Canada's Shadow Construction: The $23B Cost of Cash Pay & Exploitation

VAUGHAN, ON – April 06, 2026 – The allure of a cash-in-hand payment at the end of a long work week is a powerful one, but for thousands of construction workers across Canada, it's a deal that sounds too good to be true because it is. This predatory practice is the focus of a new campaign by the United Brotherhood of Carpenters and Joiners of America (UBC), which is sounding the alarm on a multibillion-dollar underground economy that exploits workers, defrauds taxpayers, and puts legitimate businesses at a crippling disadvantage.

As part of its annual Tax Fraud Days of Action, running from April 6-18, the union is aiming to dismantle the myths surrounding cash pay and advocate for legislative solutions to a problem that has become deeply embedded in the Canadian construction sector.

The $23 Billion Shadow

The scale of the problem is staggering. According to data from Statistics Canada, Canada's total underground economy reached $72.4 billion in 2023. The single largest contributor to this shadow market is residential construction, which accounted for nearly $23 billion in unreported activity, or roughly a third of the national total. This isn't a new phenomenon; residential construction has led underground economic activity since 1992, and experts project that at its current rate, it could comprise half of the entire underground economy within a decade.

This shadow industry thrives on a simple but destructive model: contractors pay workers in cash, misclassifying them as 'independent contractors' rather than employees. This allows unscrupulous employers to avoid their legal obligations, including payroll taxes, contributions to the Canada Pension Plan (CPP) and Employment Insurance (EI), and premiums for workers' compensation insurance. The result is a massive loss of tax revenue and a system where honest players are punished.

"Unfortunately, much of residential construction in Canada is being carried out by workers being paid in cash," explains Jason Rowe, Vice President of the UBC Canadian District. The issue isn't confined to small jobs, Rowe notes, with even government-funded capital projects sometimes impacted by the problem.

The Human Cost of a Cash Deal

Behind the billions in unreported income is a human toll. Workers who accept cash are often unaware they are forfeiting a suite of fundamental legal and financial protections. They are left without a safety net, shouldering a burden that legally belongs to their employer.

When a worker is not on the official payroll, they lose access to EI benefits if they are laid off. They have no employer contributions to their CPP, diminishing their retirement security. Most critically, they are often not covered by provincial workers' compensation. An injury on the job—a common occurrence in construction—can become a financial catastrophe, leaving them with no income and mounting medical bills. They may even feel pressured to work while injured just to survive.

"We see workers being taken advantage of everyday on a range of jobsites across the country," Rowe says. This exploitation can manifest as excessive hours, a lack of safety training, and a climate of fear where workers are laid off for refusing unsafe work. Without official employment records, they have little to no legal recourse.

A Rigged Game for Legitimate Businesses

The underground economy doesn't just harm workers; it creates an unfair and unsustainable market for legitimate contractors who follow the rules. These businesses, which pay their taxes, benefits, and insurance premiums, find themselves unable to compete on price with fraudulent operators.

Joe Zamparo, owner of the Ontario-based Arsenal Constructors Inc., describes the challenge as a two-front battle. "First, in a competitive bidding environment, I often can't compete with shady companies that aren't paying for workers' compensation – not to mention health and retirement benefits – for their workers," he states. "Second, their cash-pay sales pitch can sometimes make it difficult for companies that play by the rules to recruit qualified personnel."

This dynamic creates a race to the bottom, where ethical practices become a competitive disadvantage. It erodes industry standards, threatens the viability of honest small and medium-sized businesses, and ultimately impacts the quality and safety of construction projects.

Building Accountability Through Legislation

To combat this systemic issue, the Carpenters' Union is proposing a key legislative tool already proven effective in the United States: General Contractor Liability. This legislation would make prime contractors on a project jointly liable when their subcontractors fail to pay wages or make required payroll remittances.

This policy establishes accountability at the top of the contracting chain. The principle is that the general contractor, who hires the subcontractors and controls the project, is in the best position to ensure compliance. Similar laws are already well-established in multiple U.S. jurisdictions, including California's AB 1701 and New York's 'Scaffold Law,' which impose strict liability on general contractors for the actions and safety of those working on their sites.

By making the prime contractor liable, the incentive for subcontractors to cheat the system is dramatically reduced. It forces greater due diligence in the hiring of subcontractors and encourages the use of transparent, law-abiding partners throughout the supply chain.

Championing Trades and Transparency

Beyond holding contractors accountable, the union is also calling for reforms to how public money is spent. They are advocating for increased transparency in the procurement process for all government-funded projects to ensure that contracts are not awarded to companies with a history of labor violations.

Furthermore, the UBC is pushing for a mandatory minimum requirement that 10 to 15 percent of all workforce hours on public construction projects be completed by registered apprentices. This measure would serve a dual purpose: ensuring a steady pipeline of skilled tradespeople to address Canada's labor shortage and creating opportunities for the next generation to learn in safe, properly regulated environments.

"By implementing a combination of general contractor liability legislation, refinements to procurement processes, and creating space on public projects for registered apprentices, governments across Canada have the opportunity to champion the skilled trades and workforce development while rooting out our industry's bad actors," says Rowe.