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Canada's federal State Immunity Act, 1985 grants to foreign states a pre- sumptive immunity from actions in the Canadian courts, subject to important exceptions. One such exception is set out in section 5 of that Act, which applies when the proceedings relate to "commercial activity." This paper argues that Canadian courts and tribunals in labour and employment cases have been incon- sistent in their interpretation of the scope of the exception for commercial activity, and thus in the extent to which they have been prepared to uphold foreign states' claims to immunity. Advocating for what is termed the "liberal" approach, as enunciated in the leading case of Re Canada Labour Code, the author discusses the case law to demonstrate the varying degrees to which this approach has been followed. His preference for the liberal approach, which focuses on the roles and responsibilities of the employee, is informed by a comparative analysis of American, European, and Australian legislation and jurisprudence. Ultimately, it is argued that state immunity in employment cases should generally be restricted to two situations: individual employee claims where the employee is a high-rank- ing diplomat, civil servant or military official with the foreign state; and col- lective employee claims brought against a foreign state employer in a highly sensitive location such as a military base, embassy or consulate.