The Confederation of British Industry and the government agreed a deal earlier this week aimed at achieving fairer treatment for agency workers but maintaining flexibility for both workers and employers.
The government hopes the deal will pave the way to reaching an agreement in Europe on an agency workers directive.
The proposals will mean equal pay and holiday entitlement for agency workers after 12 weeks.
Chamber chief executive Richard Lacy (pictured) said: “While fair treatment for employees is something we all aspire too, this is a bad deal for the country and a bad deal for business.
“The success of the UK economy over recent years has been down to our flexible labour market. When the economy is weakening, this is not the time to further reduce flexibility.
"In addition to this, with the government seeking to move a million people back into work, a deal of this nature will not help.”