The proposals, contained in the Government's draft Employment Agency regulations, provoked a storm of protest among contractor agencies, who accused the Government of pursuing a vendetta against them.
The regulations will give IT directors the right to re-employ IT contractors supplied by recruitment agencies directly within four weeks of the contractor leaving the agency, with huge savings in fees.
The proposals could allow employers to make substantial savings on agency fees, providing they can persuade contractors to take a four-week holiday.
Other measures in the proposals will make it easier for recruitment firms to bid to manage contractors that have already been supplied to employers by rivals.
"The end-users would be able to screw the agencies on margin by threatening to move their contractors to another agency," said Kevin Barrow, a lawyer at Tarlo Lyons.
"The downside is that suppliers are going to front-load their costs. It will inflate the cost of those contractors that are in demand," he added.
Anne Swain, chief executive of the Association of Technology Staffing Companies, said the regulations would cause employers problems in the long term.
"Recruitment companies are going to have to make their margins somewhere. They are going to have to increase their costs in the short term so they don't lose out if someone comes along in a predatory manner," she said.
"This is old-style Labour coming in and putting legislation where it is not necessary. They seem to have been waging a vendetta against the recruitment industry," Swain added.
The regulations will also outlaw some of the sharp practices used by "cowboy" recruitment agencies. They prohibit agencies from gathering CVs by advertising non-existent vacancies and sending out CVs without the job-hunter's permission.
Agencies will also be obliged to confirm that a job-hunter's experience and qualifications are correct before sending them to a client. Those that break the regulations could be fined up to £5,000.