Dueling Rulings on Temp Worker Pay Laws Sow Confusion in States

The status of Illinois and New Jersey laws requiring that temporary workers receive compensation equal to direct-hire employees remains in flux, as staffing industry groups challenging the measures and the state lawmakers supporting them respond to differing court decisions.

New Jersey’s temp worker pay mandate survived a second round of legal scrutiny Wednesday after the US Court of Appeals for the Third Circuit rejected the industry’s claims that it was unconstitutional. A federal district court in Illinois went the opposite direction in March, granting an injunction to block a portion of that state’s law requiring that temp workers also receive equal benefits.

The laws are part of a small but growing effort primarily in Democratic-majority statehouses to expand workplace protections for temp workers, as businesses increasingly rely on contract labor instead of traditional employer-employee arrangements. But those measures typically meet stiff resistance from the staffing industry that leads to scaling back the bills, like when New Jersey Gov. Phil Murphy (D) vetoed an earlier version in 2022.

Now the industry groups challenging New Jersey’s law await a district court decision on a new preliminary injunction request, this time matching the claims that won over the Illinois court: that the equal benefits-related mandate is preempted by the federal Employee Retirement Income Security Act. The uncertainty of how the litigation will end and the novelty of the pay and benefits requirements make it tricky for employers to find the best compliance path.

“Even though it’s maybe still unclear about how to calculate the benefits and the cash equivalent, and what’s included, I would advise clients to make their best effort,” said Sarah Wieselthier, an employment lawyer with Fisher & Phillips LLP in New Jersey.

The New Jersey law, in particular, amplifies the risk by letting workers sue both staffing agencies and the job-site businesses for violations.

“Compliance is critical by both parties so that no one is held responsible under the joint and several liability provision,” Wieselthier said.

Bills of Rights

New Jersey and Illinois enacted requirements in 2023 that temporary staffing agencies must pay workers the wages equal to comparable direct-hire employees, plus equal benefits or the cash equivalent of those benefits. The mandates apply to workers within certain occupations, primarily in manual-labor jobs, and the Illinois law’s pay and benefits requirements only take effect after a temp has been working at the same job site for 90 days.

California, Massachusetts, and Washington also have each enacted a “temp worker bill of rights” with transparency and workplace safety provisions similar to the Illinois and New Jersey laws. But these states did not include the pay and benefits mandates.

The New Jersey plaintiffs—the New Jersey Staffing Alliance, American Staffing Association, and New Jersey Business and Industry Association—pivoted toward an ERISA preemption claim in a motion filed in federal district court June 6, while they awaited the Third Circuit’s decision on their previous constitutional claims.

In that filing, they cited the Illinois court’s March decision and evidence that New Jersey’s labor department has begun efforts to enforce the temp worker law to justify a second try at getting portions of the law enjoined. The Illinois court found the requirement to provide benefits, even with the option to pay an equivalent sum of cash instead, ran afoul of ERISA’s underlying purpose to ensure employers can follow a uniform set of rules nationwide related to employee benefit plans without state law interference.

The New Jersey groups’ previous injunction request, which the Third Circuit rejected as the district court below had done in July 2023, had argued the state’s equal pay and benefits requirements were unconstitutionally vague. The temp law violated the dormant Commerce Clause by putting in-state staffing firms at a competitive disadvantage to out-of-state firms where these standards don’t currently exist, they argued

The Illinois labor department, meanwhile, is appealing the decision to block its equal benefits requirement to the Seventh Circuit.

The staffing industry has said the equal pay and benefits laws are too costly for temp agencies looking to compete in Illinois and New Jersey, and that specific laws aren’t needed to protect temp workers from exploitation, as they’re covered by many existing workplace laws, if properly enforced.

The industry associations challenging New Jersey’s law said in a June 6 court filing their temp-agency members reported substantial declines in revenue as businesses cut back on using in-state agencies after the law took effect in 2023.

Illinois Legislation

As the New Jersey plaintiffs shift their approach, state lawmakers in Illinois are also making another attempt to strengthen their case.

The state passed legislation this year that could help justify enforcing the equal benefits requirement that the district court enjoined in March.

Legislation that’s awaiting Gov. JB Pritzker’s (D) signature (SB 3650) would change the requirement to provide “equivalent benefits” to instead require “substantially similar benefits.” It also would clarify that businesses can instead opt to provide temp workers the “hourly average cash equivalent” of the cost of benefits that comparable direct-hire employees receive.

The Illinois bill also would change the threshold for the equal pay and benefits mandates. Instead of taking effect after a worker has been on the same job site for 90 days, they would go into force after 720 hours within a 12-month period, which is the equivalent of 90 work days at eight hours per day.

This matches the 720-hour threshold that’s common in employers’ contracts with staffing agencies, after which the companies have the option to direct-hire those temp workers as regular employees if they wish, said Jennifer Colvin, an employment lawyer with Ogletree Deakins in Chicago.

This trigger for an equal pay mandate also helps give businesses an incentive to convert temps to permanent hires, one of the goals of worker advocates and lawmakers who supported the measure, she said.

“The purpose was: we want people who work in temp roles to be able to become direct employees,” Colvin said. The law’s supporters didn’t “want them to be working in temp roles for months and months and years and years, which does happen sometimes.”