Business secretary Vince Cable has announced plans to ban exclusivity clauses in zero hours contracts as part of the new small business bill.
It means that employees on zero hours contracts will now have the freedom to find work with more than one employer.
The ban is set to benefit the 125,000 zero hours contract workers who are tied to an exclusivity clause, according to government estimates.
Vince Cable said: "Zero hours contracts have a place in today's labour market. They offer valuable flexible working opportunities for students, older people and other people looking to top up their income and find work that suits their personal circumstances. But it has become clear that some unscrupulous employers abuse the flexibility that these contracts offer to the detriment of their workers."
The move follows a government consultation into zero hours contracts, which received over 36,000 responses. 83% were in favour of banning exclusivity clauses.
Also this week, the Living Wage Commission has published its report on low pay with a proposal for lifting one million out of low pay by 2020 – promised with no adverse economic consequences. Currently 5.2 million people earn less than the living wage, and the majority of people in poverty are now in working households.
The report says that workplace poverty could be eradicated if many business sectors adopt the living wage, including the public sector, professional services firms, banks and construction companies. However, it has stopped short of recommending a compulsory living wage because it says the increased wage bill would not be affordable for many small firms and for those in sectors such as retail and hospitality.
Dr Adam Marshall, director of policy and external affairs at the British Chambers of Commerce (BCC), said: "Many thousands of companies already pay their employees a living wage, and many more have an aspiration to do so. As the recovery gathers pace, they should be supported and encouraged to make this happen without facing compulsion or regulation, which could lead to job losses and difficulties particularly for younger people entering the labour market."
But he added: "Some businesses simply cannot afford to pay a living wage just yet – which is why the Commission rejected a compulsory living wage. The task now is to support as many employers as possible to make this transition, because paying the living wage can benefit employers as well as their staff."