Microsoft (MSFT) Settles California Discrimination Lawsuit

Microsoft MSFT has reached a $14.4 million settlement with the California Department of Civil Rights over allegations of discrimination against employees on parental and disability leave. The settlement, pending court approval, represents a significant advancement in employee rights and corporate responsibility.

The lawsuit, which primarily targeted women and disabled workers, alleged that Microsoft penalized employees who took protected leave with lower bonuses and unfavorable performance reviews.

A three-year investigation by the California Department of Civil Rights found a workplace climate that discouraged employees from taking protected leave, with managers allegedly making negative comments about such absences.

As part of the settlement, the Zacks #3 Rank (Hold) company agreed to implement several measures to prevent future employment abuses. These include hiring an independent consultant to review and recommend improvements to the company’s annual bonus and promotion practices, ensuring employees are aware of how to file discrimination complaints, and reporting findings to the California Civil Rights Department. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The $14.4 million settlement fund will be distributed primarily to Microsoft employees who worked for the company in California between May 2017 and the date of the court’s final judgment. A small portion of the settlement will support the agency’s enforcement efforts.

This case highlights the importance of proactive measures to ensure equal treatment for all employees, particularly those who require protected leave for personal or family reasons.

Microsoft, although it agreed to the settlement, maintains the allegations are untrue and says it is committed to providing employees with an environment that supports their need to take leave.

Year-on-year results

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MSFT grapples with legal challenges amid broader tech industry scrutiny

As Microsoft faces legal headwinds, the California settlement is a reminder of the ongoing challenges technology companies face as they balance rapid growth and innovation with fair and inclusive workplace practices.

The case is part of a broader trend of increased scrutiny of employment practices at tech companies. California’s civil rights agency recently settled a sex discrimination lawsuit for $15 million Snap Inc. SNAP and $54 Million Discrimination Lawsuit Against Activision Blizzard, a Company Acquired by Microsoft in October 2023

The settlement comes as MSFT grapples with legal challenges on multiple fronts. The company is currently embroiled in a copyright lawsuit related to its investment in OpenAI and faces potential antitrust penalties from the European Commission for bundling Teams with other business software. (Read more: Microsoft accused by EU of bundling Teams and Office)

Simultaneously, Apple AAPL faces a number of regulatory challenges in the EU, including the first charges under the new Digital Markets Act for allegedly preventing app developers from directing users to cheaper options outside the App Store. Alphabet GOOGL subsidiary Google is under investigation for potential failure to comply with DMA provisions prohibiting self-privileging, underscoring the EU’s increasing scrutiny of the practices of big tech companies.

Microsoft shares have gained 22.1% year to date compared to the Zacks Computer and Technology sector, Apple, and Alphabet’s gains of 26.7%, 14.4%, and 32.6%, respectively. Snap shares have lost 4% in the same period.

As these companies continue to innovate and grow, they face increasing pressure to ensure fair competition, protect user rights, and maintain fair workplace practices. The outcomes of these legal challenges could set important precedents for the future of the technology industry, potentially changing the way these companies operate and interact with their employees, customers, and competitors.

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