This nerd for hire

A "pro-labor" court decision puts the cherished freedom of Silicon Valley's freelance workers under fire.

By Andrew Leonard
May 17, 1997 11:00PM (UTC)
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Susan Bruce is looking for work. That's the "downside" to being an independent contractor, she says. But she doesn't sound too alarmed: Looking for work is part of the lone-wolf professional path she has chosen and loves. Although she has more than 30 years' experience as a technical writer, editor and project manager, she's never worked at a single job longer than "two years and seven months." She stresses the number with evident satisfaction.

Bruce lives in Hayward, Calif., on the outskirts of Silicon Valley, where independent contracting is a widespread and prized way of life. Though she has worked for "psychopaths" and as a lowly temp, she says she wouldn't trade in her lifestyle for the security of a staff job.


She's not alone. In the Valley, the contractor, that proud freelancer who swears allegiance to no one, is a cherished archetype -- and an icon of a future where everyone is free to work as they please.

But today, the rules are changing, and independent contractors, stuck on unstable ground between the age-old forces of labor and capital, are caught in a squeeze. Recent court decisions aimed at improving the lot of high-tech employees have made companies gun-shy about hiring contractors.

Independent contractors are the vital cogs in the machine of the virtual corporation, where every relationship is a temporary reaction to the needs of the moment. Yet even in Silicon Valley, which boasts an unemployment rate of 3 percent and is in the middle of a boom that just won't stop, these freelancers have become highly vulnerable. If they are not yet an endangered species of labor, they are certainly on the run.


Lately, Susan Bruce has started facing unexpected obstacles: Potential employers are requiring multiple interviews, both over the phone and in person. They're conducting background checks to make sure that she has workman's comp and health insurance. She's even been forced to list herself with a recruitment agency -- a step that many independent contractors consider tantamount to vassalage. But without working through an agency, she says, most companies won't even consider her now.

"It's because of the Microsoft lawsuit," says Bruce, referring to a controversial court decision handed down last October. In that hugely influential ruling, the U.S. Court of Appeals for the 9th Circuit reversed a district court and concluded that Microsoft had illegally denied access to stock options and other benefits to a group of independent contractors.

The court based its decision on the assumption that these independent contractors were independent in name only. In doing so, it built on an earlier Internal Revenue Service finding that Microsoft owed payroll taxes on its independent contractors.


"Large corporations have increasingly adopted the practice of hiring temporary employees or independent contractors as a means of avoiding payment of employee benefits, and thereby increasing their profits," reads the majority opinion, written by Justice Stephen Reinhardt. "This practice has understandably led to a number of problems, legal and otherwise."

Labor activists immediately hailed the decision as a victory for the so-called "contingent work force" -- the burgeoning group of workers who have no permanent job, thanks to constant corporate downsizing, outsourcing and subcontracting. But many independent contractors see the decision as a direct blow against their livelihood. And the short-term result of the ruling has been the opposite of what was intended: Instead of taking responsibility for their independent contractors and treating them as permanent employees, corporations are taking pains to avoid hiring independent contractors directly in the first place. Susan Bruce, for instance, was forced to list herself with an agency, because the corporation she had been working with wanted assurance that someone else would take responsibility for her benefits and insurance.


"Companies watch this sort of thing with great nervousness," says Jeanne DeVoto, a freelance computer consultant in Silicon Valley. "It means that either you have to go through massive hoops to get a contract, or you can't get a contract at all and are required to go through an agency, which will take typically 10 to 35 percent of your fee."

"The upshot of all this is that it makes the freelancer's life considerably more difficult, and tends to put us in a position in which either our fees get siphoned off to agencies or we can't get contract work at all and must become corporate employees, with all the disadvantages that entails," says DeVoto. "It's an enormous pain in the butt when you're trying to do business as an individual, basically."

It's not just an annoyance for the contractors but a burden on the companies, too. Corporations who hire independent contractors through recruitment agencies tend to pay the agency a premium. Bruce says that one company she had been contracting with agreed to pay this extra amount because a particular manager liked her work. But that manager is now gone, and "I doubt that they would hire me again," she says.


Although the 9th Circuit ruling was specifically aimed at Microsoft, no place has felt its impact more keenly than Silicon Valley. By most estimates, Silicon Valley corporations rely on independent contractors and other forms of "temporary" labor more heavily than companies in any other U.S. region. In the home of the virtual corporation, everything, ideally, is contracted out -- marketing, manufacturing, distribution -- and everyone is an independent contractor. Flexibility is king.

Whether purely independent, or through agencies, independent contractors and other forms of temporary workers perform a vast range of jobs that range from the menial to the highly technical. Anything is for hire on a short-term basis -- systems administrators, programmers, technical writers, graphic design specialists, marketing whizzes.

The classic image of the temp in popular culture is the fresh-out-of-college English major trudging from low-paying receptionist job to low-paying file clerk job with no benefits and no hope of career advancement. But in Silicon Valley, more than 350 temp agencies can deliver C++ programmers and Japanese translators. Manpower Inc., the nation's largest temp agency, has a technical services department that is growing at 40 percent a year, and the bulk of that growth is centered on Silicon Valley.


Together, temps, independent contractors and other varieties of part-time workers make up the contingent work force. Today, contends Christopher Benner, a labor activist and UC-Berkeley doctoral student, some 27 to 40 percent of workers in Silicon Valley can be considered contingent.

Benner sees that as a problem, since contingent workers are more vulnerable in an economic downturn than permanent staffers. As the high-tech economy relies more on contingent workers, he says, inevitable "blips" in the economic cycle can become increasingly painful.

But Benner's argument lumps temporary workers in with independent contractors. He admits this is problematic, and it's hotly disputed by contractors themselves. Temps and independent contractors are distinctly different species. Just because you don't have a staff job doesn't automatically mean you are being exploited.

Technically, independent contractors, even if they work through an agency, are self-employed. They generally negotiate their own contract with their ultimate employer, set their own hours and work as they please. Temp workers are employed by a temp agency, typically for whatever rate the temp agency has worked out with the employer beforehand. Temp workers work when and where they are told to.


Psychologically, temps tend to be permanently unsatisfied, whereas independent contractors are more content with the flux of their work lives -- they luxuriate in the freedom to spend more time with their children or to work at home.

But ultimately, the crucial dividing line is financial.

"The real difference is the hourly rate," says Andreas Ramos, a successful technical writer who lives in Palo Alto and prides himself on refusing jobs requiring a commute of more than 15 minutes. "Is it 10 dollars or 50?"

"We have totally different agendas," says Ramos, boasting that he recently turned down an $80,000-a-year staff job because it didn't pay enough. "Temps want job training, health care. Those aren't issues for us. We have different needs, different economic realities, different social classes."


Ramos is the chairman of the local tech writers committee of the National Writer's Union, but he is far from a labor activist. He's unworried that traditional labor sees the rise of the contingent worker as proof that management has the working-class back up against the wall.

"I have huge amounts of job security," says Ramos. "Job security is about being able to find a job."

The situations of contractors like Ramos, Bruce and DeVoto illustrate how difficult it is to make sense of our economy's growing reliance on contingent workers. At Microsoft, the evidence seemed to suggest that, yes, the company was exploiting its relationship with independent contractors: Microsoft's contractors worked on the Microsoft campus, had no other employer and worked at the company for years at a time. The company had the benefit of a permanent work force without any of the corresponding responsibilities. And it was by no means an exception. Such practices have been standard at Silicon Valley corporations for years.

But if this is exploitation, many contractors are content with it.


"The increasing use of temporary workers without benefits reflects business realities," says Jeffrey Wohl, a lawyer who specializes in labor law at the San Francisco law firm Orrick, Herrington & Sutcliffe, "including both the need of business to reduce labor costs and the willingness of workers to accept part-time or temporary assignments."

That willingness is not just the willingness of dupes. When the San Jose Mercury News ran a special four-day series on temporary workers in Silicon Valley in February, the majority of online responses in the Mercury News' conferencing area came from happy independent contractors. They thrived on their insecurity. And they found it infuriating that legal decisions ostensibly aimed at helping them end up doing exactly the opposite.

"It's hard to see who benefited from the Microsoft case," says Susan Bruce. Certainly not independent contractors who want to stay independent. And definitely not temp workers, whose status hasn't been touched. In fact, the main beneficiary of the ruling, ironically, has turned out to be temp agencies, who have seen their rosters swell with independent contractors frozen out of jobs.

"Independent contractors are losing control," says labor activist Benner. "That's not what we wanted. We wanted Microsoft to take responsibility for its workers. We're not happy that that responsibility is going to the temp agency."

The final disposition of the Microsoft case is unclear. A full appeals court is reviewing the decision, and some legal analysts suggest it may be reversed. Others say the case will go all the way to the U.S. Supreme Court. But as the aftereffects of the decision work their way through the economy, one thing is clear: Independent contractors, the lone wolves of the virtual corporation, buy their freedom at a price. And any change in the ecosystem can have a devastating effect on them.

For many, that might be all right. Independent contractors pride themselves on taking responsibility for their own working conditions. Ramos believes that independent contractors, who spend their lives honing their skills and looking for work, are best prepared for any negative circumstance. Armed only with their "skill set," they wake up every morning ready for whatever the market has to offer.

But what if the market, prodded by new court decisions or the next big economic downturn, just says no? Maybe flexibility will find some way to survive and triumph. Or maybe the Silicon Valley independent contractor, far from being the next wave in the evolution of labor, will slink off into the sunset, a victim of changing times.

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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