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Micro-serfs win on appeal
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May 13, 1999: 7:49 p.m. ET
Appeals court raises number of temp workers who are eligible for benefits
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NEW YORK (CNNfn) - In a ruling that could cost Microsoft Corp. millions of dollars, a federal appeals court ruled thousands of former and current temporary workers at the software giant should have been permitted to participate in the company's stock-repurchase plan.
The decision, issued late Wednesday, was a legal setback for Microsoft, but legal scholars said the ruling is not likely to have a larger effect on employee-benefits law.
The ruling significantly expanded the class of workers eligible to apply for damages in a long-running lawsuit against the company.
Microsoft had argued that as few as 145 former employees were part of the class in an attempt to exclude independent contractors who were reclassified as temporary workers. A federal trial judge previously had limited the class to workers employed for Microsoft as independent contractors between 1987 to 1990.
But the Ninth U.S. Circuit Court of Appeals in San Francisco ruled that damages should be paid to any Microsoft temporary or contract worker who worked 20 hours per week or more for at least five months in any year since the end of 1986. In essence, common-law employees.
The ruling could mean that more than 10,000 workers are eligible for damages in the lawsuit.
Since running afoul of federal tax laws in 1990, Microsoft has relied on outside agencies to bring in temporary workers, who technically are employed by those agencies.
But the appeals court ruling destroyed any notion that Microsoft could avoid its obligations to provide stock options and other benefits by using the agencies.
"Even if for some purposes a worker is considered an employee of the agency, that would not preclude his status of common law employee of Microsoft," the three-judge panel said in a unanimous, 28-page ruling. "The two are not mutually exclusive."
A spokesman for Microsoft said the company disagrees with the ruling and will likely appeal.
Wider consequences unlikely
While the case before the appeals court sought only stock options, David Stobaugh, an attorney for the plaintiffs, said the logic of the ruling means that many so-called "permatemp" workers common throughout the technology industry should be eligible for other benefits as well.
"This ruling reaffirms that just because you call somebody a temp doesn't mean that they are not your employee," Stobaugh said.
Legal scholars, however, said the decision isn't likely to have larger consequences throughout the business world.
Bruce Wolk, a professor at the University of California, Davis, said Wednesday's decision was a narrow one, largely a reflection of the wording Microsoft used in its benefits plan.
"Most attorneys agree that if Microsoft had worded the plan better, they could have accomplished the goals they sought," Wolk said.
"The problem with Microsoft was that the plan covered all employees on the U.S. payroll. Microsoft had not considered freelancers in that category, but the lower court and the Ninth Circuit Court held that the plan did in fact cover those workers."
Wolk said that even if other firms' plans currently fall under the same category as Microsoft's, they could simply redraft their plans to exclude contract - or common-law - workers.
"In the long run, this is not going to prevent companies from using temporary workers," Wolk said.
Microsoft currently employs more than 5,000 temporary workers.
The decision was met with outrage from other companies in the technology sector, which depends heavily on temporary workers and independent contractors.
"If this ruling stands it could effectively destroy the ability of companies to set up businesses for which they contract out workers," said Harris Miller, president of the Information Technology Association of America.
Tech firms rely on temps
He and others argued that technology companies in particular rely on temporary workers because of fast-changing market conditions and a scarcity of labor.
Technology workers often prefer temporary assignments because it gives them greater flexibility and, unlike regular employees, they get paid for every hour they work, said Toby
Malara of the National Technical Services Association, which represents agencies employing more than 300,000 people.
"We've had more than a few people tell us they've turned down full-time employment with the firm they're working for because it would be financially disadvantageous to them," Malara said.
Microsoft (MSFT) shares fell 1-3/8 to close at 79-1/8 in Thursday trade.
-- from staff and wire reports
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