NEW YORK (Dow Jones)--Laid-off software workers have filed a lawsuit accusing the U.S. Department of Labor (News - Websites) of illegally denying them federal job-training benefits.

The suit, which seeks class-action status, was filed Jan. 2 in the U.S. Court of International Trade in New York, said Michael G. Smith, attorney for the plaintiffs. The suit wants a judge to order the Labor Department to make laid- off software workers eligible for weekly cash payments and other benefits under the Trade Adjustment Assistance program.

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In recent years, U.S. companies have laid off thousands of software workers and other high-technology employees. At the same time, companies are adding tech staff in India and other developing countries where labor is inexpensive, in what's known as "offshore outsourcing." Companies say the shift overseas saves money.

Some displaced American workers have turned to the Trade Adjustment Assistance program for help. Begun in the 1960's, TAA was designed to soften the blow to U.S. workers of increased imports or transfers of jobs overseas. Traditionally, workers in manufacturing have been eligible for the benefits, which include vouchers for job-training classes and cash payments after regular unemployment compensation runs out.

But over the past two years, the Labor Department has ruled many software workers ineligible for TAA benefits. The Labor Department has said software and information-technology services don't qualify as products, or "articles," under TAA guidelines. Only workers who made more tangible products, such as clothing and furniture, can get TAA benefits, the department has ruled.

The lawsuit claims that about 10,000 software workers in the U.S. should be eligible for TAA benefits, but would be ruled ineligible under current Labor Department practices. Those that have been denied benefits include former workers at International Business Machines Corp. (NYSE:IBM - News) , Electronic Data Systems Corp. (NYSE:EDS - News) and Nortel Networks Corp. (NYSE:NT - News) and Motorola Inc. (NYSE:MOT - News) , according to the lawsuit.

Lead plaintiffs in the lawsuit include James Fusco, a former software developer at IBM who was denied TAA benefits in June; and Barbara Lisa Pineau, Dick Young and John Lake, former employees of Computer Horizons Corp. (NasdaqNM:CHRZ - News) who were denied benefits in January 2003. Named as defendants are Labor Secretary Elaine Chao and Attorney General John Ashcroft.

Labor Department spokeswoman Lorette Post said the department doesn't comment on pending litigation. Justice Department spokesman Charles Miller said the department wouldn't comment because it hasn't yet filed its response to the trade court.

According to the lawsuit, software workers should be eligible for TAA benefits because software qualifies as an article under the law that authorized TAA.

"The Labor Department has been saying that software is not an article," said Smith, the plaintiffs' attorney. "They've been saying that software is a service. The programmers that I know - including myself because I worked in software development for 15 years - we think that kind of position doesn't comport with the true nature of software."

A series of federal court opinions since 1969 support the case that software is an article, Smith said. They have ruled that the transformation of a "thing" into something "new and different" qualifies as a production process whose workers are eligible for TAA, Smith said. Court opinions also have found that software transforms a computer into a new machine, Smith said.

Smith said there was no evidence in the record of congressional debate about TAA that suggests software workers shouldn't receive benefits. TAA was last authorized by Congress in 2002, when it expanded the benefits and categories of eligible workers.

-By Peter Loftus, Dow Jones Newswires; 201-938-5267; peter.loftus@dowjones.com