Canada Clarifies Who Can Hire Workers Under LMIA Rules

Canada’s updated LMIA rules now give Service Canada a clearer framework for deciding which entity is the real employer of a temporary foreign worker.

The employer guidance, marked “New: September 18, 2026” on several Employment and Social Development Canada (ESDC) program pages, explains how officers will assess Labour Market Impact Assessment applications. It also addresses staffing agencies that recruit workers for other businesses and employers that attempt to classify temporary foreign workers as independent contractors.

The update is published program guidance rather than a new law passed by Parliament or a formal amendment to the Immigration and Refugee Protection Regulations. ESDC administers the LMIA process through Service Canada, while Immigration, Refugees and Citizenship Canada handles work permit applications and immigration status.

How Service Canada will identify the employer

Under the updated guidance, the employer is the person, business, corporation or organization that hires the temporary foreign worker, establishes the working conditions and directly pays the worker.

Service Canada will consider the overall working relationship instead of relying only on the name appearing on an application or contract. The published factors include:

• Which entity is responsible for meeting Temporary Foreign Worker Program requirements.
• Which entity directly benefits from the worker’s labour.
• Who decides where, when and how the work is performed.
• Who pays wages and other compensation.
• Who assigns duties, sets expectations and monitors performance.
• Who has authority to fire or dismiss the worker.
• Which entity the worker recognizes as the employer.
• Who signs the employment agreement as the employer on or before the first day of work.
• How management, supervision, remuneration and statutory deductions are handled.

The guidance says an employer-employee relationship exists when an employer hires a worker, directs the work and pays for it. The employment agreement is intended to confirm that relationship, including the wage rate and working conditions.

LMIA rules target agency arrangements involving another business

One of the most significant clarifications concerns staffing and employment agencies. Service Canada says agencies that recruit workers for other businesses are not considered employers under the Temporary Foreign Worker Program when the required employer-employee relationship does not exist between the agency and the worker.

That does not amount to a general ban on staffing agencies or recruitment businesses operating in Canada. The issue is whether the agency applying for the LMIA genuinely employs the worker or whether another company controls the work in practice.

For example, an agency may recruit a worker and submit an application, while a client company sets the schedule, assigns duties, supervises performance and determines the workplace conditions. In that type of arrangement, Service Canada may assess the client company as the actual employer rather than accepting the agency as the LMIA applicant employer.

Employers using labour brokers, placement companies or multi-party hiring arrangements should therefore examine who controls the daily employment relationship before submitting a new application.

Temporary foreign workers cannot simply be labelled contractors

The updated guidance also states that employers cannot classify temporary foreign workers as independent contractors when the facts show an employer-employee relationship.

Service Canada says misclassification may weaken wage protections, allow employers to avoid deductions for income tax, the Canada Pension Plan, the Quebec Pension Plan or Employment Insurance, and breach federal or provincial employment laws.

The restriction applies after an LMIA is approved as well. Employers cannot reclassify a temporary foreign worker as an independent contractor or restructure the arrangement to avoid payroll, compensation or Temporary Foreign Worker Program requirements.

Possible consequences for non-compliance include administrative monetary penalties, bans from the program and publication of the employer’s name on government websites. ESDC’s broader compliance information says penalties can reach up to $100,000 per violation, subject to a maximum of $1 million per year, while the most serious violations can lead to a permanent ban.

Which programs include the updated employer guidance?

The same core employer definition and relationship criteria have been added to multiple Temporary Foreign Worker Program requirements pages. The affected pathways include:

Program or stream	Employer guidance focus
High-wage positions	Identifying the genuine employer and employment relationship
Low-wage positions	Employer responsibilities and worker classification
Global Talent Stream	Direct hiring, supervision and wage payment
Agricultural Stream	Employer identity and employment agreement requirements
Seasonal Agricultural Worker Program	Employer-employee relationship assessment
In-home caregiver positions	Employer responsibilities and working conditions
LMIAs supporting permanent residence	Employer definition and contractor restrictions
Recognized Employer Pilot	Employer legitimacy and compliance commitments

What employers and workers should review

Employers preparing an LMIA application should ensure that the entity named in the application is also the entity that hires the worker, pays wages, sets duties and schedules, supervises performance and has dismissal authority.

The employment agreement should be signed by the same employer on or before the worker’s first day. Payroll deductions and other statutory obligations should also be handled consistently with the relationship described in the LMIA and employment documents.

Foreign workers should check whether the employer named in their LMIA and employment agreement is the same business that controls their day-to-day work. A significant mismatch between the named employer and the workplace operator could create compliance concerns.

The September 18 guidance does not announce automatic cancellations of existing positive LMIAs or work permits. It also does not establish a new transition period or retroactive cancellation date. However, employers remain subject to the existing compliance regime, including record-retention and inspection requirements.

ESDC says employers must generally keep relevant records for six years from the first day of the employment period for which the work permit was issued. Existing employers can still face compliance action if they fail to meet the conditions attached to an LMIA, employment offer or work permit.

What the update means

The practical message is that the name on an LMIA application will not be decisive by itself. Service Canada will look at who actually hires, pays, directs and benefits from the worker’s labour.

For employers, the guidance makes documentation and payroll consistency more important, particularly where an agency or client business is involved. For foreign workers, it reinforces the importance of confirming who the legal employer is before accepting an LMIA-based job.

Frequently Asked Questions

Fact-Checked: Key employer-definition, staffing-agency, worker-classification and compliance claims were checked against ESDC and Service Canada program guidance published or updated on Canada.ca.

Disclaimer: This article is for general information only and is not legal, employment or immigration advice.