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

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

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.

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.


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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?

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.

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.