By changing the company sick-pay scheme rules we will change the sickness absence culture automatically.”

In a statement he said: “The vast majority of staff understand and accept the reasons for these changes.” The RCN said that there had been unprecedented opposition to the plans.

Mr Scott joined the Priory in January. Chai Patel, the former director, left the group last year, apparently after a falling-out with the owners. The Dutch bank ABN Amro and other backers bought the business in 2005 for £875million, a sum now accepted as being at least £100million too high. Dr Patel subsequently became embroiled in Labour's loans-for-peerages scandal after lending the party £1.5million. He later withdrew from the list of nominees for a peerage saying he never expected any reward.

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