Now, Temp Workers Are A Full Time Headache

A ruling could make `permatemps' a lot pricier to have around

Is the honeymoon over? For years, companies have found that using temporary workers gives them great flexibility and helps cut costs. The beauty of the arrangement, which many workers also embraced, was that there were no messy commitments. But a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit has ruled that workers who are on the payroll for more than a few months, whether independent contractors or so-called permatemps placed by agencies, are common-law employees--not officially married to the company, but living with it and entitled to the same benefits permanent staffers get.

The precedent, which arose from suits by independent contractors at Microsoft Corp., could radically change the way companies regard their temps. Besides having to offer temporary workers the same benefits any regular employee on the job for the same time would receive, the case opens the door for permatemps to sue employers under most employment laws, such as those covering sex or race discrimination or family leave. As Fredric S. Singerman, a management lawyer at Seyfarth, Shaw, Fairweather & Geraldson, puts it, the courts are "boxing in the temp industry."

That's not good news for temp agencies. The ranks of temps have more than doubled in the past five years, largely because companies can save up to 40% on total labor costs by avoiding payments for benefits such as paid vacation and sick leave. On any given day in America, nearly 3 million workers are in temporary assignments. Close to half of these recruits stay on the job for six months or more, according to the Bureau of Labor Statistics. That's a lot of people who will be affected by the ruling. "I hope it forces Microsoft and other companies that employ permatemps to realize that this isn't going to work anymore," says Jeff Nachtigal, who has worked as a full-time temp for two years at Microsoft's Sidewalk.com.

Without a doubt, it will be costly. For Microsoft, the ruling means that thousands of its 6,000-plus temps must be offered a coveted benefit: the chance to participate in its stock-purchase plan. Microsoft also may be forced to offer health care and other benefits, which are also part of the suit. Microsoft is appealing the special panel's ruling to the entire court.

OVERRULED. The ruling is surprisingly far-reaching. The case arose after the Internal Revenue Service said in 1990 that Microsoft had improperly classified a few hundred independent contractors who the agency said should have been considered permanent employees. Management lawyers anticipated that a subsequent class action would apply only to those employees. And a Microsoft-friendly judge in Seattle agreed.

But on May 12, the three-judge panel overruled the lower court judge. The panel saw essentially no difference between independent contractors and temps, which greatly expanded the number of individuals who could join the Microsoft class action. It went on to argue why all long-term temps can be considered common-law employees of Microsoft: Although a worker may be employed by a temp agency, if Microsoft controls the worker on the job, the software company may be regarded as a joint employer with the agency. "Even if for some purposes a worker is considered an employee of the agency, that would not preclude his status of common-law employee of Microsoft," the ruling states.

The ruling means that employers of permatemps face a painful choice: Enroll long-term temps in benefit plans or surrender control over them to the agencies. The second alternative would mean that agencies would hire and fire temps, promote and discipline them, do performance reviews, decide wages, and tell them what to do on a daily basis. "If a company isn't interested in being considered the employer, they need to do things differently," says Edward A. Lens, general counsel of the National Association of Temporary & Staffing Services. Companies that don't heed his advice may find themselves on the hook--just like Microsoft.