The U.S. Supreme Court announced yesterday that it would not hear an appeal from Microsoft Corp., letting stand a 9th U.S. Circuit Court of Appeals ruling that said thousands of temporary workers at the giant software firm were essentially "common-law" employees who should have been given a chance to buy discounted stock, as full-time workers were.
The appellate ruling held essentially that people who work for a company long enough, even in a "temporary" capacity, can be treated as permanent employees for purposes of various benefits.
This has sweeping implications for many other companies that use temporary workers or independent contractors instead of hiring them as company employees. The use of such workers is an increasingly popular business strategy, especially in the fast-paced and volatile technology sector.
The decision applies to the western states, including California and Washington, within the 9th Circuit. It could be tested in other circuits and may perhaps return to the Supreme Court later.
Microsoft attorneys have called the total sum of money the workers may receive--estimates range as high as $40 million--"a windfall of stunning proportions."
Thomas Morgan, one of the original plaintiffs in the lawsuit, said he is "encouraged" by yesterday's action. "This is an extremely important decision for those of us who functioned in every way as employees but who were denied benefits by Microsoft," he said. Morgan was an editor and proofreader at Microsoft from 1987 to 1993.
The 9th Circuit ruling last May came in response to a lawsuit Morgan and others filed in 1992, alleging they were unfairly deprived of benefits provided to regular company employees, including health insurance, vacation, sick leave and other benefits.
They claimed they were mislabeled "independent contractors" or "temporary agency" workers, even as they did work similar or identical to workers classified as employees. Some workers testified they worked full time at Microsoft for years.
The district and appeals courts said the company is not required to provide health insurance or vacations to temporary workers or independent contractors, but that its pension rules applied to all employees.
A federal district judge initially limited the class to just a few hundred workers employed at Microsoft from 1987 to 1990. But the appeals court ruled the class should cover any temporary or contract worker who worked more than 20 hours per week or for at least five months in any year since 1987--a class that could total as many as 15,000 workers.
They should have been eligible to buy stock at the same 15 percent discount, without brokerage fees, at the price the regular workers were offered at the time, the appeals court's ruling said.
Lawyer Stephen Strong, who represents the workers, said in a statement that he hoped Microsoft "will now make an active effort to correct its personnel practices and bring this case to an end after so many years."
Microsoft spokesman Dan Leach expressed disappointment over the high court's decision not to review the case. "We obviously are looking forward to putting this case behind us," he said. "The decision really will have no impact from a practical standpoint because we continue to work with lawyers for the plaintiffs and the court to keep things moving forward."
He said company is "constantly reviewing its position to make sure its people are categorized properly."
The next step for the court will be deciding how much money or stock the workers are entitled to receive, Leach said. It is likely to be a laborious process because of the difficulty in attempting to calculate how much stock a worker might have purchased at any given time, he said.
It's also a complicated mathematical question. Microsoft's stock has split eight times since the company went public in 1986, making many of its employees millionaires. A single share of stock purchased at that time for $21 is now worth $11,520, or a 54,757 percent increase in value, according to the company's Web site.
Harris Miller, president of the Information Technology Association of America, said he was "very much disappointed" by the Supreme Court's decision, which he said would affect the technology industry's ability to expand and contract in response to market conditions.
"I don't know what it takes to get their attention," Miller said. "This is a very significant issue which affects a lot of employers and employees. It goes right to the heart of the flexible work force."
Miller said employers "will need to be much more cautious and legalistic now, especially if they are operating in the western part of the United States," where the 9th Circuit is based. He added that workers who choose to be independent contractors because they like the independence may find themselves with fewer business opportunities as companies take steps to restrict their use.
Peter Petesch, a Washington attorney who represents employers, said the case was compelling many companies across the country to reconsider who they are designating as "employees."
"Companies need to take an especially careful look at people who are 'independent contractors,' but who work side-by-side with employees for a long time," he said. "The 9th Circuit found--to boil it down--that if it walks like a duck, talks like a duck, it is a duck--that the person is an employee."
CAPTION: Jim Emerson is one of the plaintiffs in the suit alleging Microsoft unfairly denied benefits to temporary workers.