Microsoft "Permatemps" Case

Vizcaino v Microsoft

In 1992 Bendich, Stobaugh & Strong filed a lawsuit on behalf of several common-law Microsoft employees who were mislabeled as "independent contractors," "freelancers" (another name for independent contractor), and/or employees of "staffing" firms. The case was certified as a class action in 1993. The district court dismissed the case in 1994.

In 1996 and again in 1997 the Ninth Circuit Court of Appeals ruled the class is entitled to participate in Microsoft's employee stock purchase plan. On remand, in 1998, the district court reduced the class to a tiny sliver of its original size. On May 12, 1999, the Ninth Circuit restored the original class by granting a writ of mandamus. See Vizcaino v. Microsoft, 173 F.3d 713 rehearing denied and opinion amended, 184 F.3d 1070 (9th Cir. 1999), cert. denied, 528 U.S. 1105 (2000). The parties announced a $97 million settlement on December 12, 2000. In addition, as part of the settlement Microsoft hired roughly 3,000 class members as regular employees with full employee benefits, which the Court valued at an additional $101 million. The Settlement Agreement was approved by the Court in orders dated March 21, 2001 (overall settlement) and April 16, 2001 (class counsel's fees). See 142 F.Supp.2d 1299 (W.D. Wash. 2001), affirmed, 290 F.3d 1043 (9th Cir. 2002), cert. denied, 537 U.S. 1018 (2002).

Settlement Agreement

On August 8, 2005, the IRS signed the closing agreement. The Internal Revenue Service in the closing agreement agreed that class member payments are in three categories:

• Wage Amount – This is the difference between the ESPP purchase price and the higher of two stock prices (the stock price at the beginning or the end of the ESPP offering period). The “wage amount” is subject to payroll tax and to income tax withholding. The wage amount is reported on a W-2 form.
• Imputed Investment Gain – For eligible service periods prior to 1999, the “Imputed Investment Gain” is the difference between the value of the stock on the last day of the offering period and the value of the stock one year later. For the period from 1999 and thereafter there is no imputed investment gain. The imputed investment gain is income to the class member, but is not subject to payroll tax or to income tax withholding. The investment gain is reported on an IRS form 1099.
• Interest – Interest is 12% simple interest per year and it accrues from the date that class members are treated as selling the stock (one year after the end of the offering period), and ends on June 30, 2000, as provided in the Settlement Agreement. Interest is income to the class members, but is not subject to payroll tax or income tax withholding. The interest income is reported on an IRS form 1099.

Case History

In 1992 Bendich, Stobaugh & Strong filed a lawsuit on behalf of several common-law Microsoft employees who were mislabeled as "temporary" employees, "freelancers," "independent contractors," and/or employees of "staffing" firms. The case was certified as a class action in 1993. The district court dismissed the case in 1994.

In 1996 and again in 1997 the Ninth Circuit Court of Appeals ruled the class is entitled to participate in Microsoft's employee stock purchase plan. On remand, in 1998, the district court reduced the class to a tiny sliver of its original size. On May 12, 1999, the Ninth Circuit restored the original class by granting a writ of mandamus. See Vizcaino v. Microsoft, 173 F.3d 713 rehearing denied and opinion amended, 184 F.3d 1070 (9th Cir. 1999), cert. denied, 528 U.S. 1105 (2000). The parties announced a $97 million settlement on December 12, 2000. The Settlement Agreement was approved by the Court in orders dated March 21, 2001 (overall settlement) and April 16, 2001 (class counsel's fees). See 142 F.Supp.2d 1299 (W.D. Wash. 2001), affirmed, 290 F.3d 1043 (9th Cir. 2002), cert. denied, 537 U.S. 1018 (2002).