In August 2023, Illinois Governor Pritzker signed sweeping amendments to the Illinois Day and Temporary Labor Services Act (DTLSA) that imposed new obligations on both the day and temporary labor service agencies employing covered laborers and the clients to whom those agencies contract for temporary labor. Recently, one of those amendments (indeed the key amendment) was temporarily enjoined by an Illinois federal court, calling into question the future impact such amendments will have on the temporary labor market.

As way of background, the 2023 amendments to the DTLSA included, most significantly, a requirement that laborers assigned to a client for more than 90 calendar days (in any 12-month period, whether consecutively or intermittently) must be paid, by the temporary agency, at least the rate of pay and equivalent benefits as the lowest-paid directly hired employee of the client with the same level of seniority at the client and performing the same or substantially similar work. Agencies may alternatively pay “the hourly cash equivalent of the actual cost benefits” in lieu of providing equivalent benefits.  The Illinois Department of Labor (IDOL) defined benefits as including health care, vision, dental, life insurance, retirement, leave, other similar employee benefits, and other employee benefits as required by State and federal law.  The pay and equivalent benefits obligation was one of several obligations placed on covered agencies and the clients with whom they contract. These amendments were due to take effect immediately and the IDOL passed emergency rules to provide guidance to employers on compliance.  However, in September 2023 the Joint Committee on Administrative Rules (JCAR) objected to those rules. And then in November 2023, Governor Pritzker signed a new amendment to the DTLSA to delay the effective date of these new obligations until April 1, 2024.

Recently, several temporary agencies and trade associations filed suit against the IDOL seeking to enjoin the IDOL’s enforcement of three amendments to the DTLSA ‑ Staffing Services Association, et al. v. Jane R. Flanagan, Director Illinois Department of Labor (Case No. 23-c-16208).  Those amendments require (1) an agency to provide equivalent benefits to laborers as the lowest-paid directly hired employee of the client with the same level of seniority and performing the same or substantially similar work (also known as Section 42); (2) a client of the agency to provide all necessary information related to job duties, pay, and benefits of directly hired employees necessary for the agency to pay equivalent benefits; and (3) an agency to notify laborers of any labor unrest at the client’s facility before sending the laborer to the facility.  On March 11, 2024, the Court entered a temporary injunction against the IDOL enforcing the provision of the DTLSA that requires agencies to provide equivalent benefits to laborers because that provision is preempted by the Employee Retirement Income Security Act of 1974 (ERISA).  As the Court found, when determining if a law preempts ERISA, “courts ask whether a state law ‘governs a central matter of plan administration or interferes with nationally uniform plan administration.’ Plaintiffs have made a sufficiently strong showing that Section 42 fits the bill. The provision ‘dictates the choices facing ERISA plans.’ Agencies must determine the value of many different benefit plans and then determine whether to provide the value in cash or the benefits themselves by modifying their plans or adopting new ones. Such a direct and inevitable link to ERISA plans warrants preemption.” (Opinion, p. 6) (internal citations omitted).

Notably, the Court declined to temporarily enjoin the provision of the Act that requires a client of an agency to provide the necessary pay and benefits information to the agency finding the agencies lacked standing to challenge that requirement. The Court also declined to temporarily enjoin the provision of the Act that requires notifying laborers of any labor unrest at a client’s facility prior to placing a laborer at the facility.

While the court has only temporarily enjoined enforcement of the equivalent benefits requirement, temporary agencies and the clients with whom they contract will have to wait and see how the IDOL responds given a key amendment to the DTLSA is on track to be permanently enjoined and therefore unenforceable. Stay tuned.