What Microsoft’s Worker Misclassification Suit Tells Us About the Future of Contingent Workers

By: Leslie Stevens-Huffman

It was the shot heard ’round the employment world back in 1999, when the U.S. District Court ruled that Microsoft’s  long-term contractors were entitled to participate in the company’s tax-qualified employee stock purchase plan. While some companies responded by capping the length of contract assignments and scrutinizing the status of independent workers, co-employment risk hasn’t stopped Microsoft from utilizing more temporary employees, freelancers and contractors.

It’s estimated that Microsoft still utilizes about 70,000 contract professionals. This allows the company to quickly acquire knowledgeable experts for short periods of time. It also provides flexible staffing levels, allowing the organization to respond to changing market conditions.

As Microsoft spokesman Lou Gellos recently explained to BusinessWeek, “Our contingent workforce fluctuates wildly depending on the different projects that are going on. Somebody does just part of a project. They’re experts in it. Boom, boom, they’re finished.”

According to a survey of 1,248 firms by the American Management Association, 91 percent said flexibility in staffing issues was important. Moreover, 95 percent said that flexibility was being achieved through the engagement of temporary and contract employees from staffing companies.

A rise in employment-related lawsuits and laws like the Worker Adjustment and Retraining Notification Act (WARN), which requires companies with 100 or more employees to provide 60 days notice before a mass layoff, has discouraged companies from rehiring full-time employees. Instead, they’re utilizing more contingent workers, largely because they’ve been able to mitigate co-employment risk.

Full-time employment never returned to pre-recession levels following the downturn in 2001. After the latest recession, Mark Zandi, chief economist at Moody’s Economy.com, said that our “collective psyche has changed as a result of what we’ve been through. And we’re going to be different as a result.”

Twenty-six percent of companies use contingent workers to meet seasonal business needs. Another 10 percent use them to fill in for absentee workers. Others use contingent workers to get relief from rising benefit costs and regulations so they can compete in a global economy.

Companies like Microsoft meet talent shortfalls by deploying contractors with scarce technical skills all over the world. And given the reduction in full-time headcount, managers are increasingly turning to contractors for a quick injection of expertise in order to complete critical projects.

Companies aren’t the only ones looking for flexibility. Veteran professionals view contracting as a way to extend their careers and acquire new knowledge without enduring the stress of a full-time job.  According to a survey of 13,196 workers conducted by the American Staffing Association (see chart below), 41 percent chose contracting to achieve a flexible schedule, while nearly 60 percent said that that their contract work is helping to strengthen their resume. Respondents with little or no interest in a permanent job were more likely to have a least a bachelor’s degree and earn higher wages.