LMIA Refusal Grounds: Minimize Risks

Canadian companies facing labour shortages often seek to hire foreign workers through the Labour Market Impact Assessment (LMIA) process. However, LMIA applications can be refused if the Department of Employment and Social Development Canada (ESDC)/Service Canada determines that hiring a foreign worker will have a negative effect on the Canadian labour market. ESDC/Service Canada will approve an LMIA application if they determine that hiring a foreign worker will have a positive or neutral effect on the labour market in Canada.

To assess the impact of bringing or retaining foreign workers on the Canadian labour market, ESDC/Service Canada will evaluate whether a company meets the LMIA requirements for employers in general and for a specific LMIA stream, if applicable.

Understanding the Grounds on Which an LMIA Application Was Refused or May Be Refused

To minimize the risks of a Labour Market Impact Assessment (LMIA) refusal, employers should understand the grounds on which an application was refused or may be refused. Refusal could happen if an officer finds that a job offer is not genuine or if hiring a foreign worker will have a negative effect on the labor market in Canada because of any of the following reasons:

• An employer is not actively engaged in the business.
• An employer does not have a reasonable employment need for the position they apply to fill with a foreign worker.
• An employer is not reasonably able to fulfill the terms of a job offer.
• An employer has outstanding compliance issues.
• An employer offers working conditions to a foreign national that do not meet generally accepted Canadian standards.
• An employer has not made or agreed to make reasonable efforts to hire or train Canadians or permanent residents.

LMIA Refusal Ground #1 - Not Actively Engaged in a Business in Respect of Which a Job Offer is Made

If a company is not providing goods or services in Canada, this criterion might be difficult to meet. In other words, if a company is dormant, then why would they need to hire anyone? In most cases, limited engagement would not be sufficient to justify the need for foreign workers. In some unique cases, however, it would be possible.

For example, a startup company hiring foreign tech workers may need tech talent to work on a product while not yet actively offering it to the public. Or a multinational corporation in the innovative sector that wishes to bring a senior executive or another unique and specialized role to set up operations in Canada. These scenarios would normally fall under the Global Talent Stream LMIA.

Some other examples could be a Canadian trucking company expanding to a different province where they are building a new terminal and need to fill trucking positions to start transportation via new routes. Additionally, a new farm may need to hire foreign general laborers before they have their first harvest due to the seasonal nature of the business and work. These scenarios would normally fall under the Agricultural or Seasonal Agricultural Streams LMIA.

While there is a presumption of the need to prove active involvement in a business when an employer files an LMIA application, the above examples demonstrate that in some cases, the level of engagement (limited or absent) may be justified based on the nature of the business and circumstances.

In any case, and especially with startups, it is primarily the employer’s responsibility to provide documents proving engagement in business. ESDC provides a list of business legitimacy documents to select from. This list would be much broader for startup companies. If an LMIA application was poorly prepared and refused because a company did not prove active engagement in a business, prepare and submit proper business legitimacy documents and reapply. If a company is indeed not operational yet, reapply when it reaches the stage of offering goods or services to the public. If a situation is unique, provide substantial evidence demonstrating the need for foreign labor at this stage.

One of the biggest misconceptions is that a business must be in operation for at least one year to file an LMIA application. That is not correct. This requirement only applies to situations when a company applies for an LMIA to support a foreign worker’s application for permanent residence. In all other cases, a new business can apply for an LMIA as long as it can demonstrate active involvement in a business.

LMIA Refusal Ground #2 - An Employer Does Not Have a Reasonable Employment Need for the Position They Apply to Fill with a Foreign Worker

Concerns about a lack of reasonable employment need may arise in two situations. The first is when a company is dormant and not providing goods or services (see Ground #1 and some exceptions). The second situation is when a company is actively involved in a business, but the vacancy for which it wishes to hire a foreign national is irrelevant to the business. For example, a tech company filing an LMIA to bring a cook to work for them would find it hard to justify a reasonable employment need for a cook by a technology company unless the company has a restaurant serving food for its employees. If your company's situation is similar to this example, be sure to provide documents explaining any unique or uncommon circumstances.

LMIA Refusal Ground #3 - An Employer is Not Reasonably Able to Fulfill the Terms of a Job Offer

An LMIA job offer to a temporary foreign worker will list all the essential terms and conditions of employment. A common ground for refusal could be the employer’s financial ability to pay wages for the entire duration of the requested employment. ESDC/Service Canada provides a list of documents to prove an employer’s ability to fulfill the terms of a job offer.

When it comes to foreign workers' wages, the math is very straightforward. For example, if the annual wage is CAD 50,000 and the term of employment is three years, the employer would need to prove they have around CAD 150,000 to cover the three-year term. The Net Income or Retained Earnings section of T2 Schedule 100 Balance Sheet Information and T2 Schedule 125 Income Statement Information should show an amount equal to or above that figure. If it shows less, the employer should provide attestation from a lawyer or chartered professional accountant. If this is the case, include attestation with the initial LMIA application to avoid processing delays.

LMIA Refusal Ground #4 - An Employer Has Outstanding Compliance Issues

This refusal ground may only arise for employers returning to the Temporary Foreign Worker Program. Employers who have previously hired temporary workers may be inspected by ESDC/Service Canada and found to be non-compliant if they have breached any of the LMIA terms. These employers can receive a monetary penalty or a ban from hiring temporary workers for a period of time, commonly up to two years.

However, the inspection can go back up to six years from the first day of the TFW’s work. In some cases, TFWs may no longer work for a company but may still be subject to inspection because relevant documents must be kept for six years. Before non-compliant employers can use the TFWP again, they must resolve all outstanding issues, such as paying fines and refraining from hiring foreign nationals while under a time ban. Therefore, employers should not underestimate ESDC/Service Canada inspections or release themselves from all obligations after LMIA approval, especially if they plan to use the TFWP again.

LMIA Refusal Ground #5 - An Employer Offers Working Conditions to a Foreign National That Do Not Meet Generally Accepted Canadian Standards

Working conditions refer to various aspects of the work environment and employment relationship, including wages, hours of work, overtime, vacation time, benefits, additional compensation, job duties, physical and psychological aspects of the work environment, health and safety, etc. Standards may vary based on job location, occupation, and LMIA stream. In any case, minimum standards must be met. The policy rationale behind this is to prevent abuse of the TFWP and situations where Canadian employers hire foreign labor not primarily because of a labor or skills shortage, but rather to offer lower standards than Canadians or permanent residents would accept.

Employers are required to conduct recruitment prior to applying for an LMIA, which usually involves posting job advertisements on multiple job boards. It is crucial that the job advertisement includes all the necessary information defined by ESDC/Service Canada, and that each standard stated in the ad complies with generally accepted Canadian standards. For instance, if the Ontario Employment Standards Act requires a minimum of ten paid vacation days, an employer who offers only five paid vacation days would not meet this requirement.

One common mistake is that employers may misdefine the prevailing wage they must offer. For many LMIA streams, employers must post a job advertisement specifying the hourly wage. If the wage is incorrect in the advertisement, the LMIA application will be refused, and the employer will need to conduct recruitment for four weeks and reapply from the beginning. Therefore, employers should take the time to carefully review the working conditions stated in the advertisement, as this is one of the most frequent reasons for LMIA refusals.

LMIA Refusal Ground #6 - An Employer Has Not Made or Agreed to Make Reasonable Efforts to Hire or Train Canadians or Permanent Residents, Where Required

Employers are required to take action to transition to the Canadian labor force when applying under the High-wage Stream LMIA. One of the conditions is to submit a Transition Plan listing activities and milestones that must be completed within the period for which temporary foreign workers are hired (i.e., two or three years). When applying for additional positions, employers must report on the progress of previous transition plans. Failure to perform undertaken activities without a reasonable explanation would result in a refusal.

Similarly, companies hiring foreign tech talent or filling unique and specialized roles under the Global Talent Stream LMIA are required to submit a Labour Market Benefits Plan (LMBP). One of the three labor market benefits will be hiring (a mandatory benefit under Category A) or training (a mandatory benefit under Category B) Canadians or permanent residents. Employers who fail to implement the LMBP will be refused their next LMIA under the Global Talent Stream and cannot use this LMIA stream for two years. They will still be able to use the High-wage Stream, but they will need to conduct recruitment efforts from which they would otherwise be exempt if applying under the Global Talent Stream.

Therefore, it is essential to select realistic and achievable activities and follow a timeline. If the plan becomes undoable, employers are required to update it and confirm changes with ESDC/Service Canada. This practice ensures that employers can keep using the TFWP and avoid compliance issues.

How to Reapply for an LMIA

Employers who have received an LMIA refusal can always take the time to analyze their mistakes, gather relevant supporting documents, or work to improve their situation before reapplying. The length of time it takes to reapply can vary from one day to one year or longer, depending on the circumstances.

In general, there is no limit to the number of times an employer can apply for an LMIA after a refusal, nor is there a time limit. The only exception would be if an employer is found to be non-compliant and is therefore banned from hiring temporary workers for a certain period or permanently.

Negative LMIA is Different from “Refusal to Process” or “Incomplete” LMIA Application

It's worth noting that a negative LMIA means that ESDC/Service Canada found that hiring a foreign worker would have a negative impact on the Canadian labor market, as determined by the assessment. However, there are two other categories that are different from a negative assessment.

Employers who fall under conditions for Refusal to Process LMIA should not initiate an application at all. ESDC/Service Canada does not have the authority to process applications from employers who offer services in the sex industry (such as striptease, erotic dance, escort services, or erotic massage), who were found non-compliant and have not resolved it, who are requesting low-wage positions above the cap, who are requesting in-home caregiver positions where there is a live-in requirement (unless for high medical needs clients), or who have had an LMIA revoked in the past two years for providing false, misleading, or inaccurate information.

On the other hand, if an LMIA application is returned as incomplete, it is considered as never submitted, with one exception being the Global Talent Stream LMIA. An LMIA application under all other streams may be incomplete if:

• Fields in all the necessary forms are not filled out (this is unlikely to occur given that all LMIA applications must be submitted via the LMIA Online Portal, which would almost eliminate the possibility of this mistake).
• Not all required documents are provided (given that in the LMIA Online Portal, the list of documents is not generated automatically by the stream, new employers can easily miss a required document and make a mistake).
• All forms are not signed where required (e.g., attestation).
• An LMIA processing fee is not paid within the provided timeline (where applicable).

If an LMIA application is returned as incomplete, an employer should reapply. However, the negative side of this is that if recruitment was and is a requirement and more than three months have passed since ads posting, an employer will need to conduct recruitment again before they can reapply.