In 1989 and 1990, the Internal Revenue Service examined Microsoft's employment records and found that Microsoft's freelancers were not independent contractors but rather employees. They came to this conclusion as the freelancers were under the same supervision, were part of the same teams, and performed the same functions and hours as the regular employees. They had signed an independent contract agreement initially but it had not protected Microsoft. Then in 1993, 8 former Microsoft freelancers wanted to participate in the company's lucrative stock purchase plan and sued for full benefits. The case was later certified as a class-action suit covering at least 8000 former freelancers, and settled out of court with $97 million in unpaid compensation being awarded.
This landmark case illustrates that merely having a worker sign an agreement does not make him or her one in the eyes of the law. Rather, the worker must be treated like an independent contractor on the job. Penalties for misclassification can be severe, your company must make sure that everyone who deals with Independent Contractors in your company understands the risks associated when engaging with independent contractors. Independent contractors are independent businesspeople who must be treated as such. The 20 Questions provides a check list by the IRS to help to determine if an Independent Contractor is legally being classified.
Microsoft is not the only company held liable for owing very expensive retroactive benefits to former employees. Others have included PG&E, Pacific Bell and Hewlett Packard to name a few. As recent as July of 2004, FedEx drivers who had filed a class-action lawsuit against the company won a victory when it was ruled that FedEx had close to absolute actual control over the drivers.
To protect your company when hiring independent contractors, you should include provisions to all its employee benefit plans specifically excluding coverage for contingent workers. This includes stock option, vacation, sick leave, health insurance and retirement plans. Had Microsoft and others done this, it might not have had to provide coverage to its misclassified workers.
ICon has been working in the contingent workforce management sector for many years. Provide us with the opportunity to help protect your company's workforce investment by ensuring that you are meeting all federal and state guidelines. For more assistance, please use our Risk Assessment Calculator to assess your company's potential exposure for misclassification of independent contractors or contact us today to determine which of our solutions are best for your organization.
