The March 2016 issue of Los Angeles Lawyer addressed an area of tort liability that businesses may not be aware of when engaging independent contractors.
Labor Code Section 3351.5(c) and Unemployment Insurance Code Sections 686 and 621(d) speak to the express terms of the U.S. Copyright Act on creative works made for hire. Under the Copyright Act, the creator of work is the author of that work and the owner of the copyright in that work, unless the independent contractor creates a work as a work-made-for-hire.
When a California business takes advantage of the benefits under the work-made-for-hire doctrine of the Copyright Act, California law treats the business as an employer. Under California Labor Code Section 3351.5(c), a person who creates a work of authorship under a contract that expressly provides the work is considered a work-made-for-hire, is an employee. Under California Unemployment Insurance Code Sections 68611 and 621(d), a party commissioning a work under a contract that expressly provides the work is considered a work-made-for-hire, is an employer.
If a creator is an employee of a business and acting within the employment scope, the creator creates the work for the employer as owner. As an employer, the business is liable for the torts of the worker from vicarious liability and negligent hiring, retention, and supervision theories. The business needs to obtain workers’ compensation insurance. Not having workers’ compensation can expose the business to injured worker lawsuits.
When a business is an employer in California, the business must register with the Employment Development Department (EDD) within 15 days after paying the worker more than $100 in wages. The business needs to report new workers to EDD within 20 days of the worker’s start date. The business must pay payroll taxes. Not following California employment laws is criminal in some situations, punishable by imprisonment or fine.
There have been no California Labor Department opinions indicating intent to enforce the Labor Code and Unemployment Insurance Code sections referred to above. People have been ignorant of these laws. As people learn more about the laws, from headline news on independent contractor versus employee cases, one way to preserve copyright ownership and not have to hire workers as employees is to not enter into agreements with individuals.
To reduce liability in personal injury or other tort cases, find workers who have their own business entities such as limited liability companies. The workers are employees of their own companies, and the business engages the workers’ businesses as the independent contractors.