Microsoft Settles Permatemps Suit

January 3, 2001

Microsoft has made the news again, with its most recent settlement announcement not in its U.S. v Microsoft suit, but rather in its “permatemp” suit. The “permatemp” suit highlights the common battle that employers have distinguishing between their employees and temporary and/or contract workers. The suit has been referred to as "permatemp" because many of the temporary employees involved had substantial tenure. Here Microsoft had a contractual relationship with the temporary employees which included benefits; however, on termination the "permatemps" were given fewer benefits than regular employees. The court refused to draw a distinction between who was an employees and who was a temporary contract worker because the benefit plans that were in place for each were quite similar. In other words, the court saw no difference between the temporary employees and the regular Microsoft employees because they were all receiving similar benefits. Microsoft ultimately settled for $97 million.

The warning that this case signals is very important, when contracting temporary workers or contract workers draw a clear distinction between which are which. Some of the characteristics to look at when distinguishing between contract workers and employees is the type of work, work for a set fee, and typically for contract workers it is work that does not require supervision. Classically a contractor uses his or her own equipment and does not rely on the employer’s equipment, unless other arrangements are made in the contract. So when employing contract employees be sure that the working relationship and the contractual relationship clearly draw a distinction between employee and contract worker.