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TECHWORKPLACE
by Jeffrey L. Berger, Esq.
Jeffrey L. Berger
specializes in management-side employment and business law, and related litigation in
Washington, D.C., and nationally. Questions and comments on the TECHWORKPLACE are
encouraged. Other articles are available at www.bergerlaborlaw.com.
MICROSOFT III:
NEW RULING EXPANDS BENEFITS TO TEMPS
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Employers around the Beltway increasingly
meet changing staff needs by using independent contractors and temporary agency employees,
and by outsourcing payroll, benefits, and related functions to professional employer
organizations (PEOs). In a decision likely to affect these employers adversely, the San
Francisco-based Ninth Circuit U.S. Court of Appeals has again ruled against Microsoft
concerning benefits for contingent workers. The Court extended Microsoft’s lucrative
stock purchase benefits to thousands of workers who provided services to the software
giant as employees of temp agencies. The Court overruled a trial court decision limiting
the class to a few hundred independent contractors who had worked directly for Microsoft
between 1987-1990 and whose positions were reclassified as common law employees in
conjunction with an IRS payroll tax investigation. The independent contractors and temp
agency employees are now entitled to an estimated $15 million through Microsoft’s
stock purchase plan, even though they had been told when hired that they were ineligible
and signed contracts disclaiming these benefits.
Although Microsoft has vowed to fight the decision, the
class-action holding is significant in that it establishes a basis for other long-term
temp agency employees to seek benefits from both the agency that hired them and the
worksite company to which they provide services. Similarly, an employer intending to be
relieved of benefits responsibility by "sourcing" some of its staff to a PEO may
face analogous claims for benefits under its own plans or risk the loss of tax-favored
status for its plans under the Employment Retirement Income Securities Act (ERISA). The
rules for determining common law employee status are complex and apply with differing
emphasis depending on the facts and the laws at issue. In Microsoft, the Court looked to
traditional agency factors - recruitment, training, duration, right to assign additional
work, and control over the relationship between the worker and the agency - to determine
who was liable as the employer or co-employer of the temp workers. Other laws create
worker rights and employer liability using alternate tests to determine whether
independent contractors or agency temps are employees of the worksite employer. Examples
of these include overtime under the Fair Labor Standards Act, damages for discrimination
under EEO statutes, family and medical leave requirements, and workers’ compensation
and unemployment compensation benefits. The IRS has its own twenty-factor guidelines to
determine direction and control over the worker in assessing when employment taxes must be
withheld. The bottom line for employers is that activity by the government and private bar
on these issues is increasing along with the complexity of the law. Thus, management
should seek competent advice when engaging independent contractors or long-term temporary
workers.
The difficulties created by these issues has prompted
the recent introduction in Congress of the Independent Contractor Classification Act,
which attempts to simplify the IRS test for determining employee statues for employment
tax purposes. This bill has support from organized labor as it is designed to expand the
number of individuals treated as employees. Some high tech workers oppose such efforts,
since they view them as reducing the flexibility and high wages often associated with
independent contractor work. Whether any of these independent spirits will nonetheless be
lining up to cash in as part of the expanded Microsoft class, or will initiate similar
actions against other companies, is yet to be seen.
© 1999 Jeffrey Berger
REPRINTED FROM:
TECHGAZETTE - August 1999, Vol. 2, No. 8
The Berger Law Firm, P.C. 1825 Eye St. N.W., Suite 400, Washington, D.C.
20006.
Phone: (202) 861-1361 Fax: (202) 861-1362
Legal advice is case specific and is not intended to be provided by this article.
The Berger Law Firm, P.C. may not be held responsible for any consequences
that may arise in connection with the use of or reliance on the information provided.
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