Federal Budget 2025: Key Changes Impacting Employers

Federal Budget 2025: Worker Misclassification Enforcement and the Coming Non-Compete Ban for Federally Regulated Employers Updated May 2026

The federal government's 2025 Budget introduced two significant changes for employers across Canada: a $77 million investment in worker misclassification and wage theft enforcement, and a plan to prohibit non-compete clauses for federally regulated employers. Since the budget was tabled, both measures have advanced. Worker misclassification enforcement is now underway. On May 6, 2026, the federal government introduced Bill C-31, which proposes to prohibit non-compete agreements across federally regulated workplaces. The bill is currently before Parliament. Federally regulated employers and those operating across provinces should be reviewing their contractor arrangements and employment contracts now.

Are you a federally regulated employer or do you operate across provincial borders?

Worker misclassification enforcement is already active. A federal prohibition on non-compete clauses is working through Parliament. Both developments require employer action now, not when legislation passes. Get advice on where your contracts and arrangements stand.

Call: 1-800-771-7882 Speak With an Employment Lawyer

The two key changes for employers

Change 1 Now Active

$77 million for worker misclassification and wage theft enforcement

Starting in 2026-27, the Canada Revenue Agency received $77 million over four years plus $19.2 million annually to enhance compliance against employers who misclassify workers as independent contractors. The CRA's mandate includes sharing information with Employment and Social Development Canada to identify misclassification, and penalties for wage theft failure to pay workers what they are lawfully owed are being strengthened. The trucking sector is a primary enforcement focus, but the program applies across federally regulated industries.

Change 2 Bill Before Parliament

Proposed prohibition on non-compete clauses for federally regulated employers

On May 6, 2026, the federal government introduced Bill C-31, which proposes to amend the Canada Labour Code to prohibit non-compete clauses and other employment-related restrictions for federally regulated employees. The bill was introduced at First Reading and is currently at Second Reading. It has not yet been enacted and its provisions may change during the legislative process. If passed in its current form, existing non-compete clauses would not be preserved a one-year transition period would apply from the coming-into-force date.

Bill C-31: current status of the non-compete prohibition

Bill

Bill C-31, Budget 2025 Implementation Act, No. 2

Introduced

May 6, 2026 First Reading

Current stage

Second Reading not yet enacted

Applies to

Federally regulated employers under the Canada Labour Code banking, telecommunications, airlines, railways, interprovincial transportation, broadcasting

Existing clauses

Would not be preserved if the bill passes one-year transition period applies

Provincial employers

Not affected provincial employers remain subject to provincial rules only

Bill C-31 mirrors the approach Ontario took in 2021 when it prohibited non-compete clauses under the Working for Workers Act. If passed in its current form, federally regulated employers will join Ontario as the only Canadian jurisdictions with a statutory ban on non-competes. Federally regulated employers who currently rely on non-compete clauses should not wait for the bill to pass before reviewing their contracts a one-year transition period is not a long runway to restructure post-employment protections across an organization.

What the non-compete prohibition means in practice

Where Bill C-31 passes, non-compete clauses in new employment agreements with federally regulated employees would be prohibited and deemed void. Existing clauses already in contracts would not be grandfathered they would become void after the one-year transition period from the coming-into-force date. The scope of the prohibition extends beyond traditional non-compete clauses to other employment-related restrictions, the precise definition of which remains subject to the legislative process.

Non-solicitation clauses which prevent departing employees from soliciting clients or colleagues rather than prohibiting competitive employment generally are expected to remain available as a more targeted alternative, following the Ontario model. Federally regulated employers should begin assessing which provisions in their contracts are genuine non-competes and which are non-solicitation clauses, and consider strengthening non-solicitation and confidentiality protections before legislative changes take effect.

What federally regulated employers should do now

Review all employment contracts for non-compete clauses identify which provisions are at risk if Bill C-31 passes and begin planning what protections can be maintained through non-solicitation and confidentiality provisions

Audit contractor arrangements to confirm worker classification is defensible the CRA's $77M enforcement mandate is active and the trucking sector is an explicit focus, but misclassification enforcement applies broadly

Review payroll records for CPP, EI, and income tax compliance wage theft penalties are being strengthened and the CRA's information-sharing with ESDC means cross-agency enforcement is now a realistic risk

Do not wait for Bill C-31 to pass before taking action a one-year transition period is not sufficient time to restructure post-employment protections if you are starting from a position of heavy reliance on non-compete clauses

Get legal advice on what protections remain available once non-competes are prohibited well-drafted non-solicitation clauses and NDAs can still provide meaningful protection of legitimate business interests

Are you a federally regulated employer with non-compete clauses in your employment agreements?

Bill C-31 is before Parliament and would prohibit non-compete clauses for federally regulated employers with a one-year transition period. Our team advises employers on employment agreements and post-employment restrictions. Get your contracts reviewed now while you still have time to act.

Get Your Contracts Reviewed Or call us: 1-800-771-7882

Key takeaways for employers

Worker misclassification enforcement is already underway the CRA's $77M mandate is active and includes cross-agency information sharing. Review contractor arrangements now

Bill C-31 proposes to prohibit non-compete clauses for federally regulated employers it is before Parliament and has not yet passed, but existing clauses would not be grandfathered if it does

The one-year transition period in Bill C-31 is not generous federally regulated employers who rely on non-compete protections should begin restructuring their approach to post-employment restrictions before the bill passes

Non-solicitation clauses and NDAs remain available and provide meaningful protection a well-drafted non-solicitation clause is a more defensible alternative to a broad non-compete for most employment situations

Provincial employers are not affected by Bill C-31 the prohibition applies only to employers under the Canada Labour Code. Ontario's existing prohibition on non-competes under the Working for Workers Act already applies to most Ontario employers

Questions about contractor classification, non-compete clauses, or employment contract compliance for federally regulated employers?

Our team advises employers across Ontario and BC on employment agreements, post-employment restrictions, and contractor arrangements. Contact us for a confidential consultation.

Call us at 1-800-771-7882 or fill out the form below and we will be in touch.

The article in this client update provides general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Achkar Law Professional Corporation and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Achkar Law Professional Corporation. ©

Share This!