Flight Instructor reported CDW Tower cleared the reporter for takeoff in direct conflict with another aircraft and also suggested to the reporter to perform an unpublished and unsafe procedure.

Narrative

CDW was landing Runway 22 and departing Runway 28. There were several aircraft in Runway 22 traffic pattern. Tower cleared us for takeoff on 28 in direct conflict with the airplane turning downwind for 22. As we reached pattern altitude (1200 ft. MSL/1000 ft. AGL) Tower said 'for your safety you can't climb through the traffic pattern altitude on departure' and told us that we are supposed to level off below the pattern and fly that altitude until west of MMU which is many miles west of the airport.Several problems with that idea. 1) Flying low below 1000 ft. AGL in a congested area violates 91.119(b). 2) It's not safe to take off and immediately level off at 600 or 700 ft. AGL in a single engine airplane. 3) I've been flying and instructing out of this airport for years and have never heard of this 'procedure' before. I checked the AFD and it just says Runway 28; departing the traffic pattern; runway heading until reaching pattern altitude. 4) There is a fundamental misconception between pilots and controllers about deconfliction in the traffic pattern at CDW. Pilots believe that if you are cleared for takeoff then the controller must have made sure there is no conflicting traffic. The controllers seem to believe that they have no responsibility for deconfliction anywhere except the physical runway surface. The issue is that this happens several times a day and it is the third time this year it has happened to me. Today was the first time however; that the controller told us there is a 'procedure' to level off immediately after takeoff below 1000 ft. There IS a procedure to maintain at or below 1500 ft. until west of MMU but the controller seemed to have invented a new and confounding; unpublished and unsafe procedure of maintaining below pattern altitude (1200 ft. MSL). This is a perfect example of normalization of deviance and if not addressed will result in another fatal midair.