New Fed rules crack down on temp worker exploitation

Coming changes to the Canada Labour Code will mean a significant shift in how federally regulated employers use temporary workers.

The amendments, set to come into force in "early 2026", prohibit wage differences between temporary agency workers and permanent employees performing substantially the same work, require employers to justify any pay disparities within 90 days of an employee request, and extend the same protections to part-time workers who have historically earned less per hour than full-time counterparts.

While the changes apply to the roughly 10 per cent of workers in federal jurisdiction – including banks, telecommunications companies, interprovincial transportation and port operations – Ottawa has positioned the rules as “a model to emulate” for provincial adoption.

The end of cheap temporary labour

For Catherine Connelly, professor at McMaster University's DeGroote School of Business and director of the McMaster Centre for Research on Employment and Work, the amendments could mean “a fundamental rethink of temporary agency firm strategy.”

In her view, the shift marks a return to the traditional purpose of temp agencies, which until recent years was to fill short-term needs with pre-vetted workers – covering maternity leaves, unexpected absences, seasonal demand or transition periods.

“Originally, you would go to an agency for a short-term need,” she says. “Agencies had these rosters of people who were willing to go on these short-term, here-and-there-everywhere assignments, and they were reliable and vetted and knew what they were doing, and they could fill in for anybody.”

That former use of temps to fill in maternity leaves and extended vacations was distorted by years of cost-cutting pressures and the growth of precarious employment.

“That just shifted… you would hire through a temp agency if you wanted people cheaply, and you would keep them on forever, but at a lower price,” says Connelly.

“You would rely on the agency to find someone qualified, slot them into the position, and if there's any problems, then it would be the agency's problem. It wouldn't be your problem. It's almost like a way of outsourcing your HR.”

Agencies would often take a substantial cut – “maybe 30 percent,” she notes – leaving workers with even lower take‑home pay. On top of that, many contracts explicitly barred client employers from hiring agency workers directly, locking those workers into long-term, lower-paid arrangements.

“That’s another dramatic shift – basically this legislation is saying, ‘No, you can't prohibit that anymore.’”

No more agency fees or ‘no‑hire’ clauses

The amendments don’t just target wage disparities. They also clamp down on long-criticized agency practices, including charging workers fees for placement services or ancillary “help” such as résumé support.

“Now, the agency can't ask the worker for a finder's fee,” says Connelly.

“They can't say, ‘Sure, I'll find you a job, it'll cost you $1,000.’ So that's gone, which is great news. And they can't even say, ‘We'll find you a job, we just need to work on your résumé … that'll cost you $500 for a cover letter and $500 for a résumé.’ That's prohibited too. So that is also great news.”

Combined with the end of “no‑hire” clauses that prevented agencies’ clients from bringing temps on permanently, the package of changes significantly rebalances power in favour of workers – and eliminates much of the “temp worker discount” that has made agency staffing so attractive to employers.

“A company could still go to an agency to find specialized workers or short-term workers,” Connelly emphasizes. “But it won't be cheaper anymore.”

Expanding internal workforces

The practical result of these changes, Connelly predicts, is that federal – and eventually provincially regulated – employers will need to rethink their labour planning strategies and expand their internal workforces.

Essentially, their options will be to pay temps more to equal the pay of their permanent counterparts; conduct detailed audits to determine which tasks can be allocated purely to agency work at a legitimately different level; or eliminate agency work altogether.

“Companies should really focus on being more agile themselves, and that usually means a slightly larger staffing complement, rather than relying on the agencies to be their flex or their agility,” she says.

To achieve this, she recommends cross‑training, realistic overtime options, added process efficiencies and any other capacity‑stretching measures.

“Any large organization should have enough slack in its system that if somebody does go on a mat leave, there's somebody who can take a secondment and cover that position... maybe as a growth opportunity, or just have enough coverage in adjacent roles that people could take that on extra for a short amount of time.”

Part-time staffing strategies will likewise need a reset. Employers can still hire part time, Connelly stresses, but should be doing so for scheduling and workload reasons – not as a way to lower hourly wages.

“A lot of part-time workers actually do receive a lower wage, even if it's identical work, which a lot of employees experience as unfair,” she says.

“On top of that, they also often get no benefits and lower wages. So, by taking out the lower wage aspect, it's maybe less of a disincentive for employers to hire more full-time people.”

The complexity of job comparisons

Compliance with the equal treatment provisions presents challenges that extend well beyond simply equalizing wage rates on paper. Federal employers will be tasked with determining whether employees perform “substantially the same kind of work under similar working conditions” – with little initial guidance on what parameters or methods to use.

For temporary workers, those assessments will be especially tricky.

“There is a strong tendency for people who are temps to take on slightly different roles than the permanent employees, even if you're not trying to differentiate them,” Connelly says. Permanent employees tend to take on “the more difficult tasks and the ones that maybe have a sensitive element to them,” involving internal and external partners, institutional knowledge and long‑running files.

For HR and line managers, the challenge will be drawing a credible line between normal task differentiation within a role and a genuine difference in job complexity that could justify a pay gap.

Preparing for compliance – with no case law

A key accountability mechanism is that employees can trigger reviews by requesting information about their own wages relative to others.

“There's no point just having the legislation without a way for the employees to find out if there's been a violation,” says Connelly. “Without being able to ask, how would you know necessarily if the person right next to you doing the same job is making more or less than you?”

While many large organizations already maintain detailed compensation structures, she expects a wave of interest from employees once the rules are in force.

“I kind of think the government might be underestimating how many people are going to ask, because why would you not ask?” she says. “I suspect that a lot of people will be curious.”

Audit your jobs – and your real staffing needs

For employers preparing for these changes – whether in federally regulated sectors facing immediate compliance or provincial employers anticipating similar future regulations – Connelly recommends starting with a comprehensive audit of current job structures and compensation systems: “These are often out of date. Now would be a great time to update them realistically."

This shift may also require a cultural reset in how “external” workers are treated. In some organizations, agency workers are clearly marked as outsiders, while in others, they are functionally indistinguishable from permanent staff, despite being on different payrolls.

“If they need to [use temps], that's fine – but just be ready to pay maybe more than you were paying before,” Connelly says.

“But if you don't need to, if this is very flexible, you should be able to bring this in‑house, maybe to where it was before, and then start thinking through what it's going to mean to expand your workforce a little bit.”