Microsoft's seven year slog versus temp staff

Some insight into how Microsoft may react if it loses the case brought by the Department of Justice is seen from a detailed examination of just how the company has behaved in the class actions brought by Microsoft contract staff. The battle has taken seven years, and Microsoft is still wriggling. In December 1992, some 'perma-temps' filed an action, later recognised as a class action, to seek benefits given to Microsoft staff, but from which they had been excluded. These consisted primarily of the right to buy Microsoft shares at a 15 per cent discount; the Microsoft pension plan; and health benefits. The essence of the claim was that they did the same work as Microsoft employees, but that Microsoft had chose to designate them as temporary staff. Until 1990, Microsoft had paid the perma-temps directly, but got into trouble with the IRS for mis-classifying them as independent contractors. Microsoft's argument was that the workers had signed contracts which were not negotiable and were a condition of engagement, agreeing that they weren't entitled to participate in the programmes. In the District Court in Seattle, the perma-temps essentially lost the case, following a ruling by Judge Judith Dimmick. On appeal, the workers won their case by a majority of two to one in the autumn of 1996, but Microsoft asked for a further appeal hearing in July 1997 before the full 11-judge appellate panel -- but lost most of the case again. David Stobaug, the perma-temps' attorney, said that "The court affirmed the ancient legal principle that you are what you are" and not what Microsoft wanted them to be in its creative contracts. It also turned out that the contracts had not been prepared by Microsoft's legal department. The District Court was given the task of determining the remedies, with decisions about the right to participate in the pension plan being left to Microsoft's plan administrator, since some perma-temps had become employees of an employment agency, and no longer worked independently, they lost the right to benefits from Microsoft from when they became employed by the agency. Lobbying Washington State Meanwhile, Microsoft had been funding the Washington Software and Digital Media Alliance to persuade the (state of) Washington Department of Labor and Industries to remove the provision for time-and-a-half for overtime. One of the employment agencies used by Microsoft was also a member of the Alliance, but was not informed of the move by Microsoft (and Boeing) about the overtime rule change, which demonstrates just how arrogant Microsoft can be in its relationships. Microsoft was treating the perma-temps as employees in every respect except compensation and benefits. A second action was started in 1998 in the Seattle District Court, because part of the claim from the earlier action was disallowed last July by Judge Dimmick: she decided that only around 250 perma-temps who had worked for Microsoft from 1987 to 1990 were eligible for benefits. Around a third of employees at Redmond are what Microsoft calls third-party agency employees. Not content with the prospect of having to pay compensation and give perma-temps benefits, Microsoft appealed to the Supreme Court, and lost. The Supreme Court did not give an opinion, but decided that the appellate court decision should stand. In January this year, Judge John Coughenour said that Microsoft's contract language was "outrageously arrogant". Microsoft has added a clause that said: "Even if a court or government agency determines that temporary personnel and Microsoft have had a common law employer-employee relationship at any time, temporary personnel... will not be entitled to receive any different or additional pay, or any benefits, insurance coverage, tax payments or withholding, or compensation of any kind." Furthermore, any perma-temp filing a lawsuit against Microsoft would be obliged either to resign or abandon the claim. The judge suggested to Microsoft lawyers that they should "suggest to their clients that they do the right thing". In a most unusual move, the judge himself decided to have another hearing twelve days later. Normally, a judge waits for either side to request this. MS decided that from 3 May this year, it would increase the number of employment agencies it uses from five to fifteen, allegedly to give perma-temps more flexibility. In addition, Microsoft said it would look more favourably on agencies that gave benefits to them, such as medical insurance, paid holidays, training, and a retirement package. Nor would the workers have to agree to a non-compete clause. Last week's unanimous decision by the Court of Appeals in San Francisco confirms that around 6,000 employees will receive benefits. They must have worked for at least 20 hours a week for five months in any year since 1987. Costs over $20 million Although the cost to Microsoft is not finally known, an estimate put it in the $20 million range, but this seems low, and we estimate it could amount to several hundred million dollars, if the average period for holding shares were used, instead of an arbitrary one-year period. Meanwhile, the District Court in Seattle is still considering the pension benefits for the perma-temps. It's important to note that the action hasn't been about stock options; the issue before the courts has been the discount the perma-temps were not allowed on share purchases (because Microsoft's share price has risen considerably), and because most perma-temps could probably argue that they would have used 20 per cent of their income for shares. Even now, Microsoft is not giving up and is seeking a review by the full panel of appeal judges. The appellate court said in its decision that Microsoft took "a scatter gun approach, laying down heavy fire but consisting largely of blanks". The decision also awarded past, present and future perma-temps the 15 per cent discount on share purchase, health insurance, and matching payments for 401(k) retirement plans. With Microsoft finding it difficult to attract new staff (there are 2,000 vacancies at the moment), the recent increase in salaries and share options may help somewhat, but some of the brightest potential recruits are being attracted to small start-ups where they could quickly become fabulously wealthy. MS president Steve Ballmer's 29 April billet doux to Microsoft employees telling them that stock options would be increased, and salaries pegged to a point where Microsoft was paying at the bottom of the top third of employers. This may not be enough however, even if Microsoft did not get up to some tricks in applying the increases. Shares of major Internet players like Yahoo and Amazon have gone up 10 to 20 times Microsoft's increase - and most galling of all, Sun's shares have increased around 50 percent more than Microsoft's over the last couple of years. It also doesn't help that Microsoft's share price has fallen back some 17 per cent from its recent high. This saga shows how Microsoft has been able to drag out the perma-temp cases for nearly seven years, spending vast amounts on legal costs, and treating these workers in a most cavalier fashion. There is every indication that the same kind of intransigence will continue to be used in the Department of Justice's case. ®