Temporary Fix At Microsoft? -- Company Fights Lawsuit By Further Separating Work Forces

On Microsoft's Redmond campus, the distinctions between various classes of workers are clear, and part of the company lexicon.

Permanent staffers are called "Blue Badges," the color of their magnetic passes. Temporaries hired from employment agencies are known as "A-dashes," the preface on their e-mail addresses.

Though many Blue Badges and A-dashes do similar jobs, their employment status determines who can attend the company picnic, partake in late-night pizza feeds, buy stock at a discount and qualify for such benefits as lucrative stock options.

As a class-action lawsuit to force Microsoft to extend some types of benefits to its temporary work force enters a critical round in January, employment-law specialists are counseling other companies to make longtime temps and contract workers part of the permanent payroll. But Microsoft has taken a different tack. It is taking steps to draw even greater distinctions between its temporary and permanent workers.

The 9th U.S. Circuit Court of Appeals last summer found that a group of 800 free-lance workers at Microsoft hired between 1987 and 1990 were "common law" employees because they worked under direct supervision of Microsoft. Therefore, they should have been offered part of the company's benefits program that allows employees to buy stock at a 15 percent discount from market prices. The appeals court also ruled that Microsoft must reconsider expanding its 401(k) retirement plan.

On Jan. 8, lawyers will file briefs in federal District Court in Seattle arguing that several thousand current and former temps also should be eligible for the benefits. U.S. District Court Judge Carolyn Dimmick is expected to rule on the size of the class sometime next spring.

Meanwhile, Microsoft has petitioned the U.S. Supreme Court to dismiss the case or send it to state court because it involves both state and federal law. A ruling could come in early January.

As the legal fights drag on, Microsoft has been taking further steps to differentiate between permanent and temporary employees to make the case that they are separate groups and not entitled to the same benefits.

Microsoft won't say how many temps it has, but estimates put the number at 3,500 to 5,000, as much as 30 percent of its Puget Sound work force.

In recent weeks, department heads at Microsoft have been told that temps should have their employment agencies pay for morale-boosting social events such as after-hours pizza parties, barbecues and dances, according to company insiders. Temps previously attended these events with no questions asked.

There are other, less visible distinctions. Microsoft once matched any donation to the company's United Way campaign. In October, the company announced that it will only match donations made by permanent employees.

The traditional restrictions remain: Invitations to the annual picnic are extended to permanent employees only, and perks such as health-club memberships and discount software at the company store are off-limits to temps. Temps also are prohibited from playing on Microsoft's athletic fields or participating on its athletic teams.

"We are refocusing a lot of policies we had in place so everyone understands how a temp should be treated and what is appropriate," said Sharon Decker, director of contingent staffing at Microsoft.

What they lack in status and benefits, temps often make up in salary; typically, their paychecks are 30 percent higher than a comparable Microsoft employee. And many nontraditional workers enjoy the flexibility of the arrangement.

Each time Microsoft has lost a court fight, the company has clarified the restrictions. While the employment policies may help to prove Microsoft's case that employees and temps are separate, there is a cost to morale, say those close to the situation.

"As fear of the courts crept in, they have gone overboard. It's not a pretty work environment," said an official at a temporary agency that sends workers to Microsoft. "I think one of the goals was to staff up projects and then restructure and let temps go. But the people who are laid off are rehired right back. Often, there's no down time."

Microsoft counters that 70 percent of its temps have been working for the company for less than a year. And former temps accounted for around 30 percent of new hires last year.

By using employment agencies, Microsoft avoids layoffs as software testing is completed and products are launched, said Decker. That's good for both the employees and the company's bottom line.

Others speculate that financial considerations don't fully explain why Microsoft has pursued its reliance on temps so vigorously.

"They're fighting it because they want to treat people differently. They have a very serious idea about who is important and who is not important," said Stephen Strong, an attorney who is leading the class-action lawsuit against Microsoft. "People who are temps are looked on as inferior to those on the head count."

Issues surrounding the use of temporaries in the software industry took another turn this week when temps at Microsoft and other software companies expressed outrage over a state Department of Labor and Industries proposal to take away time-and-a-half overtime pay from some types of contract computer-software professionals. The protests prompted the department to reopen public comment on the change.

But Microsoft isn't alone in hiring workers from temporary agencies.

The use of temporary agencies in the Puget Sound region has exploded in recent years. From 1990 to 1997, the number of workers funneled through agencies mushroomed 70 percent to 33,103, according to the Washington State Employment Securities Department. Most of the increase was in the service and manufacturing sectors.

In 1990, the Internal Revenue Service concluded that Microsoft's free-lance workers should be considered regular employees under its tax rules. The company then rehired many free-lancers through temporary agencies.

Governments, which have been big users of temps, were first to lose lawsuits over their employment practices.

In October, King County agreed to pay $24 million to settle a class-action lawsuit filed by hundreds of part-time and temporary employees who had been denied benefits since 1989. The City of Seattle settled a similar case in 1991.

Boeing employs 3,000 temporary and contract workers, according to the Seattle Professional Engineering Employees Association (SPEEA), which represents 26,000 technical workers at Boeing. The union believes the Microsoft case may not apply to Boeing because most Boeing temps are not rehired and or kept on.

Microsoft's use of temps has generated controversy, on the other hand, because it hires the most temps for the longest periods.

As a result of federal court rulings against Microsoft, the use of temporary agencies to hire workers without benefits is no longer considered "safe harbor" from lawsuits, said Jeff McMillen, tax counsel at the Washington D.C.-based American Electronics Association.

In Silicon Valley, dozens of high-tech companies have a large percentage of their work force made up of temporaries. Many of them are now rethinking their hiring practices, said Victor Schachter, an employment-law specialist with Schachter, Kristoff Orenstein & Berkowitz in San Francisco.

"There was a ripple effect to the 9th Circuit decision," he said. "It implies a very loud bell for every employer that you can't ignore who is a real employee and who is a real temporary."

Schachter sides with Microsoft in the lawsuit - the temporary workers knew what they were getting into when they signed their contract, he said - but he counsels many high-tech companies to drop their reliance on contingent staffing.

Instead, he says, companies should do an audit of their entire work force. Temps who are supervised by employees and work within the chain of command should be put on the company payroll. All other temporary staff should work in separate buildings or at home, and the company should not hire the same people over and over, Schachter advises.

Stock options - often the most lucrative portion of a high-growth company's benefit package - can still be reserved for a special class of employees, but other perks such as health-care benefits, annual picnics and fitness-club memberships should be extended to the entire permanent work force, said Schachter.

"I'm telling them to make decisions to make people genuine contract employees or genuine employees. If they waffle, they will be caught the same way Microsoft is," he said.

Alex Fryer's phone message number is 206-464-8124. His e-mail address is: afry-new@seatimes.com