A recent ruling by the U.S. Court of Appeals against Microsoft Corp. was a wake-up call to businesses that use temporary staffing services.

The decision relayed to all employers the importance of closely monitoring temporary workers to avoid having them classified as employees, entitling them to full benefits. Pacific Bell and PG & E; surely took notice, as they have also seen their share of "temporary" workers claiming employee status.

Market pressures are forcing companies like Microsoft to have a flexible workforce to reduce negative publicity associated with layoffs and allow for increases or decreases in staffing based on production cycles.

Additionally, using temporary workers can give companies access to marketable and skilled candidates to handle projects on an as-needed basis. Conversely, job candidates can benefit through flexible work schedules, the opportunity to constantly increase their skills, and the potential for competitive pay based on the demand for their experience.

Having a flexible staff is a popular business strategy in today's market, although mishandling temporary workers can lead to lawsuits related to employee classifications. In Microsoft's case, the appeals court ruled that thousands of "temporary" workers employed through staffing services since 1986 were entitled to the same benefits that all regular Microsoft employees receive.

Notably, the court disregarded the fact that the workers knew they were not entitled to benefits and had signed agreements concerning their non-eligibility.

The lawsuit began after the Internal Revenue Service audited Microsoft's employment records. Recognizing that the use of independent contractors can result in underpaid taxes, the IRS found that these employees were not independent contractors but were regular employees for withholding and employment tax purposes. At the center of the court's ruling against Microsoft was the fact that the "temps" were actually "common-law employees," workers who had spent more than five months at the company and were substantially under the control of the business.

Equal treatment

Federal law requires that companies offer 401(k) pension plans and stock option plans to all employees on an equal basis, but temporary workers are not classified under this law as full-time employees. So the court ruled that by labeling those thousands of employees "temps," Microsoft had been unfairly denying certain benefits (stock options) to what were, in reality, its common-law employees.

This decision has the potential to cost Microsoft, along with other companies following the same employment strategies, millions of dollars in unpaid benefits and compensation.

Prev

For reprint and licensing requests for this article, CLICK HERE.