A draft EU directive plans to give agency workers throughout Europe the same employment rights as their permanent counterparts.
British firms use over 1 million agency workers, or 'temps', and the changes would mean these workers receive the same pay, holidays, health insurance and pension rights as long-term workers in similar jobs.
The UK Government is planning to oppose the Directive, the draft of which will be published next month. The Prime Minister's official spokesman said: "We believe agency workers are entitled to a fair deal. But we don't believe they are in exactly the same position as part-time and fixed workers, in as much as they don't share a common employer.
At present, companies using temporary workers rely on the agency to set the terms and conditions. Business leaders are concerned that the Directive would mean extra expenditure and administration, which would make Britain's workforce less flexible.
Ruth Lea, head of policy at the Institute of Directors, said: "At the Lisbon summit two years ago, European leaders spelled out their goals for making the labour market more flexible so that Europe would be the most competitive place in the world to do business by 2010. They talked about job creation and wealth creation.
"This goes in completely the opposite direction and if it goes through Britain will lose its competitive advantage."
Trade unions, however, welcomed the proposals. TUC General Secretary John Monks said: "Temporary workers in the UK not only face substantial job insecurity but they also often receive far less favourable treatment than those they work alongside. Lack of access to training results in lower skills while lower pay damages the motivation and inevitably leads to lower productivity. Unequal treatment for temporary workers is as bad for business as it is unfair to workers themselves."
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