Temping fate

How much longer can Microsoft get away with pushing the employment-law envelope?

WHEN YOU THINK ABOUT the extent of Microsoft’s legal travails, it is best to think of the company as the sole male in a dance hall full of females. However weary the titan grows of dancing, there is no end of new dance partners.

Some, though (to extend this metaphor far past its useful life), are more intriguing than others, some manage to keep cutting into the dance line again and again, and there is the occasional wallflower who unaccountably manages to keep dancing anew with the object of the room’s desire.

This last is not, as you might expect, the heavy-footed US Department of Justice; rather, it is a lawsuit filed by members of Microsoft’s vast “temporary” workforce, represented by the Seattle law firm Bendich, Stobaugh & Strong. The suit, first filed in 1992, has bounced back and forth between Seattle’s Federal District Court and the 9th Circuit Court of Appeals with a brief trip to the US Supreme Court. In its latest iteration—a complaint filed the day before Thanksgiving in US District Court—the “permatemps,” as they often are called, are seeking in effect to start the lawsuit over again, albeit on behalf of more people and in search of a bigger payoff.

The complainants ask that the court force Microsoft to pay unspecified damages to “all persons, past, present, and future, employed at defendant Microsoft’s facilities in the United States” who “are or were not classified as employees of Microsoft, but instead are or were classified as independent contractors or employees of third-party agencies,” in order to compensate them for illegal exclusion from the company’s generous benefits package. “The size of the class is not precisely known,” the complaint reads, “but is estimated to be several thousand in number.”

According to Bendich, Stobaugh’s Steve Strong, the original class action suit sought narrower damages on behalf of 800 people. Federal Judge Barbara Dimmick dismissed the case, but she was partially overturned by the Court of Appeals. Microsoft appealed in turn to the Supreme Court, which refused to review the appeals-court ruling. By the time all the dust had settled, a small group of employees who were contractors for Microsoft in the late 1980s—before the company changed its contracting practices by hiring “temporary” workers through temporary-employment agencies—had won a judgment entitling them to damages caused by being excluded from a stock-purchase plan (not to be confused with Microsoft’s granting of stock options to employees) that allows workers to purchase shares at a discount.

That ruling turned not so much on the law relating to temporary employment contracts as to language in Microsoft’s stock-purchase program that inadvertently included this particular group of temps. Thus it appeared in mid-1997, when the ruling was issued, that the case was closed, and that Microsoft was off the hook as far as the vast majority of its permatemps were concerned.

A NUMBER OF DEVELOPMENTS over the years, though, has led to the case being reopened on a far larger front. One odd reason for the narrow ruling in the 1992 complaint, for example, is a 40-page limit placed on all appeals to the 9th Circuit. “We appealed on the savings plan and stock purchase plan because of the strict page limit for appeals,” says Strong. A 1996 Supreme Court ruling declaring that it was illegal to throw employees out of benefit plans based on “nonemployee status” also appeared to open the door to a wider case, as did a federal court antitrust (to cite Microsoft’s favorite word these days) ruling relating to salary limits for assistant coaches in the NCAA.

The antitrust ruling is particularly pertinent to Microsoft because the company insists that it is not the employer of its temporary workers, who are nominally employed by the agencies with which Microsoft does business. But Microsoft also set strict limits last year on the size of pay raises for perma-temps—behaving, in other words, exactly as an employer does. In saying that permatemps work for eight or more different employers—the temp agencies—then dictating what these employers can pay them, Microsoft is practicing restraint of trade in violation of antitrust laws. (To beat that rap, the company would have to admit to being the workers’ direct employer.) The courts ruled against the NCAA on exactly those grounds: that the organization governing college sports could not tell various colleges what to pay their assistant coaches since those coaches were not employed and paid by the NCAA. Like the NCAA, Strong says, “Microsoft wants to have all the control of an employer, but none of the responsibility.”

Finally, there are federal rules requiring an employer to state explicitly who is and is not to be included in employee benefit plans. “If a plan says ‘all employees,'” Strong says, “an employer can’t exclude anyone based on some non-plan criterion.” Microsoft’s plan, as it happens, bases eligibility on the number of hours an employee works. And since temp-agency employees work on the Microsoft campus, report directly to Microsoft managers (one of Strong’s plaintiffs is a Microsoft program manager who manages official Microsoft employees), and fit within federal definitions of benefit-entitled “common-law employees” by virtually every measure, the plaintiffs believe that Microsoft cannot exclude from any part of its benefit plan any of the thousands of permatemps who report for work each day. “They treat these people as employees only for negative reasons,” says Strong. “They’re basically running a paycheck-laundering scheme.”

To outside observers, this long dance on Microsoft’s part with employment law has been fascinating and intricate. Whenever some governmental entity corrals the company, it changes its practices just enough to dance away scot-free. Microsoft began dealing with temp-employment agencies as a way of continuing to supply itself with cheaper temporary workers while complying with IRS regulations in the wake of a 1989 crackdown by the federal agency. Earlier this year, Microsoft decreed that permatemps would have to take 31-day breaks between the end of one contract and the beginning of another in order to adhere to the letter of federal employment law. The pattern from Day One in this saga has been invariable: Microsoft is intent on employing thousands of temporary workers in an effort to keep its costs down and its profits high; and permatemps are determined to beat the company at this letter-of-the-law game. After six years, the only thing certain about the ultimate outcome is that it still is years and years away.

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