Introduction

The Canadian government has recently tabled their “Canada Strong Budget 2025” (Budget 2025)^[1] – an ambitious plan to increase efficiency and cut “wasteful spending”. In large part, it proposes to achieve this by reducing the federal workforce and investing in the private sector. Among the proposed measures are several initiatives that will impact federally regulated employers.

Restricting non-compete clauses

Budget 2025 proposes amending to the Canada Labour Code to restrict the use of non-compete agreements in federally regulated employment contracts. According to the Budget, this initiative is meant to “protect workers’ rights, promote labour mobility, strengthen competition, and empower workers to move to a higher-paying job or start their own business.”^[2] Consultations on this proposed legislative amendment will begin in 2026.

Tackling employee misclassification

Budget 2025 outlines the federal government’s plans to invest $77 million over four years starting in 2026-2027 to assist the Canada Revenue Agency (CRA) in addressing deliberate misclassification of employees as independent contractors. This would include amending the Income Tax Act and the Excise Tax Act to permit the CRA to share information with the Department of Employment and Social Development Canada “for the purpose of addressing worker misclassification.”^[3] The inter-departmental sharing of information is intended to better identify and redress deliberate misclassification practices.

Wage theft

In the Budget, the federal government cracks down on federally regulated employers engaging in wage theft, which is identified as one of the most common contraventions of the Canadian Labour Code.^[4] The Budget proposes to build on the 2024 Fall Economic Statement and implement a regulatory regime to “substantially increase the penalties”^[5] on employers who fail to pay employees their owed compensation. The details of implementing this initiative will be worked out through a consultation process with workers and employers.

Amending the Canadian Human Rights Act

The Budget proposes to amend the Canadian Human Rights Act (CHRA) to restructure the Canadian Human Rights Commission. In particular, these amendments would consolidate the roles of the Chief Commissioner and the Deputy Chief Commissioner.^[6] This change is consistent with the general themes of Budget 2025, which include eliminating the duplicity of roles and reducing costs through radical restructuring.

Employment insurance

Budget 2025 proposes to extend the availability of Employment Insurance (EI) Parental Benefits during bereavement. This proposal seeks to amend the Employment Insurance Act to provide for an additional eight weeks of benefits to parents in the event of a child’s death.^[7]

The Budget also proposes temporarily expanding the Employment Insurance Work-Sharing Program, which was announced in March 2025. This would permit eligible employees to receive EI benefits if they voluntarily reduce their work hours in response to decreased business activity beyond their employer’s control. This is intended to subsidize employee income while allowing employers to reduce hours in line with business demands, and in doing so, avoid layoffs.^[8]

The Budget further proposes temporary EI support for workers in sectors negatively impacted by tariffs.^[9] These expanded EI Benefits are expected to start in 2025-2026.

Unions and collective bargaining

Budget 2025 proposes to expand the Union Training and Innovation Program to “boost union-based apprenticeship training in the Red Seals trades”.^[10] Pursuant to this initiative, the Budget allocates $75 million to be invested into the Program over three years, starting in 2026-2027. This is intended to complement initiatives to build more homes and infrastructure across Canada.

The Budget also proposes to amend the Federal Public Sector Labour Relations Act. These amendments are intended to adjust the collective bargaining dispute resolution framework, “to ensure the government can attract and retain the necessary talent for a high-performing public service to meet the needs of Canadians, while respecting Canada’s fiscal circumstances relative to its stated budgetary policies and objectives”.^[11] The Budget lacks specific details on what this would look like, but it emphasizes the importance of collective bargaining, and of striking a balance between labour market trends and the government’s budget.

Retirement and pensions

Budget 2025 proposes to amend the Public Service Superannuation Act and the Income Tax Regulations to offer an Early Retirement Incentive Program through the Public Service Pension Plan. This incentive would allow and encourage eligible public sector workers to retire earlier, with a guaranteed immediate and penalty-free pension based on years of service.^[12] This is intended to help mitigate the Budget’s proposed reduction of the federal workforce.

It further proposes that Pension Benefits for federal government employees be indexed in accordance with the Consumer Price Index to ensure consistent indexation of pensions.^[13]

The Budget also announces consultations related to public sector pension benefits. In particular, it proposes consultations to amend the Canada Pension Plan (CPP) and the Quebec Pension Plan (QPP) to ensure employees do not over-contribute to their pensions, while still maintaining their pension benefit levels. This is anticipated to save federal employees up to $1,100 in annual pension contributions.^[14]

Impacts on public service employees

Frontline workers early retirement benefits

Budget 2025 proposes amendments to the Public Service Superannuation Act to extend early retirement benefits to frontline workers, including firefighters, border services officers, parliamentary protection officers, and other frontline workers covered by the Public Service Pension Plan.^[15] This would allow frontline workers to retire earlier and with an unreduced pension after completing 25 years of actual operational service or at age 50 with 25 years of actual and deemed operational service combined (with at least 10 years of actual service). Since this applies across all frontline employees, it would promote greater career mobility across the public sector.

RCMP and CAF disability benefits

Similarly, the Budget proposes to amend the Royal Canadian Mounted Police Superannuation Act to clarify the process for administering and adjudicating disability award applications.^[16] This would be implemented on a retroactive and prospective basis to streamline the provision of health treatment to current and former RCMP members.

The Budget proposes modifying the escalation formula of RCMP Disability Pensions to be based solely on the Consumer Price Index. This would also clarify the escalation formula applicable to disability pensions for Canadian Armed Forces (CAF) members and veterans.^[17] These proposed amendments would be effective January 2027. The Budget also proposes various legislative amendments impacting the long-term care of veterans, including clarifying calculations for accommodations and meals charges.

Immigration

Budget 2025 clarifies that the federal government will continue to reduce immigration rates. At the same time, however, it proposes an International Talent Attraction Strategy and Action Plan, aimed at increasing foreign skilled labour through immigration. The proposed Action Plan would begin by recruiting over a thousand international researchers to universities.^[18] Additionally, an accelerated immigration pathway will be implemented for H1-B visa holders.^[19]

Further, the Budget proposes investing in a Foreign Credential Recognition Action Fund. This is intended “to help qualified foreign-trained professionals contribute more quickly to Canada’s workforce.”^[20] This initiative aims to make the foreign credential recognition process more efficient, with specific emphasis on healthcare and construction credentials.

Layoffs, reskilling and hiring initiatives

Budget 2025 proposes several initiatives to bolster employment in the private sector. In particular, it discusses a new “reskilling package for up to 50,000 [federal government] workers”,^[21] to offset the impacts of the anticipated layoffs. The federal government plans to lay off approximately 40,000 federal government employees, including those in management positions, representing about 10 percent of the federal workforce.^[22] The Budget describes the reasoning for this restructuring as follows:

Savings will be achieved by restructuring operations and consolidating internal services and rightsizing programs to realise efficiencies. It will also involve workforce adjustment and attrition to return the size of the public service to a more sustainable level… A leaner public service is a more empowered and productive public service.^[23]

Encouraging voluntary departures, including through the above-mentioned early retirement incentives, is also intended to offset the impacts of this restructuring.

The Budget further proposes launching “a new digital jobs and training platform with private-sector partners to connect Canadians more quickly to careers.”^[24] This is expected to be implemented in 2026-2027, although the Budget lacks details about the platform.

A new reskilling package is also proposed to support workers negatively impacted by increased tariffs. This includes employees in the auto and forestry sectors, among others. This initiative is to be supported through Labour Market Development Agreements with provinces and territories.^[25]

Youth employment

Budget 2025 emphasizes measures aimed at increasing employment for youth. Proposed initiatives include the Canada Summer Jobs Program, the Youth Employment and Skills Strategy, and the Student Work Placement Program. These initiatives aim to provide training to youth to facilitate their transition into the workforce and increase access to summer jobs.^[26]

Intersection of employment and artificial intelligence

Budget 2025 discusses expanding the use of artificial intelligence (AI) within the federal government. The use of AI seems to be an integral part of the proposed restructuring and is seemingly aimed at mitigating the effects of a reduced workforce. The Budget states that Employment and Social Development Canada (ESDC) will expand its use of AI internally, with the intention of increasing efficiency, while implicitly stating that this will be coupled with thinning out the workforce. It states that the use of AI will “streamline and automate internal processes, reduce its real property portfolio by decreasing general office space, consolidate management and administrative support functions, reduce reliance on external consultants, and limit travel and conference attendance.”^[27]

The proposed expansion of AI is to be facilitated through a new Office of Digital Transformation (ODT), which is intended to “proactively identify, implement, and scale technology solutions across the federal government”.^[28] This would expand AI across all federal government departments. The Budget suggests that achieving this ambitious technological expansion will stimulate and support technology innovation in Canada.

The Budget identifies the following departments as being on track to implement AI into their ordinary operations:

• Shared Services Canada will apply AI and automation across internal operations, and automate common IT support requests, reducing call volumes and costs while improving the user experience.
• The Department of Justice will integrate AI, advanced analytics and automation tools to streamline routine tasks, enhance decision-making and free employees to focus on higher-value strategic work.
• Transport Canada will use AI and automation to optimise back-office activities and reduce costs of dedicated resources assigned to repetitive tasks, and realign service delivery models with a greater focus on self-service and technology-enabled solutions.
• Public Services and Procurement Canada will implement digital delivery of procurement-related documents to better manage project delivery.^[29]