In November 2023, soon after Illinois Governor JB Pritzker signed amendments to the Illinois Day and Temporary Labor Services Act (the “Act”), several staffing agencies and associations sued for an injunction against enforcement of certain provisions of the Act.  In Staffing Services Association of Illinois v. Flanagan, Case No. 23-CV-16208, these parties claimed that Sections 11, 42, and 67 of the Act were preempted by the National Labor Relations Act (NLRA), the Employee Retirement Income Security Act of 1974 (ERISA) and the due process clauses of the U.S. and Illinois Constitutions.

On March 11, 2024, the U.S. District Court for the Northern District of Illinois agreed that ERISA preempts Section 42 of the Act. The court found that Section 42’s requirement that employers pay temporary employees either “equivalent benefits” or “the hourly cash equivalent” of benefits is preempted by ERISA.  

Preemption by ERISA and Section 42 of the Illinois Day and Temporary Labor Services Act

ERISA is the federal legislation governing, among other things, employee benefit plans. It preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” 29 U.S.C. § 1144(a). ERISA preemption is designed to ensure that benefits plans are subject to a uniform body of law. In determining whether ERISA preempts a state law, courts look to whether the state law “governs a central matter of plan administration or interferes with nationally uniform plan administration.”¹

The amendment at issue here, Section 42, titled “Equal Pay for Equal Work,” requires temporary staffing agencies to pay temporary employees who work at a particular site for more than 90 days within a year either benefits equivalent to those received by the lowest paid, comparable, directly hired employee at the third-party client or “the hourly cash equivalent” of the actual cost of such benefits. 820 ILCS 175/42.

Section 42 attempts to force agencies to make nuanced determinations as they administer their benefits plans. Section 42 would require agencies to decide for themselves whether to administer actual benefits or cash equivalents to temporary employees, and further decide which employees are suitable comparators for temporary employees when calculating the benefits (or cash equivalents) owed.

The District Court’s Decision and Reasoning

Applying ERISA and its purpose of streamlining the administrative process for employer-sponsored benefit plans, the court determined that the equivalent benefits requirement was preempted.  The court held that the Act conflicted with ERISA by requiring agencies to make judgment calls about eligibility and benefit levels on an individualized and continual basis.  The court reasoned that “by mandating ‘benefits whose provision by nature requires an ongoing administrative program to meet the employer’s obligation’. . . Section 42 raises the very concern ERISA preemption seeks to address.” According to the court, Section 42 interfered with the uniformity ERISA seeks to achieve by creating alternate, discretionary administration mechanisms for temporary workers in Illinois, but not for workers outside the state.  Therefore, the court found, plaintiffs were entitled to an injunction because they had shown a reasonable likelihood of success on their argument that Section 42’s “equal benefits” requirement was preempted by ERISA and further that the balance of equities favored issuing an injunction.

In contrast, the court declined to enjoin the labor dispute notification requirement in Section 11 of the Act, reasoning that the NLRA did not preempt such notice requirements because the NLRA did not regulate such notices, nor would the notice requirement of the Act regulate conduct protected or prohibited by the NLRA.

The court also denied an injunction pertaining to the expanded private right of action in Section 67 of the Act, which allows “interested parties” to sue a day or temporary labor service agency or third-party client for alleged violations of the Act.  The court did not rule out the possibility that Section 67 may ultimately be found invalid, but determined that it lacked the record and legal authority that would be needed to make such a ruling at this time.

This ruling removes a significant burden from companies that would otherwise have to comply with the equivalent benefits rule for employees in Illinois.  The court found that irreparable harm would be placed upon such companies to ensure compliance under the Act, noting the expense of implementing new administrative systems and processes would be difficult if not impossible to absorb for many businesses. 

It should be noted, however, that the court did not enjoin, nor did plaintiffs seek to enjoin, provisions of the amendments providing for equal pay to temporary laborers who work for more than 90 days in a 12-month period for the same third-party client. Staffing agencies should continue to prepare for that situation should it arise.