Hey California, Do You Know What It Means to Be a Statutory Employee?
By now, you’ve likely heard about California’s “ABC” test for distinguishing between employees and independent contractors. That test, which applies to wage-and-hour matters (e.g., overtime, meal breaks, rest breaks, etc.), is set forth in section 2775 of the California Labor Code. But did you know that, under another section of the Labor Code, someone can become an employee for workers’ compensation purposes even if that person is an independent contractor under the ABC test?
That’s right: Even if someone is an independent contractor for purposes of wage-and-hour matters under the ABC test, that individual can be a “statutory” employee for purposes of workers’ compensation. Section 3351.5 of the Labor Code states that “[any person while engaged by contract for the creation of a specially ordered or commissioned work of authorship in which the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire, as defined in [the federal Copyright Act],” is an employee for workers’ compensation purposes. Cal. Lab. Code § 3351.5(c).
In a nutshell, if you hire someone to create a work of authorship for you, and if your contract with that person includes a work-for-hire provision transferring the copyright in that work to you, then that person becomes your employee as far workers’ compensation is concerned. This means that, even through this individual wouldn’t be entitled to things like overtime pay, meal breaks, or rest breaks (or other wage-and-hour protections), you would still be required to secure workers’ compensation insurance covering this employee.
Although this hasn’t been a frequently litigated matter in the past, there’s no reason to assume that that’ll continue being the case, especially given California’s recent focus on classifying more and more individuals as employees under the ABC test. The penalties for the violation of section 3351.5 can be severe, including civil penalties, fines, imprisonment, and stop orders that can shut down an employer’s business until sufficient workers’ compensation insurance is secured.