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SAN FRANCISCO-Microsoft Corp. improperly excluded workers wrongly classified as independent contractors from its 401(k) and stock-purchase plans, the 9th U.S. Circuit Court of Appeals ruled last week.

The decision generally upholds a ruling by a three-judge panel last year (BI, Oct. 21, 1996).

The class-action suit originally was filed by eight plaintiffs who worked for Microsoft in the United States between 1987 and 1990 as free-lancers in the company's international division. The freelancers all had signed contracts that said in part that they were self-employed and responsible to pay all their own insurance and benefits.

But in 1989 and 1990, the Internal Revenue Service concluded the workers were not independent contractors but employees for withholding and Social

Security tax purposes.

After learning of the IRS decision, the workers sought various employee benefits, including participation in the company's 401(k) and stock-purchase plans.

According to the 9th Circuit decision, Microsoft now has agreed that the workers were not independent contractors. Therefore, the court ruled,

Microsoft's reasons for rejecting the workers' participation in these plans are invalid. The appellate court remanded the case to the district court to rule on remaining issues related to the stock plan and ordered the plan administrator to resolve additional pension plan issues.

The workers' attorney, David Stobaugh of Bendich, Stobaugh & Strong in

Seattle, said as a "low ballpark figure," an estimated 800 to 1,000 workers are affected by the decision, though he could not estimate its financial impact on Microsoft. However, law and benefit experts have warned that the issue also could impact the growing number of other employers that hire independent contractors and temporary workers.

A Microsoft spokesman could not be reached for comment.

(contd. part 2)