The Permatemps Contretemps

The email message from Microsoft's then-president seemed innocuous. Dated Wednesday, January 17, 1990 and addressed to Bill Gates and Steve Ballmer, among others, it explained the consequences of a recent altercation that pitted Microsoft against the Internal Revenue Service. The IRS had noticed that the company was employing lots of independent contractors for long periods of time and was not withholding taxes from their paychecks. Having determined that there were few differences in substance between what kind of work those contractors did and what kind of work Microsoft's full-timers did, the IRS had forced the contractors to pay back taxes -- some of which were covered by Microsoft -- and had asked the company to change its policies so that all employees would be giving the government its fair share of their paychecks every two weeks.

The IRS had left it to Microsoft to decide how it would do that; by early January 1990, one option had emerged that seemed sensible: Ask the independent contractors to sign up with Seattle-area temp agencies and to have those agencies withhold taxes. The email message began by explaining the nuances of this practice to company managers: "First do not have your people just make all the freelancers temps. That should only happen in the cases where there is a clearly defined end date to a project and a firm commitment to let the person go when that project is completed." Certain contractors who had been working on existing products that had longer timelines would be offered full-time jobs. "This is really the elimination of a long time cheat to hold down headcount," the email continued. "Don't try to go around it, we could have severe legal problems if this is not done according to the law."

That was in 1990. Today, that email seems prescient, since it resurfaced as a result of "severe legal problems": a class-action lawsuit that a group of temp workers filed against Microsoft in 1992. But even that lawsuit didn't stop Microsoft from employing long-term temps. Throughout the 1990s, Microsoft took on thousands of workers through local personnel agencies, certain that it had a right to employ contract workers -- as long as those workers knew that an assignment at Microsoft did not include company benefits or guarantee full-time employment in the future.

Those temps who did sign on to work at Microsoft often stayed for so long that they eventually developed a collective nickname: "permatemps." Whoever coined the term must have had a sharp sense of irony. Legitimate free agents -- the "temps" in "permatemps" -- are deliberately impermanent. In a perfect world, they work whenever and wherever they want to work, and they pick up stakes and move on whenever the learning curve levels off or whenever a better deal comes along. But employees who are "permanently temporary" -- the "permas" in "permatemps" -- are looking for the opportunities that are afforded by a full-time job, including all of the fringe benefits that come with full-time status.

To be a permatemp is to sit in the oxymoronic crosshairs of the new economy. You enjoy -- or you suffer -- the worst of both worlds. Free agents choose to work as independent contractors because they want to, because it gives them more leverage in the job market and more control over their lives. Permatemps work as not-so-independent contractors often because they feel as though they must. They're stuck -- or at least that's how they feel. The ones who worked at Microsoft are case studies of the dark side of free agency, examples of how an experimental human-resources policy that was intended to encourage flexibility can have unintended consequences.

Microsoft didn't plan to serve as the setting for the new economy's defining trial on the meaning and limits of free agency, but it has become just that. And the results of this experiment? None of the people involved in the temp controversy have gotten exactly what they wanted. Although Microsoft has grown and prospered, the lawsuit has generated lots of bad publicity and has lowered morale dramatically among the company's temps, who have at times made up as much as 25% of Microsoft's Seattle-area workforce. The temps may well end up as the beneficiaries of a lawsuit that awards them millions of dollars, but a judgment in their favor will have consequences too. Even if the workers do win the case, free agents may find themselves constrained in their ability to work on their own terms, and permatemps may still not land the full-time jobs that they want. Meanwhile, the courts have taken over the role of chief policy maker on matters that could not be settled by the talent market and by human-resources strategists.

The cast of characters who live out this drama of the new-economy workplace include an unwilling full-time employee, an unwilling permatemp, two aspiring permatemp union organizers, a permatemp agency operator, and the head of the temp workers at Microsoft. Their stories -- like the permatemp lawsuit, the advantages of free agency, and free agency's dark side -- are still evolving.