The Permatemps Contretemps

It is the dark side of Free Agent Nation. Here’s how the mix of Microsoft’s human-resources policies, unwilling temps, high-tech union organizers, and “permatemp” agents produced unintended consequences — and a cautionary tale.

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.


Sylvia Moestl: The Unwilling Full-Timer

When Sylvia Moestl graduated from the University of North Carolina in 1989, she was an interdisciplinary-studies major with little background in technology. For several years after college, she traveled abroad and did volunteer work. She then returned home to Charlotte, where she found a temporary job at a Microsoft technical-support facility. After six months of hard work, a long evaluation process, and several interviews, she got an offer from Microsoft for a full-time position, making her one of 5 temps in her group of about 80 that the company hired. In 1994, Moestl pulled up stakes and moved to the Seattle area.

For most young people with technology smarts in the pre-Internet 1990s, landing a full-time job at Microsoft would have been a chance-of-a-lifetime coup. But for Moestl, the full-time job soon became a daily reminder of the attraction of free agency. “I was always on the phone with people who had skills like mine, and who were making four times the money that I was making,” she says. Her new job did come with some Microsoft stock options — but not enough to make her feel either destined for riches or trapped by golden handcuffs. “Talking to all of those people on the outside got me completely in tune with the idea of moving on to do my own thing.”


Moestl, now 32, undoubtedly would have made more money in the long run had she stuck with her full-time job and garnered even more stock options. But when she made her decision to quit her full-time job, she wasn’t thinking only about her income. She was looking for work that fit her interests, and she felt uncomfortably pigeonholed while she was working in the technical-support department at Microsoft.

In the fall of 1995, Moestl left Microsoft to become a free agent. Over the course of the next four years, she did contract work on five different Microsoft projects, playing a number of different roles and honing a variety of skills.

Even though Moestl hasn’t done temp work for Microsoft recently, her job experience at the company and her exposure to the permatemps controversy left her with a strong opinion about the lawsuit. “Just because someone wants a full-time job doesn’t mean that person is going to get one,” she says. “The market has ways of regulating situations like this. There are job opportunities elsewhere, and if people are unhappy, they should take advantage of those opportunities.”


As unsympathetic as Moestl is to the cause of the permatemps, the controversy has had a direct impact on her life. In February 2000, Microsoft announced a new permatemp policy: No temp worker would be allowed to stay at the company for more than a year without a break in service. In the wake of that announcement, many other local companies — and companies elsewhere around the country that have been tracking this high-profile case — decided to follow the practice to avoid becoming the next target of a class-action lawsuit.

“Some large companies are trying to avoid hiring any contractors at all,” says Moestl. “And there are others who don’t want to risk giving a contractor longer projects to work on, because they’re afraid that they might be sued if contractors think that they’re doing full-time work for them. All of it directly affects my bottom line and my ability to choose the way that I want to work.”


Barbara Judd: The Unwilling Permatemp

Two years ago, accepting a temporary assignment at Microsoft seemed like a pretty good bet to Barbara Judd. An MBA, Judd, who was in her late forties at the time, was one of what would eventually become 60 temps who signed on to help the company develop a piece of software that was designed to compete with Intuit’s popular TurboTax program. What Judd really wanted was a full-time job at Microsoft; taking a temp position would at least get her foot in the door, she figured. “The company made it clear to us that there were no guarantees that the project would succeed,” she says. “But my take on temp work has always been that it’s a good way to prove yourself to an employer. Plus, it was a chance to work on a piece of software from the ground up. It’s always more exciting to build than it is to fix. I saw that job as a chance for me to be a pioneer.”

One year later, Judd was still a temp and was still working on the same project. That was when she attended an annual meeting of the Institute of Management Accountants in Seattle — and inadvertently found out how at least one high-ranking Microsoft executive really felt about permatemps. Greg Maffei, then the chief financial officer of Microsoft, was the speaker at the summer event. At the end of his remarks, an audience member asked him about the company’s use of temps, and Maffei fired away. “We are very tough in hiring [full-time workers] in terms of standards, but we aren’t as tough on temps,” he said. “So you found that the quality of the temps is not as good as the quality of the full-time people.”

Sitting in the audience, listening to Maffei’s remarks, Judd felt “like I was being punched in the stomach. I must have looked like it too. People kept whispering to me, ‘Are you okay? Are you okay?’ He was telling my peers that I wasn’t good.”


The incident not only made Judd uneasy; it also reminded her that she had some serious, unanswered questions about her future and about the role of permatemps at Microsoft. On one hand, she knew that it would be foolish for her to feel entitled, or even attached, to her job at Microsoft. The company had guaranteed her nothing except a specific wage and had told her explicitly that it could let her go at any moment. She made $32 an hour plus overtime — more than she might have made on an hourly basis as a full-time employee — but she had no Microsoft stock options and a less-than-ample benefits package through the temp agency. On the other hand, temps like Judd were questioning what made permatemps different from regular employees. Why couldn’t she join the club?

For all of the uncertainty and all of the unanswered questions, several signs cropped up that seemed encouraging to temps looking to land full-time positions. Within one year of the project’s start, Microsoft converted four of Judd’s colleagues to full-time status. Judd and many of her coworkers had worked together on tax software for a different company in the past, and four managers from that previous project got those four full-time slots at Microsoft. Once those four workers were promoted, Microsoft’s project managers spent the next year trying to encourage Judd and the other temps to be patient, reminding them that Microsoft needed their tax product in order to have a full suite of financial software to bring to market.

While Judd waited, she had to live by a long list of rules that come with a temp worker’s status at Microsoft. Temporary employees, whether they have worked at the company for a week or for two years, are not allowed to play on the Microsoft ball fields, get a free membership to a local gym, or join any of the employee-affinity groups. Badges that the company issues to temps are orange, rather than blue. And, on the Microsoft email system, an “A” is printed before the name of temps who are assigned through local staffing agencies — a designation that temps say makes their email opinions easier to dismiss. There’s more: Temps can’t buy discounted software at the company store. In fact, they can’t buy it at all, for any price, even if they wrote the instructions inside the box.


With her day-to-day work constrained by demeaning employment rules and her future job status uncertain, why didn’t Judd simply leave? “Getting another job isn’t quite as easy as you might think,” she says. “Microsoft doesn’t want us to put their company name on our r?sum? as our employer. They say that the temp agency is our employer, even if we worked at Microsoft for two years. When people see that you’ve been working through a temp agency, they think that you have an unstable work history, so they toss your r?sum? into the trash can.”

Besides, Judd argues, why should she have to leave? “The courts have ruled that Microsoft controls the terms of our work, that we’re common-law full-time employees. So don’t ask me why I didn’t leave,” she says. “Ask Microsoft why it didn’t do what the courts say it should have done and given me the privileges that all full-time employees get when they work for the company.”

But to Microsoft, the job never was permanent. After more than two years, Microsoft announced on March 22 that it was discontinuing work on its tax software that very day. The company gave Judd and her colleagues 48 hours to clean out their desks.


Marcus Courtney and Mike Blain: The Permatemps Organizers

To many outsiders, there is a simple solution to the permatemps problem at Microsoft: They should just quit and strike a better deal somewhere else. But to Marcus Courtney, that line of reasoning doesn’t match his understanding of how most people work. “The ‘love it or leave it’ argument might make sense for some people,” Courtney says. “But why should you have to love every single term that comes along with an employment contract? If you’re at Microsoft, working with cutting-edge technology in areas that interest you, isn’t it possible that you might want to stay and try to improve the things that bother you?”

Courtney, 29, knows firsthand how logical it is to try to make your work better, rather than bailing out — and how frustrating it can be to try to effect change as a temp. In 1998, having worked at Microsoft for almost two years, Courtney was still classified as a temp. His hourly wage had improved only slightly over those two years, the benefits were less than generous, and he was frustrated with his failed attempts to land a full-time job. He found a similarly disillusioned, long-term temp worker in Mike Blain. Besides their frustration, both men shared a passion for organizing. “High-tech temp workers had no effective representation at Microsoft, let alone at a state or a national level,” says Blain, 33. “At the time, Microsoft was a member of an industry group that was trying to make overtime pay for hourly software workers optional, and staffing agencies were bending the ears of government officials in Washington’s statehouse. But temps had no one speaking for them.” While Microsoft did not lobby for the industry group’s position, the group’s effort still served as a wake-up call for what might happen if no one was representing the voice of the temps.


So the pair, along with 25 other high-tech workers, launched the Washington Alliance of Technology Workers (WashTech). Blain and Courtney quit their temp jobs eight months later, after they got the financial backing of the Communications Workers of America (CWA). Microsoft had never been a target of high-tech union activity before. Blain and Courtney planned to change that through their work at WashTech. They also saw themselves as part of something larger: the first attempt to organize and represent the interests of workers who don’t want to be employees of any one company, or who are contract workers unable to secure a full-time position.

If permatemps is an oxymoronic job description, then Blain and Courtney sought to create an oxymoronic labor union — a union of people who, by definition, are temps. But who would want to join a group like that? Blain and Courtney didn’t start out with all of the answers, but they did know that, given the level of dissatisfaction among Microsoft’s temps, they had a fertile testing ground for their new union. Setting union dues at $11 per month, they went to work to demonstrate the value of membership and focused immediately on training, an opportunity that the two organizers recognized from their own experience as a missing element for most temps. The offer struck a nerve, and members began to sign up.

Still, like any union, WashTech needed specific grievances to rally around in order to gain visibility and to alert potential members that it was attempting to make Microsoft executives take it seriously. For years, temporary workers at Microsoft had not been able to request formal performance reviews directly from their managers at the company. Instead, Microsoft told temps to get their reviews from their employer of record: the temp agencies. “Your agency rep would send an evaluation form to your manager at Microsoft,” Courtney says. “The manager would fill out the form and send it back to your agency, and then your rep would call you on the phone and read the manager’s comments to you. Most agency reps were just regurgitating what the manager had written on the form.”


But WashTech was aware of another review process that the temps were not privy to. “We’d known for several years that there was some sort of database that secretly tracked the performance of each temp worker,” says Blain. “Someone stumbled onto it on the Microsoft corporate network and discovered that the company had been evaluating its temps and storing comments about them all along. So we quietly got the word out to people so that they could peek in and review their records. We knew that once Microsoft found out that we had discovered its database, the company would shut it down.”

Microsoft did, in fact, cut off access to the database — around the same time that WashTech went public with the news on its own Web site. “Because WashTech is around, people who missed the chance to see their file felt like it was safe to demand that Microsoft give them access to it,” Courtney says. “Microsoft tells people that only their agency can make that evaluation, but then it keeps secret files that blackball some of them from ever working at the company again. When people can’t get a straight answer about their performance, it really devalues their contribution as a worker.”

For its part, Microsoft claims that WashTech encouraged temps to break the law by trespassing on the Microsoft network in search of those personnel files. Earlier this year, WashTech asked the state Department of Labor and Industries to issue an opinion about whether the temps have a right to see the files, and the state issued an opinion in favor of the temps.


WashTech is now moving more formally on other fronts, starting with wages. Most temp agencies refuse to disclose to temps how much money they charge for a temp worker’s labor. “Many of these agencies are just parasites,” says Blain. “They hire whomever Microsoft tells them to put on their payroll. Then they process their paychecks, and that’s it. They’re just glorified money launderers.” WashTech and its members believe that, like lawyers and accountants who work for a firm, temp workers should be told by their agencies the rates at which their services are billed out. The group was influential in drafting a bill in Washington’s state legislature that would force agencies to disclose their markups.

But for all of its activity and public-relations successes, WashTech has found the actual organizing of new members slow going. By May 2000, the union had signed up only about 260 members — far short of the 1,500 that it needs to be self-sustaining at its current staffing levels. As of last December, Microsoft had 18,525 full-time employees working in the Puget Sound area near Seattle and had between 5,000 and 5,500 other employees working as temporary workers in that same region. WashTech’s own surveys suggest that nearly 60% of those temps would prefer to have a full-time job with the company — an estimate that suggests that there are ample numbers of temps for the union to sign up.

Why, then, has it been so hard to get temps to join? Courtney points to a number of reasons. A lot of temps are scared to join, he says, and they’re caught in a catch-22: Those who are most unhappy tend to be temps who want full-time jobs but can’t get them, and those same temps are least likely to make waves and jeopardize their chances of getting those full-time jobs. Meanwhile, true temps are generally not joiners by nature. “They have a strong sense of individual spirit, and none of them has ever encountered an organization like ours,” Courtney says. “The word ‘union’ comes with a certain amount of baggage for white-collar workers in general, and for individualist workers, in particular. So we try to get people interested in the issues that we’re working on without using that term to describe what we do.”

Perhaps the biggest challenge that WashTech’s organizers face comes from the transient nature of many free agents. Over the past two years, 400 people have joined WashTech at one time or another but then have left town or have dropped out of touch. “For the past two generations, unions have appealed to people who would hold the same job for 30 years,” Courtney says. “The power of a union contract has come from being able to go back to the bargaining table over and over again to improve it.”

In fact, despite Courtney’s arguments to the contrary, “love it or leave it” does describe the way that many temps approach their work. Courtney remains confident, however, and so far his CWA sponsors have shown no sign of withdrawing their support, even though they’ll likely have to cover the shortfall in WashTech’s budget for the foreseeable future. “For the CWA to remain viable in the 21st century, it needs to have a strong presence among information-technology workers, and it’s looking for us to lead the way,” Courtney says. “As long as we’re making changes at companies like Microsoft, building support for our organization, and translating that support into new members, they’ll want to be a part of that. Their support is not based upon a membership quota.”

Peg Cheirrett: The Permatemps Agent

For the owners of many Seattle-area temp agencies, Microsoft’s decade-long permatemp experiment has been extremely good for business. For Peg Cheirrett, who has spent the past 15 years running WASSER Inc., an agency for technical writers, it has been just plain extreme. First she rode to the top of the business, filling Microsoft’s demands for employees. Then she rode out of the business, accepting a lucrative offer from a company that wanted to buy her firm. “Microsoft made WASSER’s growth feasible,” Cheirrett says. “If we had been in Kansas, this would be a very different company.”

According to Cheirrett, 51, the true free agents who worked through WASSER enjoyed their work at Microsoft but often felt conflicted. “I recall one conversation with someone who was particularly mistrustful of me,” she says. “The whole reason that he had gone independent in the first place was because he felt that agencies were exploitative and that they didn’t give anything back to workers. Working through an agency in order to do work for Microsoft, to him, was a loss of control, a loss of prestige.”

The evolution of the permatemp, Cheirrett says, was largely a matter of inertia. “It just seemed to happen to some people,” she says. “There was one person who worked for me at Microsoft for six years, and at some point during the beginning of year number three, he began to notice that the whole thing was just going by itself. Once we put workers like him into the Microsoft system, those workers would find more projects there on their own and would stay on.”

Some permatemps kept working at Microsoft simply because staying was easier than leaving and trying to find a new job at a different company; others remained with hopes of landing a full-time job. Either way, Cheirrett thinks that her agency played a useful role. “These were not people who would have been good at marketing themselves or at negotiating their own rates,” she says. “Our agency handled payroll and benefits for them, and gave them easy access to new assignments if they needed it.”

And, says Cheirrett, the setup became more and more convenient for Microsoft as well. “In the old days, much of the demand for technical writers really was seasonal,” she explains. “They would jam stuff through during the summer in order to get it out in time for Comdex in the fall, and then they would lay everybody off and go into hibernation for the winter.” But as Microsoft expanded its offerings, demand grew for year-round help writing manuals and other technical documents. And individual projects became more complex. “It took three years to write the first version of Exchange, the email program that eventually became Outlook,” Cheirrett says. “We had contractors actually bailing out of that one because they didn’t want to continue working on such a stressful, troubled product. They wanted to go somewhere else and have a better time.”

In the early-to-mid-1990s, with all of this activity going on, Microsoft did hire more full-time technical writers, but the demand for Cheirrett to provide more contract writers also increased. Why didn’t Microsoft simply hire more of those writers on a full-time basis? To Cheirrett, the answer lies in the company’s DNA. “Microsoft is a hacker culture,” she says. The company has always valued people with programming smarts above all else — followed by those with the marketing skills to find millions of customers to buy the company’s software products. “For people who have talent, our doors [to full-time work] are open,” Bill Gates told the Los Angeles Times in 1997, commenting on the permatemp controversy. To many temps, Gates’s comments confirmed the company’s internal division that put programmers at the top — and assigned to interchangeable temps the lowly tasks of writing manuals and creating content for the company’s Web properties.

Cheirrett began to notice that her firm’s role in the labor market was changing. It went from being a technical-communications company to being a human-resources services company, and those services were becoming a commodity. “Our profit margins were already around 5%, and we didn’t want to see what might happen if competitive pressure pushed them lower,” she says.

So, in 1997, Cheirrett and her husband, with whom she owned WASSER, sold the company and signed a three-year contract with the new owner that would allow her to run the agency during the transition. She did not renew her contract this year, and she plans to spend the next several months as a free agent herself.

Her first two self-appointed tasks: researching cutting-edge human-resources policies and studying the Hollywood model of deploying independent professionals. “I can’t believe that I haven’t looked into this until now,” she says. “That model could serve as an example of what to do in the tech world.”

Sharon Decker: The Permatemps Director

This is not a morality tale or a Hollywood movie with heroes and villains — which is why inside Microsoft’s verdant corporate campus, you will not find a snarling executive who is responsible for keeping “those lowly temps” down. Instead, for the past three years, the director of contingent staffing has been Sharon Decker, herself a former Microsoft temp who did a three-month stint in customer service in 1985. Decker, 55, began her full-time Microsoft career in sales support, moved on to marketing, and then landed in human resources in the late 1990s.

Three years ago, she moved into her current job. “We are a company that’s always been good at technology,” she says. “And at that point, we had become a fully grown-up company, so I thought that the human-resources department might benefit from some fresh perspective. It seemed as if the next logical thing for me to do was to try to make change happen by working with people.”

At the time, Microsoft’s policies on the employment of temporary workers had not changed much since 1989, when the IRS first identified the issue of tax withholding and long-term contractors. To Decker, Microsoft’s solution of sending its temps to staffing agencies was neither a grand strategy nor a nefarious plot. It was just a way of going about the company’s business. “To my knowledge, there was no ‘big decision’ where people sat in a room and said, ‘This is how we are going to staff the company, and this is why we’re going to do it,’ ” she says. “We’ve just always wanted to maintain flexibility and to avoid big fluctuations in the number of full-time workers.”

But as the move played out, it had both unforeseen and unfortunate consequences. By the time Decker started her job overseeing the temps in 1997, there was clear dissension in the ranks over Microsoft’s personnel policies. At that point, the class-action suit that was filed by the temps had been wending its way through the legal system for five years, publicly pitting the company against a number of independent contractors who worked in its Seattle-area offices. The effect on morale was subtle but profound.

Decker knew that the time had come to make major changes in her company’s culture. At the same time, she knew that there were certain things that she simply could not fix. Take, for instance, seemingly trivial — and presumably easy-to-change — rules that restrict temps from using the company’s ball fields. Because the temps are not on the company payroll, Decker says, Microsoft’s insurance company will not permit it to allow its contract workers to use its corporate ball fields or to get a free membership at a local gym through Microsoft’s benefits program. As for policies that would exclude temps from bowling nights or forbid them from buying software at the company store, those were generally set by Microsoft’s lawyers specifically to enable the courts to see a clear line between full-time employees and contract workers.

Decker eyes the party line carefully. “If agency employees want to participate in parties and outings, they need to ask their employers to contribute to the cost of their attending,” she says. “Rarely have we been turned down when we’ve asked one of the agencies to do that.” Decker has also approached the personnel firms about providing temps with discounts at the Microsoft store so that they wouldn’t have to pay full price for the products that they had helped create. “We should have done it before now,” she says.

In other areas, Decker has had more leeway to improve the standing of temporary workers at the company. In 1998, for example, she instituted a platform of changes that requires every temp agency that works with Microsoft to pay for at least half of a temporary worker’s medical and dental insurance, to give workers at least 13 paid days off each year, to grant them at least $500 worth of training annually, and to establish a retirement-savings plan with at least some matching contribution from the agency. And, for the first time, all temps in every job category have a choice between at least two agencies that they can sign up with. “If you’re going to use a contingent workforce, then you need to make sure that there’s a safety net in place for those workers, and you need to underwrite the costs associated with that net,” Decker says, noting that Microsoft now pays 20% more per worker to agencies than it did just a year ago.

This year, clearly tired of bad press and union pressure and wanting to put the lawsuit behind them, Decker and Microsoft declared that permatemps will no longer be fixtures on company grounds. Most recently, the company announced that it would not allow anyone to work as a temp at the company for more than a year. Once contractors hit the 365-day mark, they must take 100 days off before working for the company again. Decker insists that she’ll strictly enforce this policy — a departure from past performance — and the announcement has compelled Microsoft managers to make tough decisions about which positions are truly temporary.

“They’re going to have to map out each assignment and determine whether it has the characteristics of a regular, long-term position that fits into their long-term strategy,” Decker says. “Are they part of an emerging group in a growth area, or a mature area that’s downsizing? What sort of unique skills might they need year-round?”

As Microsoft creates more full-time jobs as a result of this analysis, many of those positions are open to contract workers. At any given time, Microsoft has about 3,000 openings for full-time jobs, and Decker figures that at least 40% of those jobs will go to former temps this year. Another result, however, could be that contractors who never wanted full-time jobs will be unable to string together one temp position after another. “It’s unfortunate,” Decker says. “But we have no other way to really make sure that people are filling positions in a manner that makes them true temporary employees.”

Given that the courts have taken eight years (and counting) to figure out when a job that’s labeled as temporary is actually a full-time position, it’s hard to expect Microsoft or any other company to sort out such matters without continued experimentation. In the meantime, Decker thinks that the company deserves some credit for trying harder to make itself hospitable to everyone. “We haven’t done a good enough job of telling people what we’re looking for and what we’re trying to do,” she says. “We want temps to be in temporary assignments, and if it turns out that those assignments require long-term work, then we want to make those jobs permanent. We want people to choose to work for us and to like us — no matter what sort of career they’re thinking about. We’d like to think that we can offer the best of both worlds.”

Ron Lieber ( is a senior writer at Fast Company. Some of his best friends have been Microsoft permatemps.

Sidebar: Permatemps Law

After Microsoft got in trouble with the Internal Revenue Service in 1989, the company told many of its contractors to sign up at local temp agencies so that it could hire them back. Before Microsoft would allow them to return, however, it asked them to sign contracts, which were an attempt to clarify their status. Normally, if people sign a contract saying that they know they’re not going to get any benefits, that permanently settles the matter. But the courts later ruled that the temps had signed the contracts under a mistaken premise. You are what you are, the courts decided. Signing a waiver saying that you’re a temp doesn’t make you a temp — not if you’ve been doing the work of a full-time employee all along.

Once the courts had established that the contracts had mischaracterized the permatemps, they had to figure out how to decide which workers were eligible to sue. That required the courts to determine who the true employer of the temps was — Microsoft or the temp agencies. Under the law, temps could be on an agency payroll and still be “common-law employees” of the company that they were working for.

To get to the bottom of this, the courts (and the IRS, which also rules on such cases) have developed a rubric that takes as many as 20 different standards into account. The courts are supposed to weigh all factors to determine the employer-employee relationship. According to this test, there could be more than 10,000 temps who were actually common-law employees and who could therefore join the class action.

What were the temps able to sue for? Even though the contracts described their status incorrectly, they were not necessarily entitled to receive benefits — with one exception: Microsoft’s employee stock-purchase plan (ESPP). That plan allows an employee to purchase Microsoft stock at a 15% discount on the lowest price that the stock had reached in the six-month period prior to that employee’s making the purchase. In order for Microsoft to receive the kind of lucrative tax breaks that make it possible to offer an ESPP, the plan requires the company to allow any common-law employee to participate. So, once the courts determined that temps were, in fact, common-law employees, temps became eligible to participate, retroactively, in the ESPP.

The question is still up for debate as to how much stock the temps might have bought had they known that they were eligible to buy it. One possible precedent: the buying and selling patterns of other employees. Since 1993, 70% to 80% of all full-time Microsoft employees have purchased stock through the ESPP at any given time. So Microsoft could be on the hook for many millions of dollars.

Sidebar: Why Permatemps?

Why did Microsoft begin the practice of employing large numbers of free agents in the first place? And why did it insist upon continuing that practice even after it got in trouble with the IRS? After dozens of interviews with free agents, permatemps, lawyers, agency operators, and Microsoft employees, no single, compelling answer emerges. But a variety of explanations do come to light.

Was it about money? Not according to Microsoft. In fact, the original 1990 email that went out, which led managers to clarify the roles of the temps who worked for them, indicated that money wasn’t the issue: “This is going to mean a large increase in full time headcount but should not cause much increase in actual spending,” the internal email read. “It will mean that we add stock for a number of people but that is to be expected and combined with the benefits should allow us to put these people on our payroll for less than we are paying them as ‘contractors.’ “

Was it about Microsoft? Some observers suggest that the permatemps issue has more to do with Boeing than it does with Microsoft. Boeing, historically the largest employer in the Seattle area, had gone through both boom and bust cycles, adding large numbers of full-time employees during good times, only to lay off those workers during industry downturns. Microsoft had no desire to see its name splashed across local papers as the new economy’s poster child for community disruption.

Was it about the industry? The emerging world of software in the new economy is the perfect site for workplace ambiguity to crop up: Everyone is a knowledge worker, work is largely organized around projects, and distinctions between free agents and permatemps become fuzzy. Small wonder that employment rules are unclear.

Was it about Microsoft’s coding culture? To some people, the permatemps controversy is a result of Microsoft’s early culture: Hackers and other hard-core software employees were at the heart of the company — and everyone else was, in one sense or another, temporary. Without adopting this cultural split as a matter of human-resources policy, the company simply drifted toward valuing nonhackers less than hackers. The “permatemp” status emerged gradually, as another way of doing business.

Was it an accident? Even the courts that have been handling the lawsuit ascribe no malicious intent to Microsoft. Microsoft made a series of individual decisions about whom to hire full time and whom to hire through an agency; somewhere along the way, those decisions led to the creation of a class of permatemp workers. At worst, it was sloppy management — at best, an inadvertent practice that spun out of control.