The start of a new year brings fresh opportunities for staffing agencies—but it also brings evolving regulations, increased enforcement, and new compliance challenges that can catch even the most diligent firms off guard. In a recent episode of the Staffing Made Simple podcast, legal experts Lia Elliott and Joanna Monroe of Staffing GC shared critical insights on navigating the complex legal landscape facing staffing agencies in 2026.
With decades of combined experience as senior legal executives in the staffing industry, Elliott and Monroe broke down the toughest states for staffing operations, emerging compliance pressure points, and the legal risks tied to immigration changes, I-9 requirements, AI adoption, and non-competes. Here are the key takeaways every staffing leader needs to know.
Not all states are created equal when it comes to staffing regulations. According to Elliott and Monroe, agencies need to be particularly vigilant when operating in states like Illinois, New Jersey, California, the Pacific Northwest, and parts of the Northeast and Midwest, including Minnesota.
These two states stand out as particularly challenging due to laws specifically designed to regulate temporary staffing. In Illinois, agencies must pay temporary employees the same wages and benefits as the client’s employees performing substantially similar work after 720 hours on assignment. In New Jersey, this requirement kicks in on day one.
Monroe shared a real-world example of how even well-intentioned compliance efforts can go wrong. One client diligently matched wages with the client’s comparator employees, only to discover at year-end that those employees had received raises that were never communicated to the staffing firm. The result? Costly back pay and back billing.
The takeaway: change is the enemy of compliance. Agencies need robust internal controls to catch these shifts before they become expensive problems.
With federal regulation easing in recent years, states have stepped in to fill the void—creating a complex patchwork of requirements around minimum wage, sick leave, non-competes, and background checks. Elliott emphasized the importance of grassroots advocacy: “All politics is local,” she noted, urging staffing leaders to build relationships with state and local representatives before legislation becomes a problem.
Labor organizations and pro-employee groups are already making their voices heard. If legislators only hear one side of the story, staffing firms will continue to face bills that create operational nightmares.
Immigration enforcement has ramped up significantly over the past year, making Form I-9 compliance more critical than ever. While I-9 audits weren’t a top priority a few years ago, Elliott noted that they’re now occurring with increasing frequency.
The most common red flag Elliott sees? A lack of written processes for completing I-9s. Many firms rely on manual processes without clear, documented procedures—leaving room for costly errors. With the I-9 employer guide spanning 200 pages just to explain how to fill out what was originally a one-page form, having a standardized process is essential.
Additionally, staffing firms need to be cautious about client requests during heightened immigration enforcement. Clients may ask for lists of non-citizen employees or copies of all I-9s—requests that could violate privacy laws or put both parties at risk.
For agencies looking to do a quick compliance check, Monroe recommends focusing on current employees at your highest-risk sites rather than trying to audit every I-9 from the past two years. Concentrate on the people actively on assignment—these represent your greatest exposure—and ensure your process is solid going forward.
Artificial intelligence has become ubiquitous in recruiting, from resume parsing to chatbots to candidate ranking systems. But with efficiency comes risk—particularly around bias and discrimination.
Elliott warned that employees are likely using AI tools whether you’ve approved them or not. The key is understanding where AI exists in your organization and ensuring it’s not inadvertently discriminating against protected classes.
New York City already requires bias audits and public disclosure for automated employment decision tools, and other states are following suit. The federal government has discussed preempting state AI laws with a national framework, but as of early 2026, the legal landscape remains uncertain.
Monroe outlined three essential protections for staffing firms using AI:
Working with reputable vendors who can stand behind their products—and who are willing to indemnify you for compliance issues—is essential.
Non-compete agreements have become increasingly difficult to enforce. Elliott noted that they’re “going the way of the fax machine,” with a complex state-by-state patchwork of regulations, restrictions, and outright prohibitions.
Colorado has even criminalized certain non-compete scenarios. Many states now have salary thresholds, notice requirements, or profession-specific limitations that make crafting enforceable agreements a state-by-state challenge.
Rather than fighting an uphill battle with non-competes, many firms are refocusing on what’s truly important: protecting confidential information and preventing employee and customer solicitation. These provisions are more likely to be enforced, especially when accompanied by evidence of bad acts like theft of trade secrets.
Elliott advised strengthening non-solicitation and confidentiality provisions rather than relying heavily on non-competes that judges inherently disfavor.
A recurring theme throughout the conversation was the importance of risk assessment. With regulations constantly evolving and varying wildly by state, it’s impossible to achieve perfect compliance across the board.
Monroe emphasized that perfection isn’t the goal—strategic risk mitigation is. Start by identifying where your highest revenue is, where your people are located, and which states pose the greatest regulatory risk. Then focus your compliance efforts on the areas most likely to generate significant liability.
Elliott used a helpful analogy: just as you take precautions when driving (seatbelts, airbags, following speed limits), businesses should implement reasonable safeguards while accepting that some level of risk is inherent in operations.
Pay particular attention to risks that aren’t covered by your liability insurance. Class action litigation, for example, is typically excluded from standard policies. Having arbitration agreements with class action waivers in place can transform a $10 million problem into a $10,000 problem by forcing individual arbitration rather than allowing mass actions.
Elliott stressed that these agreements must be updated annually, as plaintiffs’ attorneys and courts continually find new ways to challenge their enforceability.
When reviewing client contracts, Monroe shared a crucial insight: when a client claims “every other staffing provider is signing this agreement,” it’s simply not true. Many agencies push back on one-sided indemnity clauses and unreasonable terms.
Building confidence and competence within your sales team to have professional contract discussions is essential. You’re not the only one questioning problematic terms, and clients expect some level of negotiation.
Based on the insights from Elliott and Monroe, here are actionable steps staffing agencies should take:
The legal landscape for staffing agencies in 2026 is complex and constantly evolving. From state-specific wage and hour requirements to immigration enforcement, AI compliance, and the decline of enforceable non-competes, agencies face challenges on multiple fronts.
But with strategic risk assessment, proactive compliance measures, and expert guidance when needed, staffing firms can navigate these challenges successfully. As Elliott noted, “We’re equipping ourselves with seat belts, airbags, speed limit signs, and traffic signals, helping to reduce risk where we can.”
The key is staying informed, being proactive rather than reactive, and building compliance into your operational DNA rather than treating it as an afterthought.
For more insights on navigating the legal complexities of staffing, connect with Lia Elliott and Joanna Monroe on LinkedIn or visit staffinggc.com.
To hear the full conversation, listen to Episode 14 of Staffing Made Simple, brought to you by Simple.
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