She was asked to resign after the party became aware she had given a television interview in which she defended the lobbyist at the centre of the cash for questions controversy, Ian Greer.
Lady Turner, a director of Ian Greer Associates, agreed "it would be inappropriate" to remain on the front bench after giving the interview to Channel 4.
Her resignation was announced by the Labour Party before the interview was broadcast.
Interviewed about Mr Greer's decision to abandon his libel case against the Guardian, Lady Turner said: "It is always a lottery to enter into litigation but I did firmly believe, and I still firmly believe, in the innocence of Ian Greer and I will continue to support him while I believe that."
She saw no reason why she should not be a front bench spokesperson while also being a director of Mr Greer's company, one of the most prominent parliamentary lobbying groups.
Lady Turner said Mr Greer was "absolutely in the clear. I have no intention of resigning because to do so would look as though I believed something in the allegations and I don't.
"I am quite certain Ian has behaved completely honourably throughout.
"My position is absolutely clear: while I continue to believe in his innocence I shall continue to support him and I shall continue to remain a member."
She defended Mr Greer's payment of pounds 10,000 to Mr Hamilton for business introductions the MP made.
"It is quite a standard commercial practice to pay commission to people who introduce business to you," she said.
Asked if she thought she should remain as a front bench Labour spokesman she said that was a matter for the Labour leadership, although she saw no reason why she should not.
The party leadership apparently did not agree with Lady Turner and within hours the Labour Party's leader in the Lords, Lord Richard, issued a statement announcing her resignation.
"There is no suggestion that she has acted improperly in her capacity as a director of his company," Lord Richard said.
He added that he accepted that Lady Turner was speaking in a personal capacity.
"However, after discussing the matter with her, she has agreed it would be inappropriate for her to remain as Labour's front bench spokesperson on employment and is therefore stepping down."Reuse content