Federal budget 2025: Updates for federally regulated employers

The federal government’s recently released Canada Strong Budget 2025 (Budget 2025) has proposed several measures with implications for federally regulated employers.

These include: 

• Restriction of non-compete agreements. Budget 2025 proposes to amend the Canada Labour Code (the Code) to restrict the use of non-compete agreements in federally regulated employment. Public consultations on these proposed legislative changes will begin in early 2026.
  
  If this change moves forward, the federal jurisdiction will join Ontario as the second Canadian employment law jurisdiction to ban non-competes in employment contracts. 

• Increased penalties for wage theft. Budget 2025 proposes to “substantially increase the penalties” imposed on federally regulated employers who engage in “wage theft.” Budget 2025 describes wage theft as the failure to pay compensation rightfully owed to an employee.
  
  This initiative is a continuation of an intended regulatory change announced in the 2024 Fall Economic Statement. At present the Code’s administrative monetary penalty regime for breach of federal minimum standards provides for fines ranging from $500 to $6,000 for errors in calculating wages, or for non-payment of wages. Presumably the revised penalties for non-payment of wages will be significantly higher.
  
  Consultations on proposed changes to the administrative monetary penalty regime will take place over the coming months.

• Employee misclassification. Budget 2025 proposes two initiatives to reduce misclassification of employees as independent contractors:
  • Increased funding to the Canada Revenue Agency (CRA) to implement a program that addresses misclassification related to personal services businesses, as well as lifting the moratorium on reporting fees for services in the trucking industry; and
  • Making legislative amendments necessary to allow the CRA to share information with Employment and Social Development Canada (ESDC) for the purpose of investigating worker misclassification. This initiative is an extension of one that began in Budget 2024, which allowed ESDC to share misclassification investigation data with the CRA.
    
    Where misclassification of employees as independent contractors is found, an employer may be exposed to liability for failing to deduct and remit necessary tax contributions on behalf of the employee and employer, and for breach of minimum working standards under the Code.  

• Employment Insurance (EI) and parental leave. Budget 2025 proposes to extend EI parental benefits by eight weeks in cases of the death of the child. 

• Amendments to the Canadian Human Rights Act (CHRA). Budget 2025 proposes to amend the CHRA to consolidate the roles of the Chief Commissioner and Deputy Chief Commissioner within the Canadian Human Rights Commission.
• Federal public sector. Budget 2025 proposes amendments to the collective bargaining framework under the Federal Public Sector Labour Relations Act to allow the government to attract and retain necessary talent, and to implement an Early Retirement Incentive Program as part of proposed reductions in the federal public service. 

Takeaways

For federally regulated private sector employers several of these initiatives may represent significant changes to applicable employment law. In particular, a ban on non-competes, increases in fines for non-payment of wages, and increased scrutiny of worker classification may be cause for review of current contracts and work models.

These proposed changes depend on the Budget 2025’s adoption by Parliament, and largely on subsequent public consultations. Norton Rose Fulbright Canada will provide further updates as new developments arise.

The author would like to thank Manreet Brar, articling student, for her contribution to preparing this legal update.