Small firms will still be able to allow their employees to work more than 48 hours a week after a deal was struck over the Working Time Directive.
According to business secretary John Hutton, the arrangement means that the UK will continue to benefit from a flexible labour market and staff will continue to be treated fairly.
He said: "Flexibility has been critical to our ability to create an extra three million jobs over the past decade.
"That flexibility has been preserved by ensuring workers can continue to have choice over their working hours in future years."
Because people will remain free to work overtime, firms will be better able to cope during busy times, he added.
The government has also reached a deal relating to the Agency Workers Directive, which Mr Hutton also believes will help the UK labour market remain flexible.
Last week, a report by the Recruitment and Employment Confederation stated that more firms are looking to appoint temporary staff due to worries over the state of the economy.
