By Owen J. Sloane, Teresa R. Tracy, and Rachel M. Stilwell
Imagine the following: You own a California-based company that wants to engage the services of a particular musician to compose a film score. The musician is not your company's employee; he is instead a highly skilled independent contractor who writes the score without supervision, sets his own hours, and works out of his own California home studio, using his own equipment. Your company and the musician enter into a written "work made for hire" agreement whereby the film score is commissioned and your company is deemed the author and owner of the copyright in the film score that is yet to be created. The musician then walks into his home studio, sits at his keyboard and begins working on the score. While writing the score, his keyboard stand breaks and the keyboard crashes down on the musician's foot, causing him injury.
Even an "Independent Contractor" Can be Deemed an "Employee" for Purposes of Workers Compensation and Unemployment Insurance
Under California law, the musician would be deemed the "employee" of your company for purposes of workers' compensation and unemployment insurance. Unless you obtained workers' compensation insurance before entering into the "work made for hire" agreement, before any work was performed, and before any payments were made to the musician, you could potentially be criminally liable for failure to maintain such insurance, and you could also be liable for substantial penalties and civil damages.
California law provides that one who commissions a "work made for hire," as defined in Section 101 of the Copyright Act, is considered the employer of the creator of the work for purposes of workers' compensation and unemployment insurance. See Cal. Labor Code A? 3351.5 and Cal. Unemployment Insurance Code A? 686 (2009). Whenever a creator works on a "work made for hire" basis, as Cal. Unemployment Insurance Code A? 686 (2009)defined by copyright law, that creator becomes an employee for purposes of California workers' compensation and unemployment requirements.
Harsh Penalties for Failure to Maintain Workers Compensation Insurance
Failure to have workers' compensation coverage is a criminal offense. Under California Labor Code A? 3700.5, such a failure is a misdemeanor punishable by either a fine of up to $10,000 or imprisonment for up to one year, or both. California also issues penalties of up to $100,000 against illegally uninsured employers. According to the California Department of Insurance, a "stop order" can be issued against any company discovered to be unlawfully uninsured for workers' compensation. A stop order shuts down business operations until workers' compensation insurance is secured. See Cal. Labor Code A? 3710.1. Moreover, under the scenario above, since your new "employee" was injured on the job, you are responsible for paying all bills related to the injury. Your new "employee" could also file a civil action against you.
Potential Liability for "Employers"
There have been no published court decisions applying the above-mentioned laws, but under the scenario described above, if your company enters into a "work made for hire" agreement with an author that results in your company owning "all of the rights comprised in the copyright in the work," your potential liability is vast. In addition to being liable for failure to maintain workers' compensation insurance, your company is also potentially liable for failing to comply with the requirements of the California Unemployment Insurance Code. See California Unemployment Insurance Code A? 686.
Careful Drafting by a Qualified Attorney Can Help Avoid Unintended Consequences
Anyone in California (or hiring creators in California) who wants to commission an independent contractor to create and convey ownership of a copyrightable work, should seek legal counsel prior to engaging that independent contractor's services. A knowledgeable attorney can help craft an agreement that meets the needs of both the hiring entity and the independent contractor author, while protecting the hiring entity from unnecessary liability as an "employer" under harsh California laws.
A(C)2009 Gladstone Michel Weisberg Willner & Sloane, ALC. All Rights Reserved.
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