Small recruiting agencies worry new Ontario rules could put them out of business

New legislation has some smaller recruiting firms in Ontario concerned they could be driven out of business.

As of Jan. 2, 2024, recruiting companies in the province will have to be licenced and put up $25,000 in the form of a letter of credit the government could draw upon if it was needed to pay employees if they don’t get their wages.

• MORE: Ontario temp agencies need to be licenced by 2024

"This is going to put people out of business and this is going to create unemployment," said Suky Sodhi, President of Professional Selection, a recruitment company that specializes in hiring for the recruitment industry.

The Ontario government found between 2020 and 2021, over 10,000 workers were owed $4.2 million in back wages.

The Ontario Ministry of Labour told CTV News in a statement that, "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. These illegal actions allow them to gain an unfair competitive advantage over law-abiding agencies by undercutting rates.”

“The ministry 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. Recruiters and temporary help agencies are very supportive of this change and believe that licensing will provide them with legitimacy and a level playing field.”

“These changes are the most comprehensive of their kind in Canada will help protect the most vulnerable members of our society, including temporary foreign workers, young people, women, and newcomers.”

While smaller recruiting agencies say they are supportive of licencing in their industry, they feel the $25,000 letters of credit that is required should not be necessary for all recruiters, especially those who don’t directly pay workers.

Sodhi said the rules are too broad and cover agencies that don't handle employee payrolls.

"This should not apply to direct hire agencies. We do not make the decisions. We do not pay the employee, we are making the introduction," said Sodhi.

Smaller recruiting agencies said the new regulations could put them out of business.

"I’m going to have to take $25,000 just to sit in the bank to collect interest,” said Jessica Smith with Savant Recruiting. “I'm under two years in business. What am I supposed to do get a loan? They are not going to give it to me."

Mandy Wagner, the CEO of GxP Solution Recruiting, also said she will find it difficult to save the $25,000 when she feels it shouldn’t be required for her business.

"Many of us don't even have the $25,000 to put aside for this so that means complete shutdown in Ontario (for her business) and that's devastating," said Wagner.

Recruiters have started a petition calling on the province to change the rules so recruitment agencies that don't pay workers won't need the letter of credit.

Sodhi wants the government to reconsider the rules before they come into effect and said "do not take $25,000 away from small businesses that are trying to run a business and hire people."

Larger recruiting firms are less likely to be impacted by the changes, but smaller companies hope to meet at Queen's Park before Jan. 1 to voice their concerns.

CTV News also reached out to Association of Canadian Search, Employment and Staffing Services (ACSESS) and in a statement the group said that “ACSESS supports Ontario’s efforts to bring greater accountability to the recruitment industry and ensure the protection of industry standards and workers. These changes will help create a level playing field and result in a fairer, safer industry for recruitment firms, their clients, and employees.”

“This brings Ontario in line with regulations from British Columbia, Alberta, and many other Canadian provinces and is necessary to ensure that licensing and enforcement is meaningful and effective. Most importantly, they will help combat labour trafficking, abuse, and exploitation that can occur when there is no oversight and no mechanism to return illegal fees charged to vulnerable workers.”