News Legislation Recruitment
Law designed to protect workers could backfire, say business owners

By Gautam Viswanathan, New Canadian Media

Ontario’s new law designed to protect immigrant and vulnerable workers from sketchy recruitment companies could end up hurting legitimate employment agencies, according to some small business owners.

Bill 27 requires agencies to be licensed and to set aside a $25,000 fund to cover potential loss of wages and benefits due to unfair labour practices. Between 2020 and 2021, the Ontario government uncovered unfair labour practices that led to more than $4.2 million in wages owed to 10,000 employees who were directly linked to recruiters and temporary staffing agencies.

But small employment agencies in Ontario are concerned the compulsory fund, which has to be in place at the beginning of 2024, will add to their operating costs and make it tougher for new arrivals in Canada to find work at a time when economic prospects are bleak.

They feel it is unfair for every company — small and huge — to pay such large amounts and have banded together to make their case before Ontario Premier Doug Ford as well as the Ministry of Immigration, Labour, and Skills Development.

Leading the charge for the smaller agencies is Suky Sodhi, president of Elite Global Recruiters, who recently organized a virtual meeting where nearly 200 agencies voiced their concerns.

“Bill 27 is actually designed to protect immigrant and vulnerable workers,” Sodhi said. “If you look at the premises behind it, it is to stop them from being exploited, and I am all for that. But the idea is that by being licensed, dubious agencies are going to go out of business. They are just going to find different ways to cheat.”

Setting aside $25,000 is a burden for a company that only employs a handful of staff, she said, especially at a time when companies are facing other challenges.

“What this will instead do is that it is going to be impacting the smaller businesses that are run by good, honest people that can help immigrants get a job, but they are not going to be able to stay in business,” Sodhi said.

Many businesses are still repaying the Canada Emergency Business Account (CEBA) loans from the federal government, which helped to sustain them during COVID lockdowns. CEBA allowed companies to claim up to $60,000 in loans, of which one third is forgiven as long as the rest is returned by Jan. 18, 2024.

“Some staffing agencies are still trying to recover from COVID,” Sodhi said, suggesting that as an alternative to the $25,000 letter of credit, Ontario could ask agencies to provide a surety bond, an instrument that enables financial obligations to be made to workers even if their employers default on payments, that would cost agencies about $300 a year.

Jennifer Morozowich, partner at Junction Collective, said the new law affects both staffing agencies that pay candidates directly for short-term jobs, and recruitment agencies which receive payment from clients for procuring permanent employees.

“They have very different business models but have been lumped under one umbrella,” Morozowich said. “This will impact our personal income and profitability, having to promptly find $25,000 of our personal income to provide to the bank as a credit guarantee.

“Not only is there a renewable $750 annual fee for the license, we will also need to pay our bank an annual fee for processing the letter.”

Samina Sarawalla, founder of Tandem Trans Services, said her business is operating on narrow margins during these challenging times.

“For every $1,000 we earn, between 80 and 85 percent goes toward rent, operational costs, advertising, staff pay, remittances, insurance board fees, and commercial insurance,” Sarawalla said.

A spokesperson for the province’s immigration and labour ministry defended the new legislation.

“While the majority of recruiters and temporary help agencies follow the rules, inspections by our ministry have found some firms charging illegal fees, paying people below the minimum wage, and denying them other basic rights,” the spokesperson said.

“The ministry has consulted extensively and publicly on the licensing system since late 2020, including meeting with businesses and associations representing the vast majority of Ontario’s recruitment industry.”

NCM spoke with Travis O’Rourke, president Hays Canada, a recruitment agency operating in 33 countries around the world, to get a better understanding of the proposed legislation.

“It is a large step towards compliance in an industry that has very little, as a barrier of entry,” he said. “Tomorrow, I could turn around and start Travis O’Rourke Recruitment Services, and all I need is a computer.

“Some companies out there, you tell your worker `We’re going to pay you every 30 days,’ and maybe my customer pays me every seven days. There’s a chance I can just take that money and then I will never pay the worker. The company closes, and they open up under a different name the next week.”

O’Rourke said he understands why some agencies are pushing for discussion about the letter of credit.

“I think the most contentious part is the $25,000 irrevocable letter of credit, and by putting that in, it was the government’s attempt — it’s debatable to whether or not that was the right strategy — to stop these fly-by-night organizations that are opening and closing, and limit the possibility for somebody to scam,” he said.

“The cost to us would be opportunity cost: We could put that $25,000 into investment or just collect interest. Fortunately for Hays it is a drop in the bucket, but for many companies, that might mean working, or not working.”

Other provinces already have similar measures. Nova Scotia requires foreign worker recruiters to provide a security worth $5,000; Alberta requires $7,500; in Quebec it’s $15,000; and in Saskatchewan, it’s $20,000. In Manitoba, recruiters must provide irrevocable letters of credit, or cash, worth $10,000.

B.C. requires farm labour contractors to provide security based on the number of employees, the minimum wage being paid, and how long a contractor has been in good standing.