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90_SB0417
New Act
Creates the Employee Leasing Company Act to ensure that
an employer that leases its workers obtains workers'
compensation insurance coverage for all of its employees and
that premium is paid commensurate with exposure and
anticipated claim experience. Provides that an employee
leasing company shall obtain a license from the Department of
Insurance. Provides for registration in order to obtain a
license. Provides that it is the employee leasing company's
responsibility to purchase and maintain a separate policy
providing standard worker's compensation and employers'
liability insurance for each client company. Provides that a
violation of the Act is grounds for cancellation or
nonrenewal of a workers' compensation insurance policy.
Provides that insurers shall audit policies issued under this
Act. Contains other provisions. Effective immediately.
LRB9002307NTsb
LRB9002307NTsb
1 AN ACT concerning employee leasing companies.
2 Be it enacted by the People of the State of Illinois,
3 represented in the General Assembly:
4 Section 1. Short title. This Act may be cited as the
5 Employee Leasing Company Act.
6 Section 5. Purpose. For the purpose of ensuring that an
7 employer that leases some or all of its workers properly
8 obtains workers' compensation insurance coverage for all of
9 its employees, including those leased from another entity,
10 and that premium is paid commensurate with exposure and
11 anticipated claim experience, this Act is required to
12 regulate employee leasing companies.
13 Section 10. Definitions. In this Act:
14 "Department" means the Illinois Department of Insurance.
15 "Employee leasing arrangement" means an arrangement,
16 under contract or otherwise, whereby one business or other
17 entity leases all or a significant number of its workers from
18 another business. Employee leasing arrangements include, but
19 are not limited to, full service employee leasing
20 arrangements, long-term temporary arrangements, and any other
21 arrangement that involves the allocation of employment
22 responsibilities among 2 or more entities. For purposes of
23 this Act, "employee leasing arrangement" does not include
24 arrangements to provide temporary help service. "Temporary
25 help service" means a service whereby an organization hires
26 its own employees and assigns them to clients for a finite
27 time period to support or supplement the client's work force
28 in special work situations such as employee absences,
29 temporary skill shortages, and seasonal workloads.
30 "Leased employee" means a person performing services for
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1 a lessee under an employee leasing arrangement.
2 "Lessee" or "client company" means an entity that obtains
3 all or part of its work force from another entity through an
4 employee leasing arrangement or that employs the services of
5 an entity through an employee leasing arrangement.
6 "Lessor" or "employee leasing company" means an entity
7 that grants a written lease to a lessee through an employee
8 leasing arrangement.
9 "Premium subject to dispute" means the insured has
10 provided a written notice of dispute of the premium to the
11 insurer or service carrier, has initiated any applicable
12 proceeding for resolving these disputes as prescribed by law
13 or rating organization rule, or has initiated litigation
14 regarding the premium dispute. The insured must have
15 detailed the specific areas of dispute and provided an
16 estimate of the premium the insured believes to be correct.
17 The insured must have paid any undisputed portion of the
18 bill.
19 "Residual market mechanism" means the residual market
20 mechanism as defined in Section 468 of the Illinois Insurance
21 Code.
22 Section 15. License; registration.
23 (a) An employee leasing company may not engage in
24 business in this State without first obtaining a license from
25 the Department. Registration is required to obtain a
26 license. A corporation, partnership, sole proprietorship, or
27 other business entity that provides staff, personnel, or
28 employees to be employed in this State to other businesses
29 pursuant to a lease arrangement or agreement shall, before
30 becoming eligible to be issued any policy of workers'
31 compensation insurance, register with the Department. The
32 registration shall:
33 (1) identify the name of the lessor;
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1 (2) identify the address of the principal place of
2 business of the lessor and the address of each office it
3 maintains within this State;
4 (3) include the lessor's taxpayer or employer
5 identification number;
6 (4) include a list by jurisdiction of each and
7 every name that the lessor has operated under in the
8 preceding 5 years including any alternative names and
9 names of predecessors and, if known, successor business
10 entities;
11 (5) include a list of each and every person or
12 entity who owns a 5% or greater interest in the employee
13 leasing business at the time of application and a list of
14 each and every person who formerly owned a 5% or greater
15 interest in the employee leasing company or its
16 predecessors, successors, or alter egos in the preceding
17 5 years; and
18 (6) include a list of each and every cancellation
19 or nonrenewal of workers' compensation insurance that has
20 been issued to the lessor or any predecessor in the
21 preceding 5 years. The list shall include the policy or
22 certificate number, name of insurer or other provider of
23 coverage, date of cancellation, and reason for
24 cancellation. If coverage has not been cancelled or
25 nonrenewed, the registration shall include a sworn
26 affidavit signed by the chief executive officer of the
27 lessor attesting to that fact.
28 Every applicant for licensure as an employee leasing
29 company shall, as a condition of eligibility for the license,
30 provide financial assurances under one or more of the
31 following methods:
32 (1) The applicant may post a surety bond issued by
33 an unaffiliated corporate surety authorized to do
34 business in this State in an amount not less than
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1 $100,000, the terms and conditions of which shall be
2 approved by the Department. The bond shall be
3 conditioned that the licensee, and any person as an agent
4 of the licensee, will not violate any provisions of this
5 Act.
6 (2) In lieu of posting a surety bond, the applicant
7 may deposit cash or an irrevocable letter of credit from
8 a national banking association not affiliated with the
9 applicant and approved by the Department in the sum of
10 $100,000. Further, the applicant may make a deposit of
11 securities with a market value as determined by the
12 Department of not less than $100,000 and make additional
13 deposits of securities as may be required to maintain the
14 market value. The applicant shall assign the securities
15 to the Department on a form approved by the Department
16 and execute any other documents in connection with the
17 deposit that the Department shall prescribe.
18 (3) In lieu of posting a surety bond or depositing
19 cash, cash equivalent, or securities, the applicant may
20 file with the Department an audited financial statement
21 prepared in accordance with generally accepted accounting
22 principles by an independent certified public accountant.
23 (A) The audited financial statement shall be
24 prepared as of a date within 6 months prior to the
25 date of the application.
26 (B) The audited financial statement shall show
27 a true minimum net worth for the applicant, subject
28 to concurrence by the Department, of not less than
29 $100,000.
30 (C) During the term of its license, the
31 licensee shall continue to file with the Department
32 an interim financial statement on a calendar
33 semi-annual basis, prepared by a certified public
34 accountant in accordance with generally accepted
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1 accounting principles as of a date within 3 months
2 prior to the end of the filing period. These interim
3 financial statements, which need not be audited,
4 shall show a true minimum net worth asset out above
5 and shall be received by the Department within 15
6 days of the end of the semi-annual period.
7 Each employee leasing company registrant shall pay to the
8 Department upon initial registration, and upon each renewal
9 every 3 years thereafter, a registration fee of $1,000.
10 Each employee leasing company licensee shall pay to the
11 Department upon the initial issuance of a license, and upon
12 each annual renewal thereafter, a license fee of $2,500.
13 Each employee leasing company shall maintain accounting
14 and employment records relating to all employee leasing
15 activities for a minimum of 3 calendar years.
16 (b) Any lessor of employees whose workers' compensation
17 insurance has been terminated within the past 5 years in any
18 jurisdiction due to a determination that an employee leasing
19 arrangement was being utilized to avoid premium otherwise
20 payable by lessees shall be ineligible to register with the
21 Department or to remain registered, if previously registered.
22 (c) Persons filing registration statements pursuant to
23 this Section shall notify the Department as to any changes in
24 any information provided pursuant to this Section.
25 (d) The Department shall maintain a list of those
26 lessors of employees who are satisfactorily registered with
27 the Department.
28 (f) The Department may prescribe any forms that are
29 necessary to promote the efficient administration of this
30 Section.
31 (g) Any lessor of employees that was doing business in
32 this State prior to enactment of this Act shall register with
33 the Department within 60 days of the effective date of this
34 Act.
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1 Section 20. Responsibility for policy issuance and
2 continuance.
3 (a) It shall be the responsibility of the employee
4 leasing company to purchase and maintain a separate policy
5 providing standard workers' compensation and employers'
6 liability insurance for each client company. The experience
7 of all of the employees leased to a client company shall be
8 combined with the experience of the employees of the client
9 company for purposes of calculating an experience
10 modification. The experience modification so calculated
11 shall be applied to the client company's policy and all
12 policies maintained for it by a leasing company or leasing
13 companies. Each policy written to cover leased employees
14 shall be issued to the employee leasing company as the named
15 insured. The client company shall be identified thereon by
16 the attachment of an appropriate endorsement indicating that
17 the policy provides coverage for leased employees in
18 accordance with Illinois law. The endorsement shall, at a
19 minimum, provide for the following:
20 (1) Coverage under the policy shall be limited to
21 the named insured's employees leased to the client
22 company.
23 (2) The experience of the employees leased to the
24 particular client company shall be separately maintained.
25 (3) Cancellation of the policy shall not affect the
26 rights and obligations of the named insured as an
27 employee leasing company with respect to any other
28 workers' compensation and employers' liability policy
29 issued to the named insured.
30 (b) The insurer of the lessor may take all reasonable
31 steps to ascertain exposure under the policy and collect the
32 appropriate premium through the following procedures:
33 (1) complete description of the lessor's
34 operations;
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1 (2) periodic reporting of the covered lessee's
2 payroll, classifications, experience rating modification
3 factors, and jurisdictions with exposure. This reporting
4 must be supplemented by a submission of Internal Revenue
5 Service Form 941 or its equivalent to the carrier on a
6 quarterly basis;
7 (3) physical inspection of the client company
8 premises;
9 (4) audit of the lessor's operations; and
10 (5) any other reasonable measures to determine the
11 appropriate premium.
12 (c) The employee leasing company shall maintain and
13 furnish to the insurer sufficient information to permit the
14 calculation of an experience modification factor by the
15 rating organization licensed under Section 459 of the
16 Illinois Insurance Code for each client company. This
17 information shall include the following:
18 (1) the client company's corporate or trade name
19 and address;
20 (2) the client company's taxpayer or employer
21 identification number;
22 (3) a listing of the names, addresses, and social
23 security numbers of all leased employees associated with
24 each client company, the applicable classification code
25 and payroll; and
26 (4) claim information.
27 (d) A lessor that applies for coverage or is covered
28 through either the voluntary market or the residual market
29 mechanism shall also maintain and furnish to the insurer or
30 to the principal rating organization through the residual
31 market servicing carrier, sufficient information to permit
32 the calculation of an experience modification factor for each
33 lessee. This information shall include the following:
34 (1) the lessee's corporate name;
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1 (2) the lessee's taxpayer or employer
2 identification number;
3 (3) the lessee's risk identification number;
4 (4) a listing of all leased employees associated
5 with each lessee, the applicable classification code and
6 payroll; and
7 (5) claims information grouped by lessee and any
8 other information necessary to permit the calculation of
9 an experience modification factor for each lessee.
10 Section 25. Policy cancellation or nonrenewal; notice.
11 (a) Any violation of this Act is grounds for
12 cancellation or nonrenewal of a workers' compensation
13 insurance policy, provided that the employee leasing company
14 has been provided a reasonable opportunity to cure the
15 violation.
16 (b) If an employee leasing company has received notice
17 that its workers' compensation insurance policy will be
18 canceled or nonrenewed, the leasing company shall notify by
19 certified mail, within 10 days of the receipt of the notice,
20 all of the lessees for which there is an employee leasing
21 arrangement covered under the to-be-canceled policy.
22 Section 30. Lessee's obligation. Nothing in this Act
23 shall have any effect on the statutory obligation, if any, of
24 a lessee to secure workers' compensation coverage for
25 employees not provided, supplied, or maintained by a lessor
26 pursuant to an employee leasing arrangement.
27 Section 35. Insurer or service carrier audit. Insurers
28 shall audit policies issued pursuant to Section 20 of this
29 Act within 90 days of the policy effective date and may
30 conduct quarterly audits thereafter. The purpose of the
31 audit will be to determine whether all classifications,
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1 experience modification factors, and estimated payroll
2 utilized with respect to the development of the premium
3 charged to the lessor are appropriate.
4 Section 40. Advertising prohibition. No organization
5 registered under this Act shall directly or indirectly
6 reference the registration in any advertisements, marketing
7 material, or publications.
8 Section 45. Exclusivity and vicarious liability. Subject
9 to any contrary provisions of the contract between the client
10 and the employee leasing company, the employee leasing
11 arrangement that exists between an employee leasing company
12 and its clients shall be interpreted for purposes of
13 insurance, bonding, and employers' liability as follows:
14 (1) The employee leasing company shall be entitled
15 along with the client to the exclusivity of the remedy
16 under both the workers' compensation and employers'
17 liability provisions of a workers' compensation policy or
18 plan that either party has secured.
19 (2) An employee leasing company is not liable for
20 the acts, errors, or omissions of a client or of any
21 leased employee acting under the sole and exclusive
22 direction and control of a client. A client shall not be
23 liable for the acts, errors, or omissions of an employee
24 leasing company or of any employee of an employee leasing
25 company acting under the sole and exclusive direction or
26 control of an employee leasing company. Nothing herein
27 shall limit any contractual liability between an employee
28 leasing company and the client company, nor shall the
29 same limit any liability or responsibility imposed by
30 this Act.
31 (3) Employees leased to a client by an employee
32 leasing company shall be considered as the employees of
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1 the client for the purposes of general liability
2 insurance, automobile insurance, fidelity bonds, surety
3 bonds, and liquor liability insurance carried by the
4 client. Employees leased to a client by an employee
5 leasing company are not deemed employees of the employee
6 leasing company for purposes of general liability
7 insurance, automobile insurance, fidelity bonds, surety
8 bonds, and liquor liability insurance carried by the
9 employee leasing company unless the employees are
10 included by specific reference in the applicable
11 employment arrangement contract, insurance contract, or
12 bond.
13 Section 50. Civil penalties.
14 (a) If any person is aggrieved by the misconduct of any
15 licensee, that person may maintain an action in his or her
16 own name upon the bond of the licensee, or where there is no
17 bond in place, an amount not to exceed $100,000, in any court
18 of competent jurisdiction. This action is not exclusive of
19 any other remedy available to the aggrieved person.
20 Alternatively, the Department may maintain such an action in
21 the name of the State for the benefit of the aggrieved
22 person.
23 (b) The Department may adjust any premiums when
24 warranted.
25 Section 55. Criminal penalties. Any corporation,
26 partnership, sole proprietorship or other form of business
27 entity and any officer, director, general partner, agent,
28 representative, or employee of any of the foregoing who
29 knowingly utilizes or participates in any employee leasing
30 agreement, arrangement, or mechanism for the purpose of
31 depriving one or more insurers of premium otherwise properly
32 payable commits a business offense and shall upon conviction
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1 be subject to a fine of not to exceed $1,000 in the case of a
2 natural person and not to exceed $5,000 in the case of an
3 organization.