A company that provides its employees with pensions, stock options and other benefits faces the possibility that workers it has incorrectly classified as ICs will file expensive lawsuits asserting that they are really employees and therefore entitled to the benefits. This happened in a highly publicized case involving the Microsoft Corporation in which the company was sued by several workers it had improperly classified as ICs for federal payroll tax purposes. After lengthy litigation, the court held that the workers were entitled to full employee benefits for the entire time they had worked for Microsoft, including coverage under Microsoft’s discount stock purchase plan and 401(k) plan. (Vizcaino v. Microsoft, 173 F.3d 713 (9th Cir. 1999).)
Companies that offer generous employee retirement or stock options plans like Microsoft’s can avoid the problems Microsoft encountered by making sure that their plan eligibility provisions explicitly exclude workers whom the company has classified as ICs or as contract employees. Coverage should not depend on how the IRS or any other agency classifies the workers. The workers should sign IC agreements in which they waive any claims to such benefits. Companies should talk with their benefit plan administrators to make sure their plans contain such language. If the plans do not have such language, then the plans should be amended to add the language.