Labor & Employment Law Daily Wrap Up, WAGE-HOUR—N.D. Ill.: Staffing agencies denied injunction against Illinois law regulating day workers’ benefits, (May 28, 2025)

By Ronald Miller, J.D.

Section 42 guarantees temporary workers “[e]qual pay for equal work” and covers both wages and benefits.

Staffing agencies and trade associations were not entitled to a preliminary injunction to bar enforcement of a provision of the Illinois Day and Temporary Labor Services Act as preempted by ERISA, ruled a federal district court in Illinois. The new Section 42(b) requires a staffing agency to provide temporary workers who have worked more than 720 hours at a third-party client site with benefits that are “substantially similar” to those the client provides certain directly hired employees or pay “the hourly average cash equivalent of the cost of the benefits” provided by the client. Here, the court determined that the statute did not “reference” ERISA plans; was not “connected with” ERISA plans; did not impose an ERISA plan; and did not create an alternative enforcement scheme that competes with ERISA (Staffing Services Association of Illinois v. Flanagan, No. 23 C 16208 (N.D. Ill. May 22, 2025)).

Temporary worker protections. On August 4, 2023, the Illinois General Assembly enacted several amendments to the Illinois Day and Temporary Labor Services Act (DTLSA) into law. The amendments are aimed at enhancing protections for the labor and employment rights of the more than 650,000 temporary workers in the state. Those temporary workers are employed by temporary staffing agencies and sent to third-party client work sites.

On November 22, 2023, three staffing agencies and two agency trade associations, filed this suit challenging three of the new provisions: Sections 11, 42, and 67. The plaintiffs moved for a preliminary injunction prohibiting the Illinois Department of Labor (IDOL) from enforcing all three provisions and related regulations. Specifically, the plaintiffs alleged that Section 42 was preempted by ERISA, Section 11 was preempted by the NLRA, and Section 67 violated due process principles. The court granted the motion as to Section 42 and denied the motion as to Sections 11 and 67.

Thereafter, IDOL filed an interlocutory appeal of the March 2024 order. During the pendency of the appeal, in June 2024, the Illinois legislature passed new amendments to the DTLSA, including changes to Section 42.

Temporary worker guarantees. Section 42 guarantees temporary workers “[e]qual pay for equal work” and covers both wages and benefits. The plaintiffs’ challenge is focused on the benefits provision. The new Section 42(b) requires an agency to provide temporary workers who have worked more than 720 hours at a third-party client site with benefits that are “substantially similar” to those the client provides certain directly hired employees or pay “the hourly average cash equivalent of the cost of the benefits” provided by the client.

Section 42(c) requires third party clients to timely disclose “all necessary information related to job duties, working conditions, pay, seniority, and benefits it provides to the applicable classification of directly hired employees” so that agencies can meet their obligations under Section 42.

The plaintiffs asked the court to preliminarily enjoin the enforcement of the new Sections 42(b) and (c).

Likelihood of success. As an initial matter, the court observed that Section 42(c) does not impose any obligations on the plaintiff agencies. The proper parties to raise such a challenge are the third-party clients. Therefore, the court considered only whether the plaintiffs have made an adequate showing that ERISA preempts Section 42(b).

ERISA preemption. A state law “relates” to an ERISA plan, and is thus preempted, if it “has a connection with or reference to such a plan.” A law has a “connection with” ERISA plans if it “governs a central matter of plan administration or interferes with nationally uniform plan administration.” A law makes “reference to” to ERISA plans if “it acts immediately and exclusively upon ERISA plans or where the existence of ERISA plans is essential to the law’s operation.” Moreover, there is a presumption against preemption in areas of traditional state regulation.

The plaintiffs contended that Section 42(b) “relates to” ERISA plans in four main ways. First, it “references” ERISA plans by tethering the statutory obligation to the value of ERISA plans. Second, it “connects with” ERISA plans by impeding the agencies’ ability to administer their plans in a uniform way. Third, it imposes an ERISA plan by requiring agencies to engage in prolonged, individualized decision-making regarding benefits. And fourth, it creates an alternative enforcement scheme that competes with ERISA.

Reference to ERISA plans. In a close question, the court found that the plaintiffs had not adequately shown that they are likely to succeed on any of these bases. The plaintiffs contended that Section 42(b) makes “reference to” ERISA plans by tying the statutory obligations to the nature and value of such plans.

Here, an agency’s obligations under Section 42(b) are measured by reference to the benefits the agency provides to its workers and/or the benefits its clients provide to their employees. In many cases, agencies and their clients provide benefits through ERISA plans. But the plaintiffs also conceded that in many cases, agencies and their clients provide benefits that are not covered by ERISA, “such as leave.” Because Section 42(b) is “indifferent” to whether those benefits are offered through an ERISA plan or not, it cannot be said that the statute “refers to” such plans under prevailing case law. On that basis, the plaintiffs had not shown they are likely to succeed on their ERISA preemption claim based on an impermissible “reference to” ERISA plans.

Connection with ERISA plans. The plaintiffs also argued that Section 42(b) is “connected with” ERISA plans. This type of ERISA preemption targets “laws that require providers to structure their benefit plans in particular ways, such as by requiring payment of specific benefits or by binding plan administrators to specific rules for determining beneficiary status.”

But Section 42(b) does not mandate that agencies structure their ERISA plans any particular way. Section 42, viewed as a whole, guarantees temporary workers a minimum level of compensation, comprising both a wage component and a benefit component, and the benefits component can be satisfied through means unconnected with ERISA plans. Section 42(b) does not compel any change to what is covered, how beneficiaries are designated, or the way benefits are disbursed under an ERISA plan. Section 42(b) may economically influence agencies to make changes to their ERISA plans to provide different benefits, but it does not force them to do so. Thus, the plaintiffs had not shown they are likely to succeed on their ERISA preemption claim based on an impermissible “connection with” ERISA plans.

Creation of ERISA plan. The plaintiffs next argued that by demanding that staffing agencies engage in an analytical process to calculate the hourly average cash equivalent of the actual cost of benefits, Section 42(b) imposes an ERISA plan. To comply with Section 42(b), agencies will need to maintain an ongoing administrative scheme with particularized and judgment-laden determinations about workers’ eligibility for new or different benefits or the cash equivalent of the cost of the benefits provided by their clients. Here, the court determined that the plaintiffs have not shown they are likely to succeed on their ERISA preemption claim based on the argument that the administrative obligations imposed by Section 42(b) constitute an ERISA plan.

Alternative enforcement mechanism. Finally, the plaintiffs argued that ERISA preempts Section 42(b) because of the ways it can be enforced against agencies. ERISA preempts “state-law causes of action seeking ‘alternative enforcement mechanisms’ as an end run around ERISA’s more limited remedial scheme.”

The plaintiffs argued that the DTLSA’s provisions permitting the IDOL to rescind licenses and issue fines and granting a private right of action to interested parties, including temporary workers, circumvent the remedial scheme at 29 U.S.C. § 1132(a).

Under Section 1132(a), “a plan participant or beneficiary may sue to recover benefits due under the plan, to enforce the participant’s rights under the plan, or to clarify rights to future benefits.” “Relief may take the form of accrued benefits due, a declaratory judgment on entitlement to benefits, or an injunction against a plan administrator’s improper refusal to pay benefits.”

But this suit did not present any cause-of-action arising under the DTLSA. Instead, it was a facial preemption challenge. Whether a cause of action arising under the DTLSA is an “end run around” ERISA’s enforcement scheme will depend on the nature of that cause of action, including who is asserting it and whether it involves an ERISA plan. Here, the plaintiffs had not shown they are likely to succeed on their ERISA preemption claim based on the DTLSA’s enforcement provisions.

Accordingly, the plaintiffs were denied their motion for a preliminary injunction.

The case is No. 23 C 16208.

Judge: Durkin, T.

Attorneys: Heidi Brady (Troutman Pepper Locke) for Staffing Services Association of Illinois. Alex Hemmer, Illinois Attorney General’s Office, for Jane R. Flanagan.

Companies: Staffing Services Association of Illinois; Illinois Department of Labor

Cases: Procedure StateLegislation WageHour PensionBenefitPlans IllinoisNews