Microsoft reaches settlement in California over claims it punished employees for taking protected time off

Microsoft is paying $14.4 million to settle a case in California over allegations the company retaliated against employees who had taken legally protected time off.

California’s Civil Rights Department announced the proposed settlement on Wednesday. After approval by a state judge, almost all of the money will go to California workers who took parental leave, family care-taking leave or disability leave from 2017 to the present, and who decide to participate in the settlement.

“Because Microsoft workers who use or will use protected leave are disproportionately women and people with disabilities, Microsoft’s challenged policies and practices also have a discriminatory adverse impact based on sex and disability that Microsoft cannot justify based on business necessity,” the state agency said.

According to the complaint, Microsoft doesn’t do enough to stop managers from considering protected leave when assessing an employee’s “impact,” a factor that’s involved in the calculation of annual bonuses, promotions, stock awards and merit increases.

Microsoft, which is based in Redmond, Washington, employs about 6,700 people in California out of its total workforce of 221,000, according to the complaint.

Under CEO Satya Nadella, Microsoft has sought to diversify its upper ranks, while also becoming more responsive to issues related to harassment and discrimination.

The percentage of women at the partner, executive, director and manager levels has increased over the years. Within core Microsoft, women represented 31.2% of the workforce in 2023, up from 27.6% in 2019, according to the company’s latest diversity report.

In 2022, following a shareholder vote, Microsoft said it would revise its sexual harassment and gender discrimination rules after a report from an outside group found issues in the company’s handling of complaints.

Employees have reported feeling worried about retaliation after asking for protected leave, according to the California complaint. The proposed settlement said Microsoft disputes the agency’s claims.

“Microsoft is committed to an environment that empowers our employees to take leave when needed and provides the flexibility and support necessary for them to thrive professionally and personally,” a company spokesperson told CNBC in an email. “While we believe the agency’s allegations are inaccurate, we will continue to listen, learn, and support our employees.”

As part of the settlement, Microsoft will provide training to direct and second-level managers of staff members in California and to human resources employees who deal with their bonuses and merit increases. Managers will also be instructed not to consider time off for protected leave when making “impact” decisions. A consultant, APTMetrics, will be responsible for monitoring compliance.