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Richard Penner, left, and Gregory Levey pose with their Figure 1 tech app in their Toronto office on Sept. 15, 2015. Last week, the software company passed on hiring ‘an awesome candidate’ based in Western Europe ‘because we’d have to go through this long drawn-out process,’ said Mr. Levey, the firm’s chief executive officer.Glenn Lowson/The Globe and Mail

After winning a big concession in the budget on taxing stock options, Canada's tech startup sector is braced for its next battle: urging Ottawa to fix immigration rules that limit its ability to hire top foreign talent.

The Express Entry system brought in by the last government in 2015 "is fundamentally too rigid" and leaves employers waiting up to six months to discover if they can bring skilled foreign talent to Canada, said Tobi Lutke, CEO of Ottawa-based software firm Shopify Inc. "That puts us at a huge disadvantage for recruiting internationally."

Under policy changes enacted by the Conservatives, employers now must validate a job offer by getting government approval for a "Labour Market Impact Assessment" – showing it couldn't find Canadians to do the job. While that approach targeted abusers of the temporary foreign worker program, it meant fast-growing tech firms searching for the best employees globally had to submit to the same drawn-out process, only to be told in many cases by Ottawa that they should just hire a Canadian.

"It was a misguided approach," said Sarah Anson-Cartwright, director of skills and immigration policy for the Canadian Chamber of Commerce.

Immigration Minister John McCallum wasn't available to comment. But a department spokesman said the government plans to review the Express Entry program "to see how it can be improved for potential immigrants such as top-level foreign executives. The review will include, likely among other things, the LMIA requirement."

Tech startup leaders say the rules not only add delays but that the process lacks transparency and consistency, imposes needless bureaucracy and lacks an appeals process. In many cases, would-be recruits choose other offers rather than waiting. Foreign students awaiting government approval for their job offers sometimes must leave Canada when their study visas expire.

Six out of 10 employers surveyed by the Canadian Employee Relocation Council (CERC) last year said the immigration changes under the Tories had hindered their strategy planning and recruiting. One out of six opted to create the jobs abroad instead.

Last week, Toronto-based Figure 1, a software company that allows doctors to share medical photos, passed on "an awesome candidate" based in Western Europe "because we'd have to go through this long drawn-out process," said CEO Greg Levey. "He would have led a whole initiative here. But we went through this before."

In that earlier instance, Figure 1 tried to hire an experienced American as a business development lead, but in November of 2014, the government said no on grounds there was "no demonstrable labour shortage in this occupation." The company hired her anyway – in New York. Now she heads the fastest growing office of the 35-person company, and will likely have 12 employees by year's end, all in the U.S. "That wasn't our plan," said Mr. Levey, "But that was certainly the byproduct," of the rejection. "If you have the best people in the world willing to come to Canada, why are we turning them away?"

Express Entry was brought in after after the temporary foreign worker issue became a hot potato in 2013 for the Conservative government. Employers were accused of abusing the system to hire low-paid foreign workers rather than Canadians.

To address employer concerns, the government introduced an Express Entry application system early last year. But "in an atmosphere of hyper-political reaction over temporary foreign workers, the government made policy choices that ultimately sacrificed the effectiveness of Express Entry," the chamber of commerce said in a report in January.

Tech-sector advocates hope the government – which has been trumpeting a coming "innovation agenda" – will address their concerns. "I fully expect there will be a lot of dialogue and discussion with government [this year] around both the innovation agenda but also to the extent that it pertains to talent and immigration" said Iain Klugman, CEO of tech industry support agency Communitech in Waterloo, Ont.

Stephen Cryne, CEO of CERC, said the government could address many concerns with simple, non-legislative changes, including creating a trusted employer program to let employers speed up applications and relaxing the need for LMIAs. That "would improve things significantly for business," he said.

"We are disappointed that there was no allocation of funds [in the budget] to improve Canada's economic-migration programs, or develop programs that attract highly skilled workers, nor address shortcomings in service delivery," said Mr. Cryne.

However, some proponents of speedier work immigration rules fear the government's priorities have shifted away from favouring economic migration, as the Liberals seek to fulfill a pledge to settle Syrian refugees and reunite immigrant families. Mr. McCallum recently said Canada plans to accept 300,000 immigrants in 2016 – up 7 per cent from 2015 – but take in just 160,600 economic migrants, down from 181,300 last year.