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On March 11, 2024, Judge Thomas M. Durkin (U.S. District for the Northern District of Illinois) announced that the Court would preliminarily enjoin one of several amendments to Illinois’ Day and Temporary Labor Services Act (“Act”) that Governor J.B. Pritzker signed into law on August 4, 2023 (previously reported <a href="https://www.michaelbest.com/Newsroom/317104/Governor-Signs-Bill-Amending-Illinoisrsquo-Day-and-Temporary-Labor-Services-Act">here</a> and <a href="https://www.michaelbest.com/Newsroom/327208/The-Illinois-General-Assembly-Passes-Legislation-That-Would-Delay-A-Key-Provision-of-the-Illinois-Day-and-Temporary-Labor-Services-Act">here</a>). Under Section 42 of the Act, if an agency’s employee is assigned to work at the same third-party client for more than 90 days in a consecutive 12-month period, then that temporary employee must be provided benefits that are “equivalent” to the benefits provided by the third-party client to its lowest paid, comparable, directly-hired employee. 820 ILCS 175/42. Alternatively, the agency may pay “the hourly cash equivalent” of such benefits.

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In Staffing Services Association of Illinois, et al. v. Illinois Department of Labor, a group of staffing agencies and staffing agency associations successfully argued that the Employee Retirement Income Security Act of 1974 (“ERISA”) preempts Section 42’s “equivalent benefits” requirement. Under ERISA, if a State law “relates” to an employee benefits plan, it is preempted. The Court determined that the plaintiffs made a sufficiently strong showing that the “equivalent benefits” provision relates to ERISA benefits plans and is, therefore, likely preempted.

In reaching its conclusion, the Court noted that Congress intended ERISA to be a uniform body of law applicable to employee benefits plans, thereby minimizing the administrative burdens on employers of having to comply with a patchwork of rules and regulations from various jurisdictions. The Court also noted that ERISA preemption has been found where laws required plans to be structured in particular ways, bound plan administrators to specific rules, or created alternative enforcement mechanisms.

The Court found that the “equivalent benefits” provision contravenes the purposes of ERISA by effectively “dictat[ing] the choices facing ERISA plans.” Under Section 42, staffing agencies must attempt to value various benefit plans provided by third-party clients and then must decide whether to pay the monetary equivalent, adopt a new plan, or modify an existing plan to make it “equivalent” to a third-party client’s plan. The Court stated that this “direct and inevitable link” to plan administration likely warrants preemption under ERISA.

The Illinois Department of Labor argued that, because Section 42 allows agencies to pay the cash equivalent in lieu of benefits, agencies could comply with Section 42 in a way that would have no impact on any ERISA plan. The Court rejected that argument, noting that Illinois agencies would still be required to identify comparable third-party client employees, collect and analyze third-party client benefits plans, attempt to value those plans, and track the number of days employees worked for a particular client so as to determine eligibility. All of this clearly would require agencies to create and maintain the sort of ongoing administrative program that ERISA was, in part, designed to avoid. In addition, Section 42 would cause benefit plan administration to differ between Illinois and other states, thereby “balkanizing” benefit administration as between different jurisdictions. Again, the Court determined that this is an outcome that ERISA was designed to prevent. Accordingly, the Court agreed with the plaintiffs and granted the motion to preliminarily enjoin Section 42.

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Pending final judgment in Staffing Services Association of Illinois, Illinois staffing agencies will not be required to provide “equivalent benefits,” or cash payments in lieu, to their employees who work more than 90 days at the same third-party client location in a consecutive 12-month period. Depending on the outcome of the lawsuit, this temporary reprieve from the “equivalent benefits” requirement may or may not become permanent. Regardless, we will be watching the General Assembly to see whether it will attempt to rewrite Section 42 in a way that avoids ERISA preemption.

Business professionals walking through a modern office space and ascending stairs during a busy workday.

Courtney D. Tedrowe

Labor & Employment

A Win For Illinois Staffing Agencies: Federal Court Grants Preliminary Injunction Of “Equivalent Benefits” Provision In Illinois’ Day And Temporary Labor Services Act

A Win For Illinois Staffing Agencies: Federal Court Grants Preliminary Injunction Of “Equivalent Benefits” Provision In Illinois’ Day And Temporary Labor Services Act

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