A deal to end the exploitation of thousands of health and education workers has been welcomed by unions.
Pay has been a long-running issue for many in the public sector
People whose employment was shifted to private contractors were in some cases losing out on pay compared to their public sector equivalents.
Tony Blair pledged in 2001 to end the so-called two-tier workforce.
Unison general secretary Dave Prentis hailed the decision saying: "Private companies will no longer be able to make profits by cutting pay and conditions."
Mr Prentis, whose union represents many low-paid public sector workers, has been holding talks with Chancellor Gordon Brown, Mr Blair and the education and health secrertaries for several weeks.
The new agreement will now be presented to Labour's National Policy Forum at the weekend.
Mr Prentis said: "This is great news for Unison and fantastic news for many
thousands of low paid public sector workers.
Mr Prentis leads the public sector union Unison
"I have always said this would be the defining issue between Unison and the
"We could never have had world class public services based on
exploitation and injustice. We will now make sure this is implemented without
The Transport and General Workers Union's Jack Dromey said the deal was "historic".
The deputy general secretary added: "Labour has put right the past
wrong created by the Tories."
He said workers affected by the two-tier system were often on poorer pay and frequently lacked a pension.
Women had particularly been hit and Mr Dromey said it was a "great day" for many people employed as cooks, cleaners and care workers.