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Tech Law Journal |
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No. 98-71388 IN THE In re DONNA VIZCAINO, et al., UNITED STATES DISTRICT COURT FOR THE MICROSOFT CORPORATION, et al., Petition for Rehearing and Suggestion for Rehearing En Banc On Petition from the United States District Court BRIEF AMICI CURIAE OF INFORMATION TECHNOLOGY ASSOCIATION OF AMERICA, AMERICAN ELECTRONICS ASSOCIATION, ASSOCIATION OF PRIVATE PENSION AND WELFARE PLANS, CHAMBER OF COMMERCE OF THE UNITED STATES, INFORMATION TECHNOLOGY INDUSTRY COUNCIL, NATIONAL ASSOCIATION OF MANUFACTURERS, NATIONAL ASSOCIATION OF TEMPORARY AND STAFFING SERVICES, NATIONAL TECHNICAL SERVICES ASSOCIATION, AND SOFTWARE & INFORMATION INDUSTRY ASSOCIATION IN SUPPORT OF REAL PARTY IN INTEREST MICROSOFT CORPORATION'S PETITION FOR REHEARING AND SUGGESTION FOR REHEARING EN BANC Fredric S. Singerman, Esq. INTERESTS OF THE AMICI CURIAE Information Technology Association of America, American Electronics Association, Association of Private Pension and Welfare Plans, Chamber of Commerce of the United States, Information Technology Industry Council, National Association of Manufacturers, National Association of Temporary and Staffing Services, National Technical Services Association, and Software & Information Industry Association respectfully submit this Brief Amici Curiae in support of the Petition for Rehearing and Suggestion for Rehearing en banc of Microsoft Corporation, et al. ("Microsoft"), in accordance with Fed. R. App. P. 29. As more fully discussed in their motion for leave, the Amici Curiae represent employer members that regularly use, or supply, temporary staffing employees. American industry relies heavily on temporary staffing arrangements to serve a variety of important functions, including filling positions while an employee is on leave or until a permanent replacement can be hired, meeting staffing needs during a temporary surge in demand, or staffing specific projects when internal resources are insufficient. Temporary staffing is particularly common in the information technology ("IT") industry, where skilled workers may be brought into a business to address Y2K compliance, build or service computer networks, or assist in developing software. If a project has a limited time line or the client does not have sufficient work to keep skilled workers busy for the foreseeable future, temporary staffing firms may be the only practical source of personnel to accomplish the needed tasks. Positions filled by temporary staffing workers may last from a few days to more than a year. In some cases the client may supervise the details of the work -- for example, when staffing firm employees perform clerical work. In other cases, however, particularly in IT fields, the staffing firm employee has a level of expertise that precludes the client from supervising the details of the work performed. Nevertheless, even when the IT staffing firm "directs" a specific project, it may still be necessary for the client to control when, where and how staffing firm employees are permitted to access the client's IT systems, in order to maintain the integrity and security of the client's records and assure that the staffing firm's work does not interfere with the client's ability to conduct business. The decision of the three judge panel (the "Panel") in Vizcaino v. Microsoft Corp., No. 98-71388 (May 12, 1999) (the "Opinion"), will have a significant, adverse impact on the businesses that provide temporary staffing services and those that are significant consumers of these services. The Opinion relies on a "dual employer" rationale that is entirely unprecedented and unworkable in the employee benefits context and fundamentally guts the common law test of employment status addressed by the Supreme Court in Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318 (1982), as applied by this Court in Prof'l & Executive Leasing, Inc. v. Comm'r, 862 F.2d 751 (9th Cir. 1988), and Burrey v. Pacific Gas & Elec. Co., 159 F.3d 388 (9th Cir. 1998). ARGUMENTS I. The Panel's "Dual Employer" Rationale Is Unprecedented and Unworkable. The Panel's Opinion is the first court decision to hold that an individual paid a single compensation stream may be employed by two unrelated employers for purposes of the employee benefit provisions of the Internal Revenue Code, 26 U.S.C. §§ 401-424 ("Code"). Relying on the Supreme Court's application of common law agency principles in Darden , the Opinion holds that:
Opinion, at p. 22. The Darden Court, however, was careful to determine that applying "traditional agency law principles would [not] thwart the congressional design or lead to absurd results" under the applicable statute. Darden, 503 U.S. at 323. The Panel's creation of a "dual employer" status under the employee benefit provisions of the Code does exactly that. Many employees of temporary staffing firms receive employee benefits from the staffing firm that places them. In holding that temporary staffing employees may simultaneously be employees of the temporary staffing firm and the client for purposes of providing employee benefits under the Code, the Panel apparently creates a cause of action for such employees to recover duplicative benefits from both of the "dual employers" with respect to the same compensation stream. This absurd result cannot be justified by the Code or, for that matter, by ERISA. In fact, it directly contradicts other Code provisions that expressly limit the amount of tax-favored employee benefits an employee may receive from an employer. See, e.g., Code §§ 401(a) (17) & 415. Because these limitations do not require the aggregation of benefits provided by unrelated employers' retirement plans, the Opinion will permit significant manipulation of the Code's qualified plan limitations. Congress has explicitly and repeatedly addressed in the Code temporary staffing and leased employee arrangements for employee benefit purposes. See 26 U.S.C. § 414. Yet, the Panel's "dual employer" analysis ignores the statutory framework most directly affected by it, rendering Section 414(n) of the Code a nullity. Under Section 414(n), a "leased employee" is treated as an employee of the recipient of the services for employee benefit testing purposes, only if (1) he has performed services for the recipient (other than as its employee) on a substantially full-time basis for at least one year, and (2) the services are performed "under the primary direction and control" of the service recipient. 26 U.S.C. § 414(n)(2). This Court recently held that Section 414(n) does not apply to an individual who is the common law employee of the service recipient. Burrey, supra. The Burrey court further cautioned that the "primary direction or control" test is only one of the 20 factors that must be taken into account in determining employment status. By now holding that the temporary staffing employees at Microsoft are "presumptively" Microsoft's common law employees based solely on the IRS's determination that the corporation was entitled to exercise control over the converted positions (Opinion at 25), the Panel has judicially repealed Section 414(n). The Panel not only fails to consider the Congressional intent underlying the statute into which it imports its "dual employer" concept, it directly contravenes such intent. II. The Opinion Guts the Common Law Test of Employment Status. The Panel acknowledges that the employment status of the temporary staffing employees at Microsoft must be determined using the multi-factor test adopted by Darden. Opinion at p. 24; see, also, Burrey, 159 F.3d at 394 (individual's employment status under Code Section 414(n) determined using 20-factor test). Yet the Opinion relies on a different standard entirely, creating a "presumption" of employment status simply because the temporary worker fills a position in which the IRS had previously reclassified workers. This presumption renders irrelevant most of the factors required to be taken into account under Darden and entirely ignores the temporary staffing firm's role in the staffing relationship. The IRS determinations relied on in the Opinion related to whether Microsoft's freelancers were independent contractors or employees and there is no indication in any prior opinion that the IRS ever considered the role a temporary staffing firm may play in hiring or firing workers, providing training, assigning workers to job positions, setting salaries or performing performance reviews. Yet these factors, as well as the right to exercise direction or control, are essential questions which must be addressed in determining an individual's employment status under the Darden test. See, e.g., Prof'l & Executive Leasing, Inc., 862 F.2d at 753-54 ("illusory" control over workers not sufficient to establish employment relationship). The Panel's unprecedented "presumption" of employment status entirely upsets the legal standards and guidelines by which United States businesses have heretofore evaluated temporary staffing arrangements for employee benefit purposes. When a business retains the services of an individual from a bona fide temporary staffing firm which has hired and trained the individual, which has the ultimate (but unexercised) legal right to control him, which pays his wages and withholds taxes, and which has the exclusive right to fire him, it is the temporary staffing firm -- and not the client business -- which is the ultimate and sole employer, even if the client exercises primary control over employment while the worker is on-site. The Panel had before it none of the facts necessary to make a determination regarding the employment status of the workers at issue in this case, who were hired after the IRS determinations on which the Panel relied. By failing to take into account the legal and economic significance of the temporary staffing relationship and ignoring the legislative intent of the applicable statute, the Opinion creates a new test of common law employment for employee benefit purposes which dramatically and adversely affects the firms that place temporary staffing employees and the firms that utilize them. We urge the full Court to grant Microsoft's petition. Respectfully Submitted: Information Technology Association of America, American
Electronics Association, Association of Private Pension and Welfare Plans, Chamber of
Commerce of the United States, Information Technology Industry Council, National
Association of Manufacturers, National Association of Temporary and Staffing Services,
National Technical Services Association and Software & Information Industry
Association
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