Microsoft settles 'permatemp' suits

Microsoft Corp. said yesterday it will pay $97 million to settle two suits filed by "permatemp" workers in cases that reshaped employment policy not only at the Redmond software giant but for employers nationally.

Even after a 28 percent fee the attorneys are seeking, the settlement will result in payments ranging from a few hundred dollars to tens of thousands per worker, according to David West, a spokesman for the plaintiff's law firm.

The cases, one of which is nearly 8 years old, focused a spotlight on the use of workers who have tenures as long as many permanent employees but don't receive the same benefits because they were classified as temporaries, and ostensibly worked as independent contractors or for outside agencies.

In the Microsoft case, the permatemps objected to being shut out of a program allowing permanent employees to buy Microsoft stock at a discount. The settlement is designed to represent the income the temporary workers might have received had they been allowed to participate.

How much each plaintiff will receive will vary greatly depending on how many choose to participate, when they worked and how much the stock went up in that period, West said.

The Seattle law firm representing the plaintiffs workers said it agreed to settle because of changes Microsoft has made in its employment policies and practices. Plaintiffs attorney Steven Strong said many temporary workers have gone on to receive their blue badges, indicative of permanent status, also a result of the suit.

Microsoft spokesman Matt Pilla said the company's changes include new guidelines to managers on determining whether to use permanent or temporary employees for projects, shifting hiring of temporary workers to firms with better benefits and limiting temporary workers to 12 months with Microsoft, with at least 100 days between stints.

Pilla said Microsoft usually has between 5,000 and 6,000 temporary employees. The company employs 22,000 people in the Puget Sound region, 42,000 worldwide.

But interest in what is generally known as the Vizcaino case has been broader than Microsoft, because of the extensive use of temporary workers, especially in the tech industry where companies rapidly add staff to complete projects and products, then cut back when they're completed.

But the issue is not limited to high tech. Strong's firm alone has filed temporary worker cases against Arco, the city of Bellevue, the state of Washington (for community college instructors), King County and Los Angeles County.

The Vizcaino case "caused a lot of employers to re-examine and in many cases change the practice of labeling long-term employees as temporary," said Strong, with the Seattle firm Bendich, Stobaugh and Strong. He said employment-law attorneys have sent advisories to clients telling them to study carefully how they classify employees.

While employers argue they need the flexibility of temporary workers to meet constantly changing staffing requirements, critics contend permatemps are simply a way for companies to avoid paying benefits and higher wages.

Daniel Jacoby, an associate professor of economics at the University of Washington at Bothell who has tracked the contingent worker issue, said the permatemp phenomenon has been an outgrowth of virtual companies, which contract for many services and functions that traditional companies handle internally.

Many permatemp workers, in times of industry expansion, hold on with the hope of landing a permanent job with the company they're at or another in the industry; with the contraction in high-tech, he predicted, long-term temporary hiring arrangements could become even more controversial.

The $97 million proposed settlement will cover expenses related to the suit as well as claims from eligible class members. Strong said attorneys are seeking fees of 28 percent of the settlement amount (about $27 million), and expenses related to the settlement itself will be a small amount above that.

The remainder will be split among 8,000 to 12,000 people who worked at Microsoft for at least nine months between Dec. 29, 1986, and June 20, 2000, while classified as independent contractors or employees of third-party employment agencies.

The amount of the settlement per claimant will be calculated by a formula that presumes a worker would have bought stock in any six-month period at the average rate of those who were eligible to participate. The calculation is also based on the assumption that the shares were held for a year and sold. In addition to the gain on the sale, the payment will also include interest at 12 percent a year from the date of the stock sale.

The cases, Vizcaino vs. Microsoft and Hughes vs. Microsoft, were filed by workers who contended that because of the length of their tenure at the company, they should receive benefits such as participation in a 401(k) program and purchase of Microsoft stock at a discount. Strong said some permatemps had been at Microsoft several years, and there were a few cases of 10-year temporary workers.

Plaintiffs didn't prevail on the 401(k) issue, but they did on the stock purchase plan.

The Vizcaino case was filed in King County Superior Court in 1992 and moved to federal court in 1993.

Microsoft actually won at the District Court level, only to have the 9th Circuit Court of Appeals reverse in favor of the plaintiffs. U.S. District Judge William Dwyer has been working with both sides to craft a settlement.

The agreement received preliminary approval yesterday from U.S. District Judge John Coughenour. A hearing on final approval of the settlement, as well as the request for attorney fees and settlement costs, is set for Feb. 27.

Pilla said the settlement amount is not considered a material expense for Microsoft, which will not record a special charge against quarterly earnings. Microsoft stock closed yesterday at $58.38 a share, up 31 cents.

On the Web: Details of the settlement can be found at www.bs-s.com

P-I reporter Bill Virgin can be reached at 206-448-8319 or billvirgin@seattle-pi.com

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