A federal judge has blocked a major portion of Illinois' new temporary worker law, as the judge agreed with staffing agencies that federal law overrules the state's attempt to bring a heavy and costly new regulatory burden, which staffing agencies said would gut their industry and hurt hundreds of thousands of Illinois temp workers in the process.
U.S. District Judge Thomas Durkin delivered the ruling on March 11 in Chicago federal court.
The ruling delivers a major blow to efforts by Pritzker and his Democratic allies in Springfield to bring a dizzying array of new state regulations to bear on the temporary and day labor staffing industries in Illinois and open the agencies to a potential blitz of costly lawsuits, regulatory actions and fines.
Last November, three temporary worker staffing agencies and two of their trade associations filed suit in federal court, challenging changes to Illinois' Day and Temporary Labor Services Act, which had been signed into law last summer.
Pritzker and other supporters of the law claimed the law was intended to strengthen protections for the workplace rights of more than 650,000 workers in Illinois who annually find employment through temporary and day laborer staffing agencies. Such workers are legally employed by the staffing agencies, and then contracted to work in factories and other work sites on behalf of the agencies' employer clients.
The Day and Temporary Labor Services law has been on the books since 2006. However, in 2023, Illinois' Democratic supermajority enacted three key changes to the law.
First, they amended Section 42 of the law, which they called "Equal pay for equal work." Section 42 would require staffing agencies to "pay temporary employees who work at a particular site for more than ninety days within a year at least the same wages and 'equivalent benefits' as the lowest paid, comparable, directly-hired employee employed by the third-party client."
To accomplish this goal, Section 42 also would have required the client employers to provide staffing agencies with proprietary information concerning the pay and benefits for their workforces, so the staffing agencies could have the information needed to comply with the new rules.
Other amended sections of the law included provisions aimed at essentially blunting the ability of staffing agencies to hire out temp workers to help companies dealing with strikes and other union-related work stoppages, and which explicitly gave outside "interested parties" the right to sue staffing agencies they believe weren't complying with the Day and Temporary Labor Services law. This could include a long list of not just workers who supposedly suffered harm, but also potential progressive activist organizations, seeking to use lawsuits to hammer the industry in the name of ending worker exploitation.
The staffing agencies' lawsuit challenged all of the new changes to the law, which were set to take effect on April 1, 2024.
Specifically, the staffing agencies asserted the changes violated federal laws.
They alleged the Section 42 changes would create an illegal state-specific set of rules out of step with those of all other states, which conflicts with the federal Employee Retirement Income Security Act (ERISA.) They noted ERISA was enacted specifically to allow businesses that hire and pay workers in multiple states the ability to operate under one set of rules, rather than a patchwork state laws setting widely variable standards on health insurance and retirement savings, among other benefits.
They asserted the law would impose crushing administrative burdens on their businesses, as they seek to comply with a law for which they said "compliance is literally impossible."
Under Section 42, they noted, staffing agencies would be required to calculate benefits on an employee-by-employee level, a task they said would be rendered impossible by their business model, in which the same employee could work more than 90 days for multiple different third-party employer clients.
The staffing agencies further asserted the provisions related to strikes and work stoppages violated federal labor relations law. And they asserted the provision dramatically enhancing their exposure to lawsuits amounts to violations of their constitutional rights to due process.
They sought injunctions blocking all of the challenged provisions from taking effect.
Judge Durkin said the staffing agencies disagreed with the staffing agencies' assertions regarding the provisions related to new lawsuits and union work stoppages.
But the judge said the staffing agencies presented a much stronger case against Section 42.
The judge agreed Section 42 directly conflicts with the federal ERISA law. This, he said, means the state law is preempted by the federal law, which is considered supreme under the U.S. Constitution.
Durkin noted Section 42 would require staffing agencies and their employer clients to evaluate and compare information about benefits that are themselves regulated by ERISA or they must calculate an "'actual cost' of both sets of benefits" to attempt to avoid running afoul of Section 42's mandates and exposing themselves to lawsuits, investigations and fines.
"In short, 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," Durkin said.
The judge further noted Illinois' law represented more than just a possible threat of "irreparable harm" to their businesses and industry.
Durkin noted those provisions had already begun harming the businesses, even before the law was to take effect. He noted staffing agencies in Illinois were reporting losses of 8-15%, and noted agencies had presented evidence that employer clients were either already cutting ties with them or moving in that direction, with some explicitly stating they would no longer hire temp workers for 90 days. This, the judge noted, was to avoid having to comply with the state's requirement to turn over "sensitive" data about their pay and benefits to the staffing agencies.
"... The harm to Plaintiffs of denying the injunction is substantial. Plaintiffs are poised to incur significant costs of compliance and face the possibility of penalties if they do not or cannot comply," Durkin wrote. "As to the public interest, Plaintiffs point to the potential departure of agencies from Illinois if Section 42 goes into effect and the accompanying loss of job opportunities for the hundreds of thousands of temporary workers they employ."
The judge entered a preliminary injunction order blocking the state from enforcing Section 42 on March 18.
Plaintiffs are represented by attorneys Matthew T. Furton, Julie C. Webb, Heidi L. Brady, Joshua A. Skundberg and Carl C. Scherz, of the firm of Locke Lord LLP, of Chicago and Dallas.