Microsoft Case Update Center

Microsoft Avoids Unpopular Stock Option Repricing through New Policy Giving Every Employee New Stock Option Grant (April 26, 2000, Bloomberg News)

Microsoft will give every employee a new stock option grant and let him or her keep the earlier grants, thus avoiding accounting costs of lowering the stock price and questions and controversies that arise from option repricing.

Microsoft doubled annual stock option grants to all its 34,000 full-time employees following a 43 percent decline in its stock this year. Those options expose shareholders to the risk of either dilution from the new shares or a cash drain from buying back stock to avoid increasing the number of shares outstanding. ns on about 70 million shares were last issued in July,1999.

This is the first time Microsoft has ever issued two stock grants during the same year. Options issued in July, 1999 are seriously out of the money today, as Microsoft's average closing price during July 1999 was $92.11 a share, with a range from 85 13/16 to 99 7/16 a share. When the new options were issued the stock closed at 69 3/8.  Analysts believe the new stocks were issued to keep employees from looking for jobs elsewhere.

Editor's note: A more common way of handling a stock price decline in a high- tech firm is to do an option repricing. This process has been widely criticized by corporate governance experts, although some high-tech firms have engaged in them.

Supreme Court Rejects Microsoft Request

January 10 - The U.S. Supreme Court rejected Microsoft's request for review of the 9th Circuit Court of Appeals ruling in May 1999. The Supreme Court upheld the Circuit Court's landmark and controversial decision defining Microsoft's temps as employees and holding the company liable for retroactive stock option payments.

Microsoft May Ask Court to Reopen Misclassification Case to Reconsider Plaintiffs' Class Status for thousands of Microsoft "permatemps" (March 1, 2000,, Los Angeles Times).

Supreme Court Rejects Microsoft's request to review 9th Circuit's decision supporting retroactive stock option benefits. (Seattle Times, January 3, 2000]

Microsoft Takes Temp Case to Supreme Court (continued from front page)

The Seattle Post-Intelligencer reports that Microsoft Corp. is asking the U.S. Supreme Court to consider the 9th Circuit's May 12 ruling in the controversial Vizcaino v. Microsoft case that it must offer thousands of current and former temporary workers millions of dollars in retroactive stock options. Microsoft's petition for certiorari comes as the Supreme Court opens new term this week. (Seattle Post-Intelligencer, September 22, 1999).

Microsoft Internal Memo Urges Managers to Reduce Use of Temps

An internal Microsoft memorandum suggests the company is encouraging managers working on the upcoming Microsoft 2000 to reduce their reliance on temporary workers, prepare contract wokers on their staffs to find new work, and perhaps increase the number of full-time jobs...Q: "Are we really telling the temporaries their current assignments are ending?" A: "Yes".

The memo tells managers to set "expectations for the remainder of the temporary assignment that is short term and could end sooner than may have been expected". While Microsoft set a policy last year requiring temps who finish an assignment or consecutive assignements of 12 months or more to wait at least 31 days before returning to Microsoft, this policy has reportedly been largely ignored by the company's managers and "Microsoft has looked the other way". (Reported from the Seattle Times, September 2, 1999)

9th Circuit Amends Microsoft Ruling (continued from Front Page)

The Court emphasized that in the class action by Microsoft's workers seeking participation in the company's employee benefit plan, the District Court could not modify the class on remand because Microsoft chose not contest the class certification in the District Court. "Had it done so and lost", the Court stated, "it could have taken a contingent cross-appeal and, had it prevailed, the District Court could have modified the class on remand." [Vizcaino v. U.S. District Court for the Western District of Washington, No. 98-71388, June 24, 1999]

9th Circuit Decision Expands Microsoft's Contingent Workers' Access to Stock Options

This decision includes compensation for appreciation of shares that these workers had not been allowed to purchase. A computer industry analyst  with Giga Group in Santa Clara, California, described the ruling to the Associated Press,as "significant... because it cuts across the industry and cuts across business".   According published reports, the decision could cost Microsoft $15-$20 million dollars. Stephen Strong, lead plaintiff's counsel in the class action lawsuit by Microsoft's temporary employees, commented that the Court's decision will have significant practical effects in the ongoing legal  battles concerning employees' rights to benefits .. " As a practical matter, Micosoft will have a hard time saying people who are employees for the purposes of stock-plan eligibility .. are not employees for other purposes", he told  the Associated Press.

Furthermore, all employees are presumed to be eligible common law employees of Microsoft. The burden of proof for determining that a worker does not meet the common-law requirements for determining employee status lies with Microsoft. 

It should be noted that Microsoft's Employee Stock Purchase Plan specified in writing that all "common law" employees are eligible to participate.   Some employment lawyers are advising their clients to review plans with remove mention of  "common law" employees.

According to the Court's decision, if the Microsoft's contingent employees are not provided access to the company's  Employment Stock Purchase Program, the District Court should enter an order requiring Microsoft to enroll those workers.

The Court order apparently does not affect those temporary placement agencies that were the subject of Microsoft's recent policy change requiring those agencies to meet "minimum standards" for employee benefits for the temporary employees they place with Microsoft.

The additional issue of access to Microsoft's 401(k) benefits for class members still remains. This decision affects class members in the long-standing and controversial Vizcaino v. Microsoft case.  The other class action case, Hughes v. Microsoft, claiming temporary workers' equal access to personnel records and health insurance benefits as other company employees receive is also still pending. [Microsoft v. U.S. District Court for the Western District of  Washington,  9th Circuit Court of   Appeals, No. 98-71388, May 12, 1999]

Microsoft Contractors Seek Bargaining Rights

A group of Microsoft contractors working in the company's Desktop Finance Division has petitioned Microsoft and the agencies that payroll them for union representation under the Washington Alliance of Technology Workers, or WashTech. The workers want to negotiate with Micosoft and their agencies over the terms and conditions of their work. WashTech is affiliated with the AFL-CIO, Their objectives are to gain equitable pay, better benefits, and job classifications that are appropriate for the work they do. According to WasTech, this is the first time a group of long-term Microsoft contractors --- or permatemps --- have sought union recognition or collective bargaining purposes. (WashTech, June 3, 1999)

Microsoft Reverses Policy, Requires "Minimum Standard" Benefits be Offered to Temporary Employees by Placement Agencies:

Describing what it calls "significant changes in its provision of  benefits to temporary employees", Microsoft announced in April that temporary staffing agencies will have to meet certain "minimum benefits standards" when placing workers with Microsoft. These standards include: medical and dental coverage, 13 paid leave days annually, training opportunities up to $500 in value per year, and a  401(k) plan or other retirement program with the agencies matching employee contributions. According to Microsoft, 6,000 of  its 20,000 workers are currently classified as "temporary" employees.    Microsoft plans to the number of primary agencies with whom they contract for temporary employees.  Any additional agencies will have to meet these "new standards", according to the company.   Microsoft's spokesman had "no comment" as to whether these changes are related to pending class action lawsuits brought by temporary workers whose demands include access to employee benefits. 

For more information on Microsoft Class Actions, click here.

Relevant articles and other information:

"Now, Temp Workers are a Full-Time Headache", Business Week, May 21, 1999, by Aaron Bernstein.

"Permatemps prevail in bid for Microsoft stock options", Salon Magazine, May, 1999

"Ruling favors Microsoft Temps", New York Times, May 14, 1999

"The Temps Strike Back: Companies Face More Lawsuits Claiming they Misclassified Workers", San Francisco Chronicle, May 28, 1999.

Recommended Sources for Additional Information