The Dangers of Misclassifying “Employees”: Microsoft Litigation Emphasizes Distinctions Between Employees and Nontraditional Workers

Abstract

In the past decade, businesses, for reasons such as greater flexibility and lower total costs, have increased their use of nontraditional workers such as independent contractors and temporary agency employees. The Internal Revenue Service's crackdown on misclassifying “employees” slowed this growth. Additionally, recent lawsuits by nontraditional workers against employers such as Microsoft Corporation have resulted in some client employers being forced to pay more benefits to nontraditional employees because of employment misclassification and coemployment rulings. Such rulings might reduce or even eliminate the use of some types of nontraditional employees. This paper analyzes the vast array of types of workers that have evolved into the nontraditional work force and the difficulty of defining “employee” with respect to entitlement to employer benefits. Possible recommendations for employers include auditing present use of nontraditional workers, accurately classifying employees, and taking proper actions to minimize problems in the future.