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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: |
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