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Outsourcing May Not Prevent Employer Liability
As Microsoft Corporation has discovered, an “independent contractor” who functions as an employee may be considered an employee and therefore be entitled to benefits. Microsoft’s troubles began in 1990 when the IRS reclassified a number of Microsoft’s “independent contractors” as “employees,” leaving Microsoft responsible for unpaid tax withholding for the previous three years. Then some of the contractors sued for benefits under Microsoft’s stock purchase and other employee benefit plans (both ERISA and non-ERISA plans), claiming that the plans were available to all “employees” and, therefore, to them, even though they signed agreements with Microsoft disclaiming all such benefits. Last year the 9th Circuit Court of Appeals affirmed its earlier ruling (see “If it Walks Like a Duck,” January, 1997 CLRM ALERT) in favor of the contractors/employees. Four weeks ago the U.S. Supreme Court decided not to hear Microsoft’s appeal, and the case went back to the trial court. The story was not over. In 1990, after the IRS tagged Microsoft’s contractors as “employees,” the company either fired its “contractors” or hired them as employees. Some of those who were “fired” became employees of temporary agencies assigned at (where else?) Microsoft. According to Reuters/Wired News (2/19/98), the trial judge has now ruled that even these “temps” are “employees” entitled to benefits.
This ruling strikes us as more than a little odd and we suspect it may be reversed or limited on appeal, but it suggests that even a worker employed by a temporary agency might, under some circumstances, be considered an “employee” of your company and might be entitled to benefits under your company’s plans – if the eligibility requirements of the plans could be construed to fit him or her.
Cook, Little, Rosenblatt & Manson ALERTS are produced periodically as a service of Cook, Little, Rosenblatt & Manson, p.l.l.c. and are intended to highlight emerging legal issues affecting our clients and friends. It is, of course, no substitute for specific legal advice.
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