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Employee or Independent Contractor? A Primer on U.S. Law - The Microsoft Case

Abstract

In the late eighties and nineties Microsoft’s stock and popularity was soaring. At that time, it was arguably the hottest tech company in history. Microsoft was employing thousands of tech employees and independent contractors to fulfill its business objectives. It was inevitable that Microsoft would be scrutinized for some legal misstep. Hence, the Internal Revenue Service (IRS) started to review Microsoft’s employment records in 1989 and 1990. The IRS wanted to determine if the agency was getting paid the appropriate amount of employer taxes. It would be a problem for Microsoft if the IRS wasn’t getting its fair share of taxes due to Microsoft potentially misclassifying independent contractors. The court determined Microsoft’s independent contractors were employees for withholding and employment tax purposes. Thus, Microsoft would be required to pay withholding taxes and the employer's portion of Federal Insurance Contribution Act (FICA) tax. Vizcaino v. Microsoft Corp., 97 F.3d 1187 (9th Cir. 1996).

Author

Portrait image of Andrew Marquardt
Andrew Marquardt
Chief Executive Officer and General Counsel, Advantage Tech Inc, USA

Andrew Marquardt has been an attorney for over 30 years. HIs experience includes litigating employment lawsuits representing plaintiffs and defendants. These cases included non-compete litigation, tort and contract claims, as well as discrimination suits. In addition to driving the claims through trial, most disputes were resolved through mediation and arbitration. Mr. Marquardt is also the co-founder, CEO, and General Counsel of Advantage Tech for the past 26 years. In that capacity, he has drafted, executed, and implemented hundreds of employment agreements. The joint employment doctrine, non-compete law, and leadership are just a few issues Mr. Marquardt has addressed in his company and written about to assist clients and employees.

Company

Advantage Tech Inc logo

Advantage Tech Inc

Advantage Tech, is an IT and professional services firm. Advantage Tech places on average 400 contract and full-time employees each year, which translates to several thousands of placements over the past 26 years. During that time, Mr. Marquardt has hired and terminated hundreds of employees and has drafted and overseen the implement of hundreds of employment agreements. Significant employment issues frequently materialize when dealing with a contingent workforce. Dozens of issues arise relating to any number of clauses.

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