The forum of Private Business has backed the blocking of the Temporary and Agency Workers Private Members Bill.
The trade body believes if the Bill was passed it would lead to job losses and smaller businesses becoming less competitive.
Matthew Goodman, FPB's policy representative, said: "For many small businesses and temporary staff members alike, agency work provides the flexibility they are seeking.
"Reducing the flexibility of the labour market in this way could damage small firms and, by extension, the UK's economy."
The FPB also believes any moves would harm independent employment agencies.