Labor experts said Microsoft Corp.'s $97 million settlement of a class-action lawsuit involving long-term temporary employees will force companies to scrutinize how they classify their temporary and contract workers.
Microsoft will pay the money to 8,000 temporary workers—dubbed "permatemps"—and their lawyers, who charged that the software vendor should have offered the temps stock option benefits. The settlement, which was announced last week, would end an 8-year-old suit against the company.
"Microsoft just sent a $100 million message... to corporate America that if you have permatemps, either make them full-time employees or make sure they're true temporary or contract workers," said Marcus Courtney, co-founder of the Seattle-based Washington Alliance of Technology Workers (WashTech) and a former Microsoft permatemp. WashTech organized on behalf of Microsoft's permatemps.
According to the American Staffing Association (ASA) in Alexandria, Va., technology jobs accounted for about 11% of the payroll for all temporary positions in 1998, though such workers represent little more than 2% of the workforce.
Mark Roberts, the ASA's general counsel, said one of Microsoft's mistakes was that it used ambiguous language in drafting the benefit plans that distinguish employees from temporary workers. Employers should draft sound contracts that make it clear "in the eyes of the IRS or courts" whether the worker is a contractor or an employee, he said.
Some companies make the mistake of classifying workers as contractors even though they work side by side with full-time employees, performing the same functions, said Raymond Dixson, a labor attorney at Fenwick & West LLP in Palo Alto, Calif. Characteristics that distinguish contractors from full-time employees include work on discrete projects, work for a flat fee and work that doesn't require close supervision, said Dixson.
"Sometimes companies realize that they can't make [someone] a contractor because of the nature of their work," he said. This includes some programming positions that require supervision, he said.
Some employers may find that IT workers want to work as contractors because they like the flexibility, said Dixson. In such situations, companies should make sure that the working relationship is set up as a contract relationship at the outset, ensuring that contractors rely on their own equipment and resources, such as e-mail accounts and business cards, he said.
Courtney said the settlement probably doesn't represent the end of the use of contractors, but it may be a spur to re-evaluate policies.
$97 million will be paid to 8,000 workers and their attorneys.
A U.S. District Court judge in Seattle approved the deal last week, but it must be formally approved before going into effect.
The settlement would end an 8-year-old class-action lawsuit.