Temp Workers Stand to Gain in Microsoft Ruling
In a decision that challenges corporate America’s growing use of temporary workers to cut labor costs, a U.S. appeals court has ruled that thousands of workers Microsoft Corp. has employed through staffing agencies since 1986 are entitled to stock options.
The decision could, if upheld, cost Microsoft tens of millions of dollars and force changes in the temp industry, which handles nearly 3 million employees a day.
Coming down firmly on the side of Microsoft’s so-called permatemps in a class-action suit against the Redmond, Wash.-based software giant, the three-judge panel reversed an earlier court decision that limited Microsoft’s liability to about 900 workers hired before 1990. The appeals court reaffirmed an earlier ruling that any “common-law employee” of Microsoft was entitled to stock options, which could cover as many as 10,000 workers.
A common-law employee has been defined in previous court decisions as a worker who has spent more than five months at a company and is substantially under the control of the company, based on such factors as recruitment and training. The notion evolved to prevent companies from evading laws designed to protect employees, such as those requiring companies to provide advance notice of large-scale layoffs.
The court ruled that it is up to Microsoft to show why a given temp worker shouldn’t be categorized as an employee.
“We respectfully disagree with the court opinion,” Microsoft spokesman Dan Leach said. “Microsoft employees are Microsoft employees, and employees of contingent staff agencies are employees of contingent staff agencies.” Leach said Microsoft would ask the appellate court for “additional review” by a broader panel of judges.
The decision in the case, Vizcaino vs. Microsoft, could have larger implications because companies, particularly in high tech, often use staffing agencies to avoid the costs of paying workers various benefits, including stock options.
Federal law requires that companies offer 401(k) pension plans and stock option plans to all employees on an equal basis. By labeling employees as temps, companies can save significant sums. The average Microsoft employee, for example, earned more than $300,000 last year, with the bulk of that coming in the form of stock options, according to an analysis by Chang Mook Sohn, the state of Washington’s chief economist.
“The scheme [using staffing agencies to avoid costs] is pervasive,” said David Stobaugh, counsel for the plaintiffs. Stobaugh recently filed a lawsuit against the Los Angeles county counsel for what he calls the similar use of a “payrolling” agency to pay lower salaries and benefits to temporary workers, many of them lawyers, who he says do the same work as regular employees.
Labor advocates say the U.S. 9th Circuit Court of Appeals’ decision could influence labor practices not just in the high-tech sector but in a broad range of industries from trucking to apparel.
“This one-two punch sends an important message that just changing the name of the company that sends the check doesn’t do it,” said Cathy Ruckelshaus, litigation director at the National Employment Law Project. She predicted an increase in lawsuits by temporary workers against both employers and staffing agencies. “If someone is doing the same job, you have to treat the worker in the same way.”
Ed Lenz, general counsel for the National Assn. of Temporary and Staffing Services, an industry trade group, said the ruling is unfair because Microsoft’s temp workers signed contracts agreeing they wouldn’t receive benefits. “The court is rewriting the contract,” Lenz said.
Still, he argued that the ruling wouldn’t affect most employers because few have gone to the extremes Microsoft has in insisting on control over their temporary workers.
“If they insist on intervening” in the relationship between the staffing agency and the employee, “they have to deal with the consequences,” Lenz said.
The employment issue arose at Microsoft in 1990 after the Internal Revenue Service determined that Microsoft’s independent contractors were actually regular employees under its tax rules and should be treated as such.
Microsoft responded by firing the workers and offering to rehire them if they would sign up at one of several outside staffing agencies. Under the new arrangement, Microsoft continued to interview, hire and supervise the employees, but a payrolling company issued the checks.
Contractor Donna Vizcaino refused to sign up with the agency and was subsequently fired. She filed suit in 1993 in a case that later gained class-action status.
The Seattle District Court must now determine how many Microsoft temps were entitled to the stock options and how much they should receive in compensation. A District Court ruling suggested that the temporary workers should only get an amount based on holding the stock options for one year. The plaintiffs are arguing for a much longer period.
