More than one million agency workers will receive the same pay as permanent staff after they have been employed for 12 weeks under a deal brokered by the Government.

The agreement - hailed by the unions as a breakthrough on workers' rights but attacked by several business groups - was effectively forced on ministers after they failed to find allies in the EU to block a directive that would have cut the qualifying period for equal treatment on pay and conditions to six weeks.

Brussels is pressing for equal treatment from the first day of agency employment to become the norm.

But the CBI, which agreed the compromise with the TUC, had been pressing for a six-month interval before agency staff are entitled to the same treatment as other employees and appeared to have gone along with the deal as a preferable alternative to the European plan.

It called the outcome the “least worst outcome for business”. Ministers said that it was the “right deal” for British industry.

“The agreement achieves our twin objectives of flexibility for British employers and fairness for workers,” John Hutton, the Business Secretary, said.

The agreement will not cover sick pay or pension payments while temporary staff will have to work the same length of time as full-time workers to enjoy paid maternity leave.

But the Federation of Small Businesses led the way in attacking the concordat. “This is a disastrous deal for small businesses, which rely on the flexibility provided by agency workers,” it said.

David Frost, director-general of the British Chambers of Commerce , said: “When the economy is weakening this is not the time to further reduce flexibility. With the Government seeking to move a million people back into work, a deal of this nature will not help.”

Dave Prentis, the Unison leader, said: “The abuse of temporary agency workers is a shameful relic of another age that should be outlawed.”

The agreement could pave the way for new European rules on the maximum working week.

The two controversial labour market issues have been on the negotiating table for years and are being seen as a package with trade-offs in one being compensated by concessions in the other.

Thus, Britain will be allowed to keep its opt-out in the European Union's recast Working Time Directive, but, in exchange, has been forced to concede the principle of equal treatment for agency employees.

Employment ministers are expected to discuss both items at their next meeting in Luxembourg on June 9 and to reach political agreement on the new legislation, which could then be formally approved before the end of the year.

Explore Economics

• Pre-Budget Report 2009

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive