Microsoft Settles 'Permatemp' Case For $97 Million

pq writes: "The NYT is reporting that Microsoft has settled its 'Permatemp' case for $97 million. Another bullet, successfully dodged. 'Microsoft continues to be a great place to work,' said their VP." For those not following, the suit alleged that Microsoft was using not-very-temporary employees secured by temporary placement agencies to avoid giving them the benefits for which other Microsoft employees were eligible.

Comments

If you were a contracter...

[tokengeekgrrl]

...for Microsoft from 1987 to the present then you might be covered by the lawsuit. I am as I was a contracter there for almost 2 years from 1995-1997. Check out http://216.13.224.31/msoft.htm for more information.

- tokengeekgrrl
"The spirit of resistance to government is so valuable on certain occasions

Minus legal fees, etc.

[Alien54]

The estimate up to 12,000 people we effected by the suit.

So before legal fees, this comes to just over 8 thousand dollars, each.

Now after the legal fees .... maybe two cents?

Never mind the ability to cash in on the stock options before MS stock price went into trip digits for a while.

There is a VERY interesting story here at the Register about how MS makes money off the microserfs via the stock options. To quote a small section:

Microsoft's game plan for making money from stock options is quite simple. First, print some share certificates. Second, give out handfuls of stock options from time to time to keep the employees slaving away for at least 4.5 years until the shares vest. Third, Microsoft claims a tax rebate from the IRS when the employee takes up the shares and pays tax on them.

Microsoft gained $5.5 billion in "stock option income tax benefits" in fiscal 2000, meaning that it had a tax benefit against share options that had been exercised (up nearly 80 per cent over the previous year). With corporate tax levels around 35 per cent, Microsoft effectively received an untaxed benefit of $16 billion. In practice, Microsoft has no choice but to pay employees substantially in shares if it is to keep its present level of staffing, since if it had used cash in fiscal 2000 instead of shares, this would have increased the salary bill by $16 billion - more than Microsoft's net income, and thus resulted in Microsoft making a loss of $7 billion.

The beauty of this system for Microsoft is that it did not have to spend anything to grant the options, but gained $2.25 billion (shown as "common stock issued" in the cash flow) from what the employees have to pay to exercise the options. A line that should appear in Microsoft's accounts - but doesn't - is how much it saves as a result of stock option dealing. The total can be worked out by adding three things together: $0.5 billion from put warrants; $5.5 billion from the income tax that employees had to pay to acquire the stock; and $2.25 billion that employees had to pay Microsoft for the stock, making a total of $8.25 billion or 88 per cent of Microsoft's net income of $9.5 billion in fiscal 2000.

Microsoft only made $5.8 billion on Windows, $4.9 billion on applications, and lost $1.5 billion on its consumer and other activities. Of course, Microsoft does not have to account for stock option dealing in this way under the present accounting rules, but the benefit that Microsoft gets is clearly of very great importance - and more than that received by any competitor. The provision for income tax in Microsoft's accounts was $4.9 billion, implying it would carry forward a tax credit of $680 million. There appears to be no direct way of identifying the rebate (in effect a subsidy on non-US sales) that Microsoft gets from the now-illegal foreign sales corporation scheme, but it must be considerable.

Something to think about

Re:Whats the big deal?

[rudedog]

In any case, these are computer programmers and technical types - it's not as though they are working making footballs in the third world for tuppence happeny a day, is it?

What makes you think they're techies? Do you believe that of the 42,000 people working for Microsoft, 41,999 are techies, with maybe 1 other person to answer the phones?

The article doesn't give any numbers, but I would bet that most of these permatemps are not techies, but secretaries and support staff, who do not have as many options when it comes to seeking employment.

This is scary for us contractors!

[Anonymous Coward]

BTW, this lawsuit is a very scary thing for those of us who ARE contractors. Because of this lawsuit, many companies are making it tougher to higher contractors. Intel, for example, will now only hire any one person as a contractor for a total of 2 years for that person's entire life. So, if I work for intel on four seperate NON-continuous contracts that last 6 months each, I could never be hired by Intel again unless I was taking a full-time employee position.

As a contractor, I bring home approximately a 4x larger paycheck then I could by working as a full time employee. Granted, the security is not there, but with the contact base I have established over the years, I have never had trouble finding contracting work. (I'm self-employeed, I don't work through a contracting firm).

In any case, because of this Microsoft court case, my job opportunities have become fewer. It's not enough to hurt me yet, but I could see this being a problem in the future.

If people don't like the benefits they are getting from Microsoft (i.e., none in this case) then they should STOP working for Microsoft. It's ridiculous that this should have even been taken to courts. You ALWAYS have the option of looking for other employment if you don't like Microsoft's policies. What a bunch of whiners.

Temps allow falsification of financial data

[goingware]

I was told when I was a contractor at Apple that one of the reasons a lot of companies use contractors is that this allows them to create inflated statements of revenues vs. numbers of employees, or expenses for employees in statements to the stockholders and financial press.

Because contractor expenses count as expenses to vendors, while they are an expense, they make it appear as if your company is getting all this work done with far fewer employees than it really is. This is pretty significant as I understand that high-tech companies often employee as many as 40% of their staff as contractors.

If I were a stockholder in any high-tech company (I got out well before the bubble burst) I'd be enraged at this.

Michael D. Crawford
GoingWare Inc

Re:Working at Microsoft

[Anonymous Coward]

I don't entirely agree with you. When I was 16 they recruited me out of high school to come work for them. I had written and published several semi well known tools to exploit holes in the ms tcp/ip stack after discovering some vulnerabilities.

I worked on Win2K TCP/IP on security and performance related issues. I actually did quite a bit of programming for them. This was in 1997-1999 btw. I know several people who had been there for over a year without being hired on full time or receiving any benefits whatsoever. Myself included.

In addition to that, the working conditions weren't that great. In fact they were exceptionally stressful. I worked 90 hour weeks for months in a row. They would not allow for time off to visit my family on the other coast when I requested it.

The environment was VERY political. I was once chewed out by a more senior developer for proving him wrong on a technical point in a meeting.

Many people slept in their offices or outside of them. I woke up with keyboard prints on my face several times..

The situation was not like that in all groups, but I know that I won't work for them again.

Is this good?

[sanemind]

I mean, aside from the fact that we all despise microsoft per se, is this necessarily a good thing? Temp agencies have done much to contribute to flexibility both for the companies who hire [they have the option of contracting for labor when needed], and for workers [whose skills are commodified, allowing them to move from assignment to assignment with a great deal of flexibility and variety].

Most importantly, though, is that temp work allows the circumvention of what some would say can be rather rigid state-mandated benefits packages, which significantly increase the cost of labor, and more importantly decrease the freedom of a worker required to recieve those benefits to concievably use those resources to some other better purpose or utility of their own choosing.

Face it, the marginal decision as to whether or not to hire a worker is based two primary factors, the benefit of the work recieved, and the cost of paying for it. In traditional regulated full time labor large companies are required to offer all sorts of benefits, [many of which are of no use to some workers, i.e. paid family leave is required, but some workers are single and never have any oppurtunity to take advantage of it, nonetheless, it is factored into the cost of their employment and the determination of their salary].

If rigid benefits packages weren't required, workers would have higher salaries as a result, and be able to utilize that money however they wanted, being it taking a vacation, purchasing quality health coverage [or passing over health coverage for the less risk-averse].

Temp agencies have come to allow a circumvention of these rigid requirements, to the benefit of both the workers and the employer. Now that this 'loophole' is being closed up, do you think there will be nearly as many temp jobs available at microsoft [or other companies]? Nope. They will have to make sure that the workers really are temporary; people will be let go when they would otherwise have been kept on [and been wholly willing to do so as well] because, although their positions are justifiable without benefits [and obviously desirable by the workers, or they wouldn't be working there in the first place], they won't be with them.

It is a true shame that some people some an oppurtunity to exploit the system and argue that they had a right to the traditional entitlements, even though that hadn't been part of the deal, and thus ruin it for future temp workers who liked the idea of contractual integrity.


---
man sig

Re:How Microsoft treats their employees

[Delirium Tremens]

I thought wadges in Seattle, and thus Redmond, were extremely high.

The SFGate says: But that's peanuts compared with Seattle, where the average annual income of $129,330 gave tech workers far more money to spend than their counterparts in San Jose, who made $85,100, according to the study by the American Electronics Association.

Explanations?

Grey area.

[mindstrm]

I am not overly versed in the details of this case, but have seen similar things in other businesses. IT's not as clear cut as it may seem, and MS is not necessarily 'evil' for doing it.

Lets' say you go to work for a temp agency. That temp agency hires you out to MS, for a LOOONG period of time. What's the problem? MS is paying the agency, you work for the agency. MS typically also pays the agency a lot more than what you yourself make.

What's the problem? I mean, I'm not debating what the court decided... but really. Is it that clear?

A similar incident here (calgary, alberta). A company hired some 'contract' workers. This was by mutual agreement; the workers and the employer both wanted it this way. I forget how it started, but in the end, the courts decided that these were, in fact, permanent employees, and not 'outside contractors'. THey sat in company desks, used company equipment, and came to and from the company every day to do their work. They ruled the company had to treat them as regular employees.

Cuts both ways.

[Greg@RageNet]

Lets say I'm the owner of one of these two auto shops; and lets assume two mechanics are needed for each of these shops to operate. Lets also assume that because only four mechanics are needed in this small town there are only four people qualified as mechanics that live here; the one's trained by the owners of the auto shops to be mechanics.

Well if one of my mechanics suddenly decides to go join a commune, as a owner I've suddenly lost 50% of my workforce and am gonna be really screwed trying to either entice someone from another town to move here, or alternatively be short qualified help for a year while I pay to have some local kid trained to be a mechanic.

The employer has the ability to be just as easily screwed as the employee.

Abuse of owners is just as common throughout history as the abuse of laborers. Owners often lose their lives work and savings when countries outlaw or nationalize industries. Owners are also 'abused' (by your loose definition) when consumers no longer want or need their product. If you are for a 'minimum working standards' which employers must meet for employees, are you also for a 'minimum sales' in which consumers must purchase a given amount of product? They both derive from the same concept of entitlement!

So the government legislates that we work 40 hour weeks. Thats all great and dandy if thats what I want to work; but suppose I want to work (and be paid for) 60 hour weeks for 9 months then take three months off every year? Oops, thanks to the laws I can't do that. California has a law which roughly mandates a work week of 5 days, 8 hours each. But sysadmining sometimes requires 12 hour days when things are crashing, and 4 hour days when there's nothing going on. Thanks to california lawmakers I'm technically in violation of the law.

-- Greg

Decision impacts entire industry...

[sheldon]

You're absolutely correct. I work for a divison of GM now, but I entered here as a contractor 3 years ago.

The Microsoft case changed the way this company treated contractors. Used to be you were part of the team, invited to celebrations, company parties, etc.

That's not bad as I was used to it, but it is somewhat disappointing.

Now they make it quite clear who is an employee, who is temp.

It's also resulted in less of a reliance upon contractors.

But there have been other factors which have hit the contracting/consulting world. It's becoming increasingly difficult for these companies to maintain business.

Who put the gun...

[Greg@RageNet]

to anyone's head? The temps' knew when they were going in what their pay and benefits were, and they could have rejected the offer if they found it unacceptable. Instead they took the jobs then turned around and sued Microsoft.

I interviewed at hotmail shortly after they were aquired by MS. They wanted me to sign the 'standard microsoft paperwork' which had terms I could not agree to so I chose not to sign and went somewhere else. These people had the same option but instead entered legal contracts with Microsoft for their employment then turned around, breached their contracts, and sued Microsoft for damages. This is rediculous. Although this affects microsoft directly, all employers are now going to be wary about taking on non-employees, making contractor's lives more difficult.

-- Greg

IRS Definition of an Employee - 20 factors test

[goingware]

It's important to understand that the IRS has a certain definition of what an employee is. And this definition applies no matter what contractual relationship may apply between the client and the contractor - even if (as a lot of consultants don't understand) the consultant is an incorporated company.

There isn't a firm rule to define when someone is an employee or not, but the general test (from IRS ruling 87-41) is that you're not if you satisfy most of The Twenty Factors. Here is a summary of them.

This basically means:

• The contractor keeps his own hours
• The contractor provides his own equipment and office space
• The contractor takes on the financial risk
• Whether the contractor is working, or could be working for more than one firm at a time.

Really, the 20 factors are not a bad way to do business if you really are an independent business as I am, but in no way do most contractor/client relationships satisfy them.

Michael D. Crawford
GoingWare Inc

Re:Microsoft's new temp rules:

[sammy baby]

For those who are wondering, Microsoft's new temp rules (effective as of this past July) are that each temp is not allowed to return to work for 100 days following a one-year stretch of employment. Yes, that's insane.

Exactly what is your problem with this policy?

The lawsuit alleged (reasonably, IMO) that Microsoft kept "temporary" employees, including developers, in their stable for years at a time. This, the plaintiffs argued, is unfair, because after you've been working at a job for a year, it doesn't feel very damn temporary. They said they wanted Microsoft to treat temps like temps - by keeping them in temporary positions - and hiring the rest of their employees full time.

Microsoft could have (and still might yet) tried to dodge this bullet by shuffling temp employees around to different positions, claiming that the employee hadn't been in the same department long enough to qualify as a full-timer. Or, Microsoft could have terminated a temp's employment for a day and re-hired him the next day, then turn around and say "Oh, sure, he's been here since '97 - but he's been fired and re-hired three times since then.

So, considering that this policy is pretty much exactly what the lawsuit was trying to achieve - keeping temps temporary, and hiring them full time if they prove too valuable to let go - I'm a little at a loss trying to figure out what your problem with it is. Or do you think that temp positions should come with job security? I mean, for god's sake, they're temps. They're supposed to be short timers.

Whats the big deal?

[Kiss the Blade]

The bottom line in any employer-employee contract is that the employee is free to leave at any time. If he does not, then he is not being 'abused' by the company for which he works. All whining about abuse of employees etc is besides the point entirely, IMO. The simple fact is that these employees have a choice, and they have chosen to work for Microsoft.

In any case, these are computer programmers and technical types - it's not as though they are working making footballs in the third world for tuppence happeny a day, is it? Doesn't the geek community have better things to worry about than this?

We should take a leaf out of Bill Gates book, and help the truly deprived, and not scratch our own backs here.

[I realise that last comment is controversial - it mentions Bill Gates! - but I said it to shock everyone into thinking for once, and stop being emotional and selfish]

KTB:Lover, Poet, Artiste, Aesthete, Programmer.

Working at Microsoft

[Mooset]

I have seen Microsoft from the inside many times and know quite a few of their employees very personally. If there is any truth that Microsoft had at one time denied employees benefits, I am sure it was some sort of mistake. In fact, according to the NY Times article, starting in 1997 they hired all of their Permatemp employees into full time positions with full benefits. (Of course that isn't mentioned on the slashdot front page.) The case only covers Dec 1986 thru 1997 temps and by making a settlement Microsoft is acknowledging that those employees deserve benefits. With full health, pentions, and stock options, Microsoft employees are some of the best treated workers I know. Microsoft IS a great place to work (and very challenging too!) and one of the most respected employers in the field.