On November 17, 2025, the federal government passed its Canada Strong Budget 2025 (the “Budget”). While positioned as pro-growth and pro-competition, several measures signal a more assertive federal posture on labour standards, tax compliance, pensions, and regulatory oversight, with important legal, financial, and reputational implications for employers.

Below we summarize the key measures of interest to employers:

Restriction of Non-Compete Agreements in Federally Regulated Workplaces

The Budget intends to amend the Canada Labour Code [CLC] to restrict the use of non-competition clauses among federally regulated employers.

Enhanced Worker Misclassification Enforcement

The Budget allocates new funding to the Canada Revenue Agency (CRA) to target the deliberate misclassification of employees as independent contractors.

Key enforcement features include:

• Expanded data-sharing between the CRA and Employment and Social Development Canada (ESDC) through amendments to the Income Tax Act and Excise Tax Act;
• Increased scrutiny of payroll tax compliance, including proper withholding and remittance of income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums; and
• A focus on recovering lost benefits, pensions, and labour-law protections for misclassified workers.

Crackdown on “Wage Theft”

The federal government reaffirmed its intention to substantially increase penalties for federally regulated employers that fail to pay owed compensation. This forms part of a broader “wage theft” crackdown under the CLCand signals stronger enforcement of record-keeping and payment-timing obligations.

Employment Insurance Enhancements

The Budget introduces several EI measures designed to modernize program delivery and better support workers and employers alike. These initiatives aim to:

• Reduce employer reporting burdens;
• Improve benefit delivery speed; and
• Streamline interactions between employers, employees, and federal agencies.

Parental Bereavement Benefits: EI parental benefits would be extended by eight weeks in cases of child bereavement, aligning with upcoming CLC leave provisions for pregnancy loss.

Real-Time Payroll Reporting Pilot: A two-year pilot project will test real-time employer payroll reporting to improve EI eligibility assessments.

Pension and Retirement Measures

Simplified Qualified Investment Rules: The Budget plans to consolidate and simplify the qualified investment rules for RRSPs, RRIFs, and TFSAs. The goal is to reduce compliance complexity, expand investment opportunities in small businesses, and modernize governance through internal investment policies may require updating.

Early Retirement Incentive Program: A new voluntary early retirement incentive program will be introduced under the Public Service Pension Plan to support planned reductions in the federal workforce.

Adjustments to CPP Changes: The federal government also announced further amendments to recent CPP changes to ensure federal employees maintain equivalent pension benefits without overcontributing — an initiative expected to save employees up to $1,100 annually.

Youth Employment Initiatives

The Budget outlines significant new funding commitments for youth employment:

• $600 million between 2026–27 for Canada Summer Jobs, supporting approximately 100,000 summer positions in 2026; and
• $635 million over three years for the Student Work Placement Program, expected to create 55,000 work-integrated learning opportunities in 2026–27.

These investments aim to improve youth employment outcomes and strengthen pathways from education to the workforce.

Immigration Reforms

The Budget introduces a recalibration of temporary resident programs:

• Lower targets for temporary foreign workers and international students through 2028; and
• New funding for a Foreign Credential Recognition Action Fund to address shortages in critical sectors such as healthcare and construction.

Takeaways:

• Prepare for Heightened Enforcement: The Budget marks a clear shift toward heightened enforcement around pay equity, classification, and payroll reporting. Employers should initiate early policy and compliance audits as legislative details emerge.
• Review Independent Contractor Agreements: Increased CRA-ESDC collaboration will heighten exposure for worker misclassification. Employers should ensure contractor relationships are well-documented and accurately reflect the nature of the employment relationship.
• Review Restrictive Covenants: New restrictions on the use of non-competition clauses for employers in the federal sector will align with emerging provincial trends, shifting employer strategies toward reliance on confidentiality, intellectual property, and non-solicitation protections. Employers should proactively review employment agreements and restrictive-covenant policies to ensure current and future compliance.

We will continue tracking developments affecting employers and share updates to keep you In the Know.

This blog is provided as an information service and summary of workplace legal issues.

This information is not intended as legal advice.