Even as the adult business environment becomes more corporate, few are ready to consider what effect mainstreaming will have on the way business is conducted. In an industry that, for the most part, operates under the radar and has been largely self-regulated, can standard business models and practices ever replace what is aptly described as a "Wild West" mentality?
Presumably, most major adult multimedia corporations and larger studios have had to integrate basic business practices in order to minimize potential risks and maximize their ability to expand into highly visible positions in the marketplace. Performers interested in tax advantages may choose to incorporate and become "employees" of their own companies.
In a January 2007 article appearing in the San Francisco Chronicle, Kink.com CEO/founder Peter Acworth was quoted saying, "We have a clean and safe work environment, the models are well-paid and they are explicitly covered by workers' comp."
Acworth was defending his multimillion-dollar web-based company against accusations that female performers were being exploited, an attack made by community activists opposed to Kink.com's purchase of the San Francisco Armory Building for use as a production studio/office location.
Industry labor attorney Michael Fattorosi's philosophy is that, in a business still largely viewed by the mainstream as somewhat disreputable and illegitimate, observing standard business practices, as well as state and federal regulations, is the best defense against an anti-porn offense.
In an earlier interview with Fattorosi several months ago, he discussed the issue of employee vs. independent contractor. This time around he points out the legal advantages of providing workers' compensation insurance coverage to employees. He also discusses his thoughts on worst-case scenarios and where the industry is headed.
XBIZ: Explain the basic legalities behind providing workers' compensation coverage for employees.
Michael Fattorosi: To operate a business here in California is illegal without having workers' compensation insurance. So, to actually hire someone that is not a family member, or your wife, or a partner or principal in the business — hiring an employee and not providing them work ers' compensation insurance could be a felony and is definitely a misdemeanor.
You're also subjected to fines if you're caught by the Department of Industrial Relations not having workers' compensation insurance. And you're subject to what's called a lockout or a shutdown. They'll come in and shut down your place of employment until you secure the necessary workers' compensation insurance and you prove to them that you now have and are covered for work comp injuries.
Once you have workers' compensation insurance, there'll be a question as to whether or not this is a covered employee. That's a different issue. Once you have a policy in effect, what it does then is, if somebody tries to file a workers' compensation claim, you now have something protecting the employer called 'exclusive remedy.'
In California, if you don't have workers' comp insurance, that employee can then also sue you in civil court where they will be able to recover punitive damages and the exposure on that company will be much higher in civil court than it would be in a workers' compensation court.
In workers' compensation court, the employee doesn't have to show the employer was negligent. If it happens at work, it's work-related. You don't have to prove negligence. You don't have to prove that the employer did something wrong. It could be a simple trip and fall, with nobody at all negligent and that would still be a covered claim.
XBIZ: Should companies expect to pay more for coverage because of the nature of the business? Will there be insurance carriers that don't want to write policies for adult-oriented businesses?
Fattorosi: Yes. There are brokers that won't want to deal with it, and there are lines and insurance companies that won't want to insure for the risk.
But in California, we have the benefit of what's called State Compensation Insurance Fund, which is a governmental agency that's quasi-private, quasi-public, which provides insurance as a last resort. So, if you can't get insurance anywhere else, they have to insure you, if it's a legal business. Adult video production in California is a legal business according to [the Freeman decision]. So, SCIF has to provide insurance for workers' compensation for adult companies.
There are risky jobs and you're going to pay more. Of course, I think, just like anything else, the more safety measures that you have in line for your employees; the less you're going to pay. Put it this way; you can cover stunt men and stunt women for workers' compensation. There are extremely dangerous jobs that get covered, so I don't think it's a matter of not being able to cover adult performers.
XBIZ: What do you think is preventing the state of California from just going ahead and mounting investigations and auditing people now?
Fattorosi: Time and money.
XBIZ: What do you think it will take for them to start investigating?
Fattorosi: One more HIV outbreak. I imagine, after the last HIV outbreak there was a movement in Sacramento to require condoms, to change testing procedure. And I think with the next HIV outbreak — God forbid if there is one — that depending on the political climate at the time, that will cause people to spring into action about this. And they're going to look at workers' compensation, they're going to look at Cal-OSHA, and they're going to look at the Department of Industrial Relations.
The reason that I brought this up is because everybody talks about 2257. Everybody talks about obscenity as a way for the government to shut down the industry.
Simply not having workers' compensation insurance is another way that if George Bush and the Republicans in Washington wanted to call up Arnold Schwarzenegger and the Republicans in Sacramento and exert a little political pressure, [they would] say, 'We have an inside way of going after these people on a state level.'
XBIZ: The industry has been operating in the same manner for a long time without really having to address these issues. What makes you think that they need to be addressed now?
Fattorosi: I have a lot of experience representing Fortune 500, large corporations — defense contractors, major studios — and when I saw the business practices used in the adult business, I said to myself, 'There's a lot of room for education and growth here,' and [for me to] be able to take this industry from a wild, wild west mentality to a more corporate America mentality.
I think that from a standpoint of sales, from profitability and from growth, that as the industry matures, as it becomes more corporate, it'll become more widely accepted. When you have a situation where people are buying films or buying video clips, where they believe that the performers are unfairly treated and being demeaned, being abused, and being taken advantage of, you have a smaller base of prospective customers.
When you have a performer that has an attorney, an accountant, her own production company — we can use Jenna Jameson as an example — I don't believe that anybody believes that Jenna Jameson is an abused, taken-advantage-of performer. I see her as a savvy businesswoman and as almost a mainstream performer. And you feel better about buying into a situation like that as a consumer.
I come at this from an attitude of taking 10 years of experience, in regards to representing major corporations and, trust me, I've done the same things with major corporations and told them basically, when you go into court, whether it's on a workers' comp issue or whether it's on a civil issue, you want to be the guy wearing the white hat. Already, from the standpoint of producing adult content, you're gonna be the villain — so the less villainous you are, the better off you'll be. So if you do things right, you will 1) have a better time in your business practices, and 2) if you do end up in court, you'll be a much better defendant than if you didn't do things properly.
What's going to happen is that you're going to end up in front of an audience that doesn't believe in the wild, wild west mentality. They're going to be your average citizens and for the most part, while I think that people in California tend to be somewhat progressive — they are also somewhat fair.
XBIZ: Are you afraid people in the industry will question why they need this type of business advice or that you may be perceived as an attorney who is trying to churn up business?
Fattorosi: Again, I like to give my clients legal advice, as well as practical advice. And I know there are a lot of attorneys who don't like to do that. A lot of attorneys like to give very esoteric, convoluted advice where, when you're done talking to them, you don't know any more than you did before you went in there.
I'm not that type of attorney. I come from a blue-collar background. I come from a father that owned a small business, and so I listened to my father's conversation with attorneys and I saw how he reacted to it. And I'm not trying to create a situation within this industry where I profit. Everything that I'm telling you, if they listen to what I have to say, I won't profit from it — because this is preventative medicine.
I'm trying to be very careful in posing this issue in that way. 'The world is going to come to an end!' The world is not going to come to an end, OK? The industry has been doing it a certain way for so long, and they will continue to do it for a certain way for so long.
But what will end up happening, and this I can almost guarantee, is that at some point, something is going to happen, whether that's another injury, an HIV outbreak, a special report by a news station, the federal government taking a look at this, a state governmental agency taking a look at this — something is going to happen at some point where there's going to be more interest in this issue and it could be detrimental for the industry.
This really comes from a sense of trying to protect the industry as opposed to trying to profit from the industry.