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90_SB0417eng
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
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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 "Long-term temporary arrangement" means an arrangement
10 where all or a significant number of employees from one
11 company are leased to another for a period in excess of 6
12 months or consecutive periods equal to or greater than one
13 year.
14 "Premium subject to dispute" means the insured has
15 provided a written notice of dispute of the premium to the
16 insurer or service carrier, has initiated any applicable
17 proceeding for resolving these disputes as prescribed by law
18 or rating organization rule, or has initiated litigation
19 regarding the premium dispute. The insured must have
20 detailed the specific areas of dispute and provided an
21 estimate of the premium the insured believes to be correct.
22 The insured must have paid any undisputed portion of the
23 bill.
24 "Residual market mechanism" means the residual market
25 mechanism as defined in Section 468 of the Illinois Insurance
26 Code.
27 Section 15. Registration.
28 (a) An employee leasing company may not engage in
29 business in this State without first registering with the
30 Department. A corporation, partnership, sole proprietorship,
31 or other business entity that provides staff, personnel, or
32 employees to be employed in this State to other businesses
33 pursuant to a lease arrangement or agreement shall, before
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1 becoming eligible to be issued any policy of workers'
2 compensation insurance, register with the Department. The
3 registration shall:
4 (1) identify the name of the lessor;
5 (2) identify the address of the principal place of
6 business of the lessor and the address of each office it
7 maintains within this State;
8 (3) include the lessor's taxpayer or employer
9 identification number;
10 (4) include a list by jurisdiction of each and
11 every name that the lessor has operated under in the
12 preceding 5 years including any alternative names and
13 names of predecessors and, if known, successor business
14 entities;
15 (5) include a list of the officers and directors of
16 the employee leasing company or its predecessors,
17 successors, or alter egos in the preceding 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 Each employee leasing company registrant shall pay to the
29 Department upon initial registration, and upon each renewal
30 annually thereafter, a registration fee of $500.
31 Each employee leasing company shall maintain accounting
32 and employment records relating to all employee leasing
33 activities for a minimum of 3 calendar years.
34 (b) Any lessor of employees whose workers' compensation
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1 insurance has been terminated within the past 5 years in any
2 jurisdiction due to a determination that an employee leasing
3 arrangement was being utilized to avoid premium otherwise
4 payable by lessees shall be ineligible to register with the
5 Department or to remain registered, if previously registered.
6 (c) Persons filing registration statements pursuant to
7 this Section shall notify the Department as to any changes in
8 any information provided pursuant to this Section.
9 (d) The Department shall maintain a list of those
10 lessors of employees who are satisfactorily registered with
11 the Department.
12 (f) The Department may prescribe any forms that are
13 necessary to promote the efficient administration of this
14 Section.
15 (g) Any lessor of employees that was doing business in
16 this State prior to enactment of this Act shall register with
17 the Department within 60 days of the effective date of this
18 Act.
19 Section 20. Responsibility for policy issuance and
20 continuance.
21 (a) It shall be the responsibility of the employee
22 leasing company to purchase and maintain a separate policy
23 providing standard workers' compensation and employers'
24 liability insurance for each client company. The experience
25 of all of the employees leased to a client company shall be
26 combined with the experience of the employees of the client
27 company for purposes of calculating an experience
28 modification. The experience modification so calculated
29 shall be applied to the client company's policy and all
30 policies maintained for it by a leasing company or leasing
31 companies. Each policy written to cover leased employees
32 shall be issued to the employee leasing company as the named
33 insured. The client company shall be identified thereon by
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1 the attachment of an appropriate endorsement indicating that
2 the policy provides coverage for leased employees in
3 accordance with Illinois law. The endorsement shall, at a
4 minimum, provide for the following:
5 (1) Coverage under the policy shall be limited to
6 the named insured's employees leased to the client
7 company.
8 (2) The experience of the employees leased to the
9 particular client company shall be separately maintained.
10 (3) Cancellation of the policy shall not affect the
11 rights and obligations of the named insured as an
12 employee leasing company with respect to any other
13 workers' compensation and employers' liability policy
14 issued to the named insured.
15 (b) The insurer of the lessor may take all reasonable
16 steps to ascertain exposure under the policy and collect the
17 appropriate premium through the following procedures:
18 (1) complete description of the lessor's
19 operations;
20 (2) periodic reporting of the covered lessee's
21 payroll, classifications, experience rating modification
22 factors, and jurisdictions with exposure. This reporting
23 must be supplemented by a submission of Internal Revenue
24 Service Form 941 or its equivalent to the carrier on a
25 quarterly basis;
26 (3) physical inspection of the client company
27 premises;
28 (4) audit of the lessor's operations; and
29 (5) any other reasonable measures to determine the
30 appropriate premium.
31 (c) The employee leasing company shall maintain and
32 furnish to the insurer sufficient information to permit the
33 calculation of an experience modification factor by the
34 rating organization licensed under Section 459 of the
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1 Illinois Insurance Code for each client company. This
2 information shall include the following:
3 (1) the client company's corporate or trade name
4 and address;
5 (2) the client company's taxpayer or employer
6 identification number;
7 (3) a listing of the names, addresses, and social
8 security numbers of all leased employees associated with
9 each client company, the applicable classification code
10 and payroll; and
11 (4) claim information.
12 (d) A lessor that applies for coverage or is covered
13 through either the voluntary market or the residual market
14 mechanism shall also maintain and furnish to the insurer or
15 to the principal rating organization through the residual
16 market servicing carrier, sufficient information to permit
17 the calculation of an experience modification factor for each
18 lessee. This information shall include the following:
19 (1) the lessee's corporate name;
20 (2) the lessee's taxpayer or employer
21 identification number;
22 (3) the lessee's risk identification number;
23 (4) a listing of all leased employees associated
24 with each lessee, the applicable classification code and
25 payroll; and
26 (5) claims information grouped by lessee and any
27 other information necessary to permit the calculation of
28 an experience modification factor for each lessee.
29 Section 25. Policy cancellation or nonrenewal; notice.
30 (a) Any violation of this Act is grounds for
31 cancellation or nonrenewal of a workers' compensation
32 insurance policy, provided that the employee leasing company
33 has been provided a reasonable opportunity to cure the
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1 violation.
2 (b) If an employee leasing company has received notice
3 that its workers' compensation insurance policy will be
4 canceled or nonrenewed, the leasing company shall notify by
5 certified mail, within 10 days of the receipt of the notice,
6 all of the lessees for which there is an employee leasing
7 arrangement covered under the to-be-canceled policy.
8 Section 30. Lessee's obligation. Nothing in this Act
9 shall have any effect on the statutory obligation, if any, of
10 a lessee to secure workers' compensation coverage for
11 employees not provided, supplied, or maintained by a lessor
12 pursuant to an employee leasing arrangement.
13 Section 35. Insurer or service carrier audit. Insurers
14 shall audit policies issued pursuant to Section 20 of this
15 Act within 90 days of the policy effective date and may
16 conduct quarterly audits thereafter. The purpose of the
17 audit will be to determine whether all classifications,
18 experience modification factors, and estimated payroll
19 utilized with respect to the development of the premium
20 charged to the lessor are appropriate.
21 Section 45. Exclusivity and vicarious liability. Subject
22 to any contrary provisions of the contract between the client
23 and the employee leasing company, the employee leasing
24 arrangement that exists between an employee leasing company
25 and its clients shall be interpreted for purposes of
26 insurance, bonding, and employers' liability as follows:
27 (1) The employee leasing company shall be entitled
28 along with the client to the exclusivity of the remedy
29 under both the workers' compensation and employers'
30 liability provisions of a workers' compensation policy or
31 plan that either party has secured.
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1 (2) An employee leasing company is not liable for
2 the acts, errors, or omissions of a client or of any
3 leased employee acting under the sole and exclusive
4 direction and control of a client. A client shall not be
5 liable for the acts, errors, or omissions of an employee
6 leasing company or of any employee of an employee leasing
7 company acting under the sole and exclusive direction or
8 control of an employee leasing company. Nothing herein
9 shall limit any contractual liability between an employee
10 leasing company and the client company, nor shall the
11 same limit any liability or responsibility imposed by
12 this Act.
13 (3) Employees leased to a client by an employee
14 leasing company shall be considered as the employees of
15 the client for the purposes of general liability
16 insurance, automobile insurance, fidelity bonds, surety
17 bonds, and liquor liability insurance carried by the
18 client. Employees leased to a client by an employee
19 leasing company are not deemed employees of the employee
20 leasing company for purposes of general liability
21 insurance, automobile insurance, fidelity bonds, surety
22 bonds, and liquor liability insurance carried by the
23 employee leasing company unless the employees are
24 included by specific reference in the applicable
25 employment arrangement contract, insurance contract, or
26 bond.
27 Section 50. Civil penalties.
28 (a) If any person is aggrieved by the misconduct of any
29 registrant, that person may maintain an action in any court
30 of competent jurisdiction. This action is not exclusive of
31 any other remedy available to the aggrieved person.
32 Alternatively, the Department may maintain such an action in
33 the name of the State for the benefit of the aggrieved
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1 person.
2 Section 55. Criminal penalties. Any corporation,
3 partnership, sole proprietorship or other form of business
4 entity and any officer, director, general partner, agent,
5 representative, or employee of any of the foregoing who
6 knowingly utilizes or participates in any employee leasing
7 agreement, arrangement, or mechanism for the purpose of: (i)
8 depriving one or more insurers of premium otherwise properly
9 payable, (ii) failing to remit premiums on behalf of a
10 client company, or (iii) otherwise converting moneys or other
11 funds remitted by the client company for payroll, insurance
12 premiums, or other benefits commits a Class A misdemeanor and
13 shall upon conviction be subject to restitution and a fine of
14 $1,000 or the amount specified in the offense, whichever is
15 greater.