Mar 20, 2024

“Equivalent Benefits” Requirements for Illinois Staffing Employees Temporarily Enjoined

The U.S. District Court for the Northern District of Illinois (the “District Court”) recently entered a temporary injunction halting enforcement of certain benefits-related provisions under the Illinois Day and Temporary Labor Services Act (the “DTLSA”). These benefits-related provisions were previously set to take effect on April 1, 2024.

“Equivalent Benefits” Requirements. The benefits-related provisions of the DTLSA gave staffing agencies operating in Illinois a choice:

  1. Pay their staffing employees who were assigned to work at a client site for more than 90 days within a year at least the same wages and “equivalent benefits” as the lowest paid, comparable employee employed by the staffing agency’s client, or
  2. Pay their staffing employees the hourly cash equivalent of the actual cost of the benefits. These benefits were to include healthcare, vision, dental, life insurance, retirement, leave and other similar employee benefits.

For ease of reference, we refer to these requirements as the “equivalent benefits” requirements.

ERISA Preemption and the “Equivalent Benefits” Requirement. Several staffing agencies sued to enjoin various provisions of the DTLSA, including those setting forth the “equivalent benefits” requirements. Among other things, the staffing agencies argued these state-law requirements were unlawful because they were preempted by the Employee Retirement Income Security Act of 1974 (“ERISA”). Under ERISA’s broad preemption provision, subject to certain exceptions, state law is preempted by ERISA when the law has a connection with, or reference to, an ERISA plan.

The District Court agreed with the staffing agencies’ arguments, ruling they were likely to prevail on their legal challenge because the “equivalent benefits” requirements improperly required the staffing agencies to modify their own ERISA plans and deprived the agencies of the ability to administer their ERISA plans uniformly across all states.

The District Court declined to grant a temporary injunction with respect to other provisions of the DTLSA, including a labor-related provision and the provision that requires staffing agency clients (employers) to disclose certain pay and benefits-related information to the staffing agencies to aid their compliance with the “equivalent benefits” requirements. As to the disclosure requirements, the District Court held the staffing agencies lacked standing to challenge them, observing the challenge should have come from the staffing agency clients themselves.

Next Steps for Staffing Agencies and Employers. Considering the District Court’s ruling, we recommend that staffing agencies covered by the DTLSA, and employers who are engaged with a covered staffing agency, take a “wait and see” approach with respect to compliance with the “equivalent benefits” requirements for their workers in Illinois. Although the District Court’s decision suggests these requirements are in serious legal jeopardy, the Illinois Department of Labor may elect to appeal the decision or seek to amend the law to avoid a final ERISA preemption finding.

For more information on ERISA preemption, contact your SGR Employee Benefits and Executive Compensation counsel.

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