Unfortunately for Microsoft, the computer-software giant's legal woes are not limited to the federal antitrust action currently playing out on the front pages of newspapers throughout the country (and world). Indeed, Microsoft, which is the defendant in two class action lawsuits seeking employee benefits for individuals hired as temporary workers, was recently admonished by a district court judge to reconsider its continued efforts to treat its temporary employees as independent contractors and for failing to provide them with employee benefits.

In 1993, a group of temporary employees working for Microsoft brought suit seeking benefits from the company, including participation in its stock purchase program and 401(k) plan. In 1997, the Ninth Circuit Court of Appeals determined that the "workers in this class of 'permatemps' are 'common-law employees'" of Microsoft and are thereby entitled to the sought-after benefits. Vizcaino v. Microsoft Corp., 120 F.3d 1006 (9th Cir. 1997) cert. denied, 118 S. Ct. 899 (1998). In November 1998, shortly after a decision wherein the Vizcaino class was modified to remove from the class all workers hired by Microsoft after April 1, 1990, a second class action was filed by these removed workers seeking the same benefits as in Vizcaino, plus claims for company-paid health benefits and access to employee personnel records. Hughs v. Microsoft Corp., No. C98-1646R (W.D. Wash. filed November 17, 1998).

Despite the Ninth Circuit's finding that such temporary workers are employees and are entitled to benefits, in December 1998, Microsoft began requiring temporary workers to sign contracts that included a provision requiring them to waive rights to any benefits they may receive as a result of the pending class actions. Specifically, the provision stated that "nothing in this agreement shall be construed as creating an employer-employee relationship even if a court or government agency determines that temporary personnel and Microsoft have had a common law employer-employer relationship at any time." Court Directs Microsoft to Change Provision in Temporary Workers Contracts, Daily Lab. Rep., (BNA) No. 11, at A-10 (Jan. 19, 1999). The provision further stated that temporary workers "will still be bound by this agreement and will not be entitled to receive from Microsoft or have Microsoft provide on his/her behalf, any different or additional pay, or any benefits, insurance coverage, tax payments, or withholding, or compensation of any kind." Id.

After seeing a published report about the contract provision, federal district Judge John Coughenour directed Microsoft's attorneys to appear at a hearing to explain Microsoft's attempts to get workers to contract away any court recovery that employees may gain from their lawsuits. Microsoft's attorneys allegedly argued that the provision was intended to apply prospectively only, and would not have any effect upon relief awarded to plaintiffs from claims arising before the execution of the contracts. Dismissing this argument, Judge Coughenour said with apparent sarcasm that he "thought maybe I might hear that this was done by somebody without advice of counsel and upon reflection of counsel it was realized that it might be charitably described as ill advised." Judge Coughenour then granted Microsoft's attorneys the opportunity to "suggest" to their client that it "do the right thing" and remove the objectionable language from the contracts.

Microsoft's ongoing litigation regarding its use of temporary employees highlights the many issues and negative consequences involved when an employer improperly classifies and treats such workers. In order to avoid Microsoft's costly mistakes, employers should carefully review their policies with regard to the use of temporary workers and independent contractors.

If you have any questions or concerns about temporary employees and/or independent contractors, please feel free to contact us by telephone or e-mail as set forth below.

The information provided herein is for general guidance on matters of interest only. While every effort has been made to ensure the information provided herein is accurate and timely, no decision should be made or action taken on the basis of information without first consulting an Epstein Becker & Green professional.

Elliot Mandel
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