Paul Kenny, general secretary of the GMB, said changing the relationship with Europe could leave workers with no employment rights and cuts to their wages.
He told the GMB's annual conference in Plymouth that it was clear a referendum on Europe would be held but warned that the Conservatives wanted to use it to water down employment rights.
EU directives have protected working hours and employment rights, but these could be removed if the UK opts for "Euro-lite" membership, he said.
Mr Kenny said: "A referendum is inevitable but Labour needs to explain to people what would happen to jobs, pay and rights if we withdraw.
"Many big investors are here because of the easy access to Europe. Some companies are already acquiring operations in Europe in the event of the UK pulling out. Britain could be turned into a sweatshop, with no rights, low wages and workers being exploited.
"Crucial questions are not being asked. David Cameron has no intention of pulling out of Europe - he wants to opt out of health and safety and employment laws."
He said: "Giving workers rights from day one of employment seems like a sensible idea to me, as well as giving agency workers the same rights as full-time workers. Why should anyone vote for a Tory-lite party at the next election?"