Canada: Federal Budget 2023: What Employers Need To Know

Federal Budget 2023: What Employers Need to Know

On March 28, 2023, the federal government tabled its 2023 federal budget, titled A Made-in-Canada Plan: Strong Middle Class, Affordable Economy, Healthy Future ("Budget 2023").

The budget contains some significant changes that employers will want to keep in mind. In particular, there are provisions that will amend the Canada Labour Code ("CLC"), change pensions and benefit programs, and create new reporting requirements for employers. The CLC applies to federally regulated employers only, so those changes will not affect provincially regulated employers.

Our Labour & Employment and Pensions, Benefits, & Executive Compensation practice groups have teamed up to highlight the key provisions for employers to note.

Amendments to the Canada Labour Code

Prohibition on Replacement Workers

Budget 2023 proposes to prohibit the use of replacement workers during a strike or lockout in federally regulated sector and to improve the process to review and certify activities that must be maintained during a strike or lockout. A replacement worker is a person who does the work of a unionized worker who is on strike or lockout.

Bans on replacement workers do not exist in Canada except in British Columbia and Quebec. Both of those provinces provide exceptions in certain circumstances. British Columbia allows the employer to have other members of the bargaining unit or people who work at the same location to perform the work of the striking or locked out workers, as long as they were not transferred there after the bargaining commenced. Quebec is more strict. Only managers are allowed to perform the work of the employees on strike or lockout, or replacement workers may be allowed to avoid the destruction or serious deterioration of the employer's property.

Currently the ban is just a policy proposal and no legislation has been tabled. It is therefore unclear the scope of the federal ban, and whether it will contain similar exceptions to British Columbia or Quebec. The government previously telegraphed this amendment late last year through a consultation that closed January 31, 2023, and has committed to introduce this prohibition by the end of 2023.

The government published a discussion paper on the topic in late 2022, entitled Prohibiting replacement workers in federally regulated industries - Discussion paper. Surprisingly, the paper acknowledged that replacement worker prohibitions are "associated with more frequent strikes and lockouts" and "a lower employment rate".¹ Other studies have also noted that such bans "reduce new investment" and "lead to significantly higher negotiation costs and redistribution of quasi-rents from employers to unions".²

Proponents of these bans argue that they reduce violence at the picket line during a labour strike, however "there are no reliable statistics respecting violent conduct on Canadian picket lines" and "absolutely no evidence that the replacement worker bans in British Columbia or Quebec reduced picket line violence".³ Notably, the government has not pointed to any recent statistics demonstrating an increase in incidences of picket line violence to support implementing the ban.

This begs the question of why the government is seeking to instate the prohibition at this time, when these policies are shown to increase strikes and the costs of bargaining, decrease investment, and there is no compelling link to reducing picket line violence nor any current heightened violence. There is no doubt that a prohibition shifts the balance of power in labour relations to unions by giving them greater leverage to affect the employer through strikes, which may indeed be the underlying rationale of the government.

Protections for Gig Workers

Budget 2023 also proposes to increase job protections for federally regulated gig workers. The government described the term "gig worker" in its consultation paper entitled What we heard: Developing greater labour protections for gig workers, as "workers who enter more casual work arrangements such as short-term contracts with firms or individuals to complete specific and often one-off tasks."⁴

Budget 2023 proposes to protect gig workers by strengthening prohibitions against employees being misclassified as independent contractors (who would not receive protection under the CLC). Currently, whether a worker is classified as an employee or an independent contractor is handled on a case-by-case basis, whether by adjudicators under the CLC or the courts.

Since the government has not yet tabled legislation, it is unclear at this time what the amendments will include. However, Canada's recent consultation paper referred to proposals that could make their way into the CLC amendments, including:

• new statutory definitions for the employment classifications of employee, dependent contractor, and independent contractor.
• a presumption of employee status, simplified employment definitions, or an employment classification test.[4]

Again, it is unclear why this is a federal concern since the consultation paper acknowledged that "most gig workers fall under provincial jurisdiction" (e.g. delivery services, ridesharing, professional services).[4]

Extension of Leave of Absence Provisions

The budget also has two proposed additions to the leave of absence provisions of the CLC:

• Introducing a new paid leave for employees who experience pregnancy loss. It is unclear how long the paid leave will last.
• Increasing eligibility for leave related to the death or disappearance of a child. Currently employees who experience the death or disappearance of a child are eligible to take up to 104 weeks of unpaid leave. It is unclear at this time what changes will be made to the leave provision.

Dental Coverage Reporting Requirements

Budget 2023 also introduces reporting requirements for employer provided dental coverage, to assist with the rollout of Canada's Affordable Dental Care program. The legislation would compel employers and employer pension plans to report dental coverage offered to their employees and plan members through T4/T4A reporting.

Employment Insurance Extensions

Budget 2023 also proposes changes to Employment Insurance by extending coverage for up to five additional weeks to seasonal claimants in 13 regions, until October 2024.

Pensions

Budget 2023, proposes to amend the Pension Benefits Standards Act, 1985 and the Pooled Registered Pension Plans Act to improve retirement security for plan members and retirees through new frameworks for variable payment life annuities and technical housekeeping amendments.

Federally regulated pension funds will also need to disclose their crypto-asset exposures to the Office of the Superintendent of Financial Institutions. The government will also work with provinces and territories to discuss crypto-asset or related activity disclosures by Canada's largest pension plans to help protect Canadians' retirement savings.

Retirement Compensation Arrangements

Budget 2023 included a hidden gem to assist employers that sponsor retirement compensation arrangements ("RCAs") that are not pre-funded by the employer.

Such RCAs typically must be secured by letters of credit (or surety bonds) issued by a financial institution which require certain fees or premiums to be paid by the RCA to the issuer. Under Part XI.3 of the Income Tax Act, a refundable tax is imposed at a rate of 50 per cent on contributions to an RCA trust, as well as on income and gains earned or realized by the trust. The tax is generally refunded as the retirement benefits are paid from the RCA trust to the employee.

For an RCA that is supplemental to a registered pension plan, Budget 2023 proposes to amend the Income Tax Act so that fees or premiums paid for the purposes of securing or renewing a letter of credit (or a surety bond) for an RCA that is supplemental to a registered pension plan will not be subject to the refundable tax. This change would apply to fees or premiums paid on or after Budget Day.

Budget 2023 also proposes to create a mechanism for an RCA to recover refundable tax previously paid by an RCA in respect of letter of credit (or surety bond) fees or premiums.

Specifically, employers would be allowed to request a refund of previously remitted refundable taxes in respect of fees or premiums paid for letters of credit (or surety bonds) by RCA trusts, based on the retirement benefits that are paid out of the employer's corporate revenues to employees that had RCA benefits secured by letters of credit (or surety bonds). Employers would be eligible for a refund of 50 per cent of the retirement benefits paid, up to the amount of refundable tax previously paid. This change would apply to retirement benefits paid after 2023.

Footnotes

1. Government of Canada, Employment and Social Development Canada, Prohibiting replacement workers in federally regulated industries - Discussion paper, November 30, 2022, online: < https://www.canada.ca/en/employment-social-development/services/labour-relations/replacement-workers/discussion-paper.html >.

2. John W. Budd, and Yijiang Wang. "Labor Policy and Investment: Evidence from Canada" (2004) 57:3 Industrial and Labor Relations Review, at 386–401, online: < https://doi.org/10.2307/4126658 > ; Peter Cramton, Morley Gunderson and Joseph Tracy, "The Effect Of Collective Bargaining Legislation On Strikes And Wages" (1999) 81:3 The Review of Economics and Statistics, at 475-487, online: < https://econpapers.repec.org/article/tprrestat/v_3a81_3ay_3a1999_3ai_3a3_3ap_3a475-487.htm >.

3. Canadian Association of Counsel to Employers, "Submissions of the Canadian Association of Counsel to Employers Regarding Bill C-257" (2004), at 5, online: < https://www.counseltoemployers.ca/uploads/content/93_1Bill_C-257_Submission_Feb_5_2007.pdf >.

4. Government of Canada, Employment and Social Development Canada, What we heard: Developing greater labour protections for gig workers, March, 2023, online: < https://www.canada.ca/en/employment-social-development/corporate/portfolio/labour/programs/labour-standards/reports/gig-workers-what-we-heard.html >.

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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.