Vizcaino v. Microsoft Corp.
120 F.3d 1006, 1997 WL 411663 (1997)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
An employment agreement that misclassifies common law employees as independent contractors does not preclude those employees from participating in employee benefit plans if the contractual language disclaiming benefits is an explication of the consequences of the mistaken classification, rather than a separate, knowing waiver of rights.
Facts:
- Prior to 1990, Microsoft Corporation hired numerous workers, including Donna Vizcaino, to perform services such as editing, proofreading, and software testing.
- These workers were integrated into Microsoft's workforce, sharing supervisors and office space with regular employees and working the same core hours.
- Each worker signed an agreement stating they were an 'Independent Contractor' and were responsible for their own taxes, insurance, and benefits.
- Microsoft paid these workers through its accounts payable department rather than the payroll department and did not withhold taxes.
- In 1989 and 1990, the Internal Revenue Service (IRS) audited Microsoft and determined that these workers were common law employees for federal tax purposes.
- Microsoft accepted the IRS's classification, paid the employer's share of back FICA taxes, and began offering some of the workers full-time positions or positions through temporary agencies.
- The workers subsequently demanded benefits under Microsoft’s Savings Plus Plan (SPP) and its Employee Stock Purchase Plan (ESPP).
Procedural Posture:
- The Workers sued Microsoft Corporation and its benefit plans in U.S. District Court, seeking entitlement to benefits under the Savings Plus Plan (SPP) and Employee Stock Purchase Plan (ESPP).
- The district court granted summary judgment in favor of Microsoft.
- The Workers, as appellants, appealed the district court's decision to the U.S. Court of Appeals for the Ninth Circuit.
- A three-judge panel of the Ninth Circuit reversed the district court's judgment.
- The Ninth Circuit subsequently voted to rehear the case en banc.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does an employment agreement that incorrectly labels common law employees as 'independent contractors' and states they are responsible for their own benefits prevent those employees from participating in employee benefit plans for which they would otherwise be eligible?
Opinions:
Majority - Judge Fernandez
No. An employment agreement that incorrectly labels common law employees as 'independent contractors' does not prevent them from participating in employee benefit plans. The court determined that the contractual language labeling the workers as independent contractors and disclaiming benefits was the result of a mutual mistake, not a knowing waiver of benefits. The statements about benefits were merely an explanation of what would happen if the workers were, in fact, independent contractors. Once Microsoft conceded the workers were employees, this mistaken premise and its consequences fell away. For the ESPP, the plan was an offer to all employees which the workers accepted through their continued labor. For the SPP, the plan administrator's initial denial of benefits based on the mistaken classification was arbitrary and capricious; however, the new issue of whether the workers were 'on the United States payroll' must be remanded for the administrator to decide in the first instance.
Dissenting - Judge O'Scannlain
Yes. The employment agreement prevents the employees from participating in the ESPP because this is a simple contracts case under Washington law. Any general offer of ESPP benefits made by Microsoft's board was specifically revoked for these workers by the explicit terms of the Independent Contractor Agreements they signed. There was no mutual assent to form a contract for benefits. The court should enforce the agreement as written, regardless of the 'mutual mistake' about employment status. The dissent concurs in the result to remand the SPP issue to the plan administrator to interpret the plan's specific eligibility language.
Concurring - Judge Fletcher
No. The employment agreement does not prevent the workers from participating in the plans. The concurrence agrees with the majority's reasoning regarding the mutual mistake and the workers' eligibility for the ESPP. However, it dissents from the majority's decision to remand the SPP issue. The court should decide the SPP issue de novo because the plan waived the 'on the United States payroll' argument by not raising it during the administrative process and should be estopped from demanding remand after urging the courts to decide the issue for years.
Analysis:
This case is a landmark decision in employment law, particularly for the contingent workforce in the tech industry and the burgeoning gig economy. It establishes that the substance of an employment relationship, rather than a contractual label, determines eligibility for benefits. The ruling limits an employer's ability to misclassify employees as independent contractors to avoid benefit obligations, emphasizing that any waiver of ERISA benefits must be knowing and voluntary. The decision has forced companies to be more cautious in classifying workers and has influenced subsequent litigation over the rights of temporary and contract-based employees.
