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On November 4, 2025, Canada's Finance Minister François-Philippe Champagne delivered the 2025 Federal Budget (the "Budget"), which included proposed employment-related amendments to the Canada Labour Code, Canadian Human Rights Act, Employment Insurance Act, and the Federal Public Sector Labour Relations Act. The amendments are modest, but areaimed at modernizing workplace legislation, improving protections for employees, and addressing long-standing employment-related issues.
For federally regulated employers, the most relevant changes relate to restricting non-competition clauses, imposing higher penalties for wage theft, and correcting employee misclassification.
Parliament narrowly passed the Budget on November 17, 2025.
Restricting Non-Compete Agreements
The Budget proposed amendments to the Canada Labour Code to restrict the use of non-compete agreements by federally regulated employers. These agreements are often used to restrict employees' ability to work for competitors or start their own competing ventures. While such clauses have been criticized for stifling labour mobility and innovation, non-competition clauses are infrequently enforced by employers.
This proposed restriction is similar to existing restrictions in Ontario. In 2021, the Ontario government passed the Working for Workers Act 2021 which included a prohibition on the use of non-competition clauses in employment agreements after October 25, 2021, with limited exceptions.
Employers should expect consultations on these changes, including on whether any exceptions will made to these prohibitions, to begin in early 2026. If implemented, employers will need to review their employment contracts to ensure compliance and explore alternative methods for protecting proprietary and confidential information and other competitive interests.
Cracking Down on Wage Theft
The Budget stated that wage theft is one of the most common contraventions of employment standards in federally regulated industries. The Budget defined wage theft as "an employer fail[ing] to pay compensation rightfully owed to an employee".
To address wage theft, the Budget proposed regulatory changes to substantially increase penalties for federally regulated employers who commit such violations. This initiative aligns with the Government's commitment to ensuring workers are fairly compensated for all hours worked.
According to the Budget, consultations with workers and employers on these proposed changes will take place in the "coming months."
Addressing Employee Misclassification
The Budget is focused on addressing instances where workers are improperly categorized as independent contractors instead of employees and, specifically, through the use of personal service corporations. The Budget stated that this practice results in the loss of employment standards protections and benefits for the worker. Additionally, when a worker is misclassified, no withholdings for income tax nor any Canada Pension Plan and employment insurance contributions are made.
To address employee misclassification, the Budget proposed to allocate $77 million over four years, starting in 2026-27, to the Canada Revenue Agency (the "CRA"). Further, the Budget included proposed amendments to the Income Tax Act and the Excise Tax Act to allow the CRA to share taxpayer information and confidential information with Employment and Social Development Canada to enforce compliance.
The Budget identified the trucking industry as a sector where employee misclassification is particularly prevalent.
Improving Employment Insurance Parental Benefits
The Budget contained proposed amendments to the Employment Insurance Act which would allow individuals receiving employment insurance parental benefits to access an additional eight weeks in the event of the death of the child. This follows proposed amendments to the Canada Labour Code which grant employees in federally regulated workplaces the ability to take a leave of absence for situations where an employee's pregnancy, or the pregnancy of their spouse or common-law partner, does not result in a live birth. The leave may extend up to eight weeks in the event of a stillbirth, or up to three days in other situations.
While this measure primarily impacts employees, it may influence parental leave policies or gratuitous top-up payments and workplace accommodations for grieving parents. Employers should prepare to adapt their internal policies, as needed.
Restructuring the Canadian Human Rights Commission
The Budget proposed to amend the Canadian Human Rights Act to streamline the structure of the Canadian Human Rights Commission. This would involve consolidating the Chief Commissioner and Deputy Chief Commissioner roles, reflecting a more efficient organizational framework.
Federal Public Sector Labour Relations
As part of broader efforts to reduce the federal public service workforce by approximately 40,000 employees, the Budget proposed amendments to the Federal Public Sector Labour Relations Act to change the collective bargaining dispute resolution framework. Additionally, an Early Retirement Incentive Program would be offered through the Public Service Pension Plan to eligible public servants, supporting the government's downsizing initiative.
Real-Time Payroll Pilot
The Budget included funding for Employment and Social Development Canada to launch a pilot project assessing whether real-time payroll information can be used to accurately and securely determine Employment Insurance eligibility and entitlement. If successful, this initiative could reduce administrative burdens for employers as well as streamline interactions with the Federal government regarding Employment Insurance repayment obligations.
Takeaways
The 2025 Budget introduced measures that would impact federally regulated employers across Canada. From restricting non-compete agreements to addressing employee misclassification and wage theft, these changes underscore the Government's focus on modernizing workplace legislation and strengthening employee protections. Employers should keep an eye on upcoming legislation and may consider proactively reviewing their policies, employment contracts, and compliance processes to prepare for these upcoming changes and ensure alignment with federal regulations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
