The look and feel of the postmodern software industry may be about to change significantly. Last May, the Ninth Circuit Court of Appeals told Microsoft Corporation that its legions of temporary workers and independent subcontractors were, in fact, legally full- time employees and that these employees were entitled to all the benefits and rights of other full-timers. Microsoft—like IBM, Sun Microsystems, and many other software organizations—contracts thousands of jobs to these “temps” as a strategy to manage internal growth. But because these positions include everything from secretary to software developer, it appears that the only difference between full-time and temp is the color of a security badge and the richness of a compensation package. Things like stock options, career paths, seniority, retirement plans, and premier health benefits afforded full-timers are seldom a part of the packages offered through temporary agencies.

How might this court ruling impact us? Every large computer software manufacturer in the United States today relies on temps and independent contractors to keep production and development costs down. Why? Is it simply because it’s cheaper? Well, yes, but perhaps that’s not the only reason. The use of independents affects the core management of the corporation in ways that are often invisible to the consumer.

Studies show that the greatest threat to a corporation is not the loss of orders, but unrestrained and uncontrolled growth. Unrestrained growth in personnel is a “change management” nightmare. Why? Because orchestrating large teams of peers in any organization takes a considerable amount of management time: time to communicate management objectives, policies, and procedures, and time to handle personnel complaints, problems, suggestions, and careers. To grow quickly and efficiently, corporations have increasingly over the past decade outsourced tasks to manage these personnel requirements. This corporate tactic was formerly limited to traditional blue-collar labor such as textile workers or machine operators. The extension of this model to knowledge workers such as programmers and software testers indicates that the industry of software manufacturing is maturing much faster than is popularly believed.

If the court ruling holds against appeals, the entire software industry—and every other organization that uses consultants and subcontractors to supply services—will be faced with a dilemma: how to get the job done on time. The load on management would slow the entire process greatly. Is the consultant who writes your application code really just a temp? Will your organization have to reexamine its relationships if you rely on an agency or a consulting group to develop applications? During this period of major Y2K

deadlines and personnel shortages, this impact to your organization may prove to be serious. Estimates indicate that the software corporations may have to reclassify as many as 10,000 subcontractors and temps as full-time employees, and the implications to smaller “consultant-bound” organizations have not even been calculated.

The Information Technology Association of America ( ITAA), an organization composed of more than 11,000 members (including IBM, Microsoft, Hewlett-Packard, and Sun Microsystems), is upset with the court ruling and vows to support Microsoft’s appeal to the Supreme Court. At issue for the ITAA is the claim that there is a serious shortage of qualified personnel in the IT workforce. The ITAA’s estimates, based on a survey conducted in 1998, show more that 360,000 IT jobs are unfilled in this country alone. The ITAA was a key mover last summer when Congress approved a bill to increase the number of temporary visas for foreign workers to help ease this shortage. According to ITAA President Harris Miller, “There are significant problems with this decision, and we fully believe it will be overturned. Were this ruling to become the law of the land, not just Microsoft but virtually every firm, inside and outside the IT industry, using independent contractors and outsourcing firms would be adversely impacted.... Independent contractors
and consultants employed by staffing firms intentionally enter into mutually beneficial relationships and reap benefits of this type of work. With the current scarce labor market, particularly acute in the IT field, workers can often best utilize their expertise by contracting to various employers.”

However, what is not explained by the ITAA’s stance is an industry dynamic that artificially keeps the cost of IT staff at a minimum by hiring temporary workers on visas and simultaneously forces domestic talent into the temporary marketplace. Is it possible, we wonder, that the 360,000 jobs currently identified by the ITAA as “unfilled” may in fact represent the employment of thousands of “temporary” IT professionals who are waiting for a piece of the corporate pie? And if the high-growth software companies such as Microsoft and IBM are forced to assimilate these temporary workers, will the cost of outfitting and managing them destroy the financial basis fueling corporate growth? How will it affect their bottom lines? How will they fair in the stock market? These concerns, of course, are the real fears, according to Miller, who says, “It is totally outrageous to think that this court, with its history of anti-business, anti-growth decisions, would conclude that workers who sign on with companies on a project basis are incapable of sound judgment on employment decisions.” Perhaps. But perhaps the choices for these temporary professionals are fewer than he supposes.

Thomas M. Stockwell is an independent IT analyst and writer. He is the former Editor in Chief of MC Press Online and Midrange Computing magazine and has over 20 years of experience as a programmer, systems engineer, IT director, industry analyst, author, speaker, consultant, and editor.  

 

Tom works from his home in the Napa Valley in California. He can be reached at ITincendiary.com.

 

 

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