[nevinera]

Not that it's directly relevant to the claim, but 'work-for-hire' agreements do not directly to apply to most software.

In particular, you cannot use a work-for-hire agreement to cause on-the-fly copyright transfer as code is written, you have to include in your contract a requirement about a separate copyright transfer.

Here's a decent write-up I found: http://www.metrocorpcounsel.com/articles/9954/work-hire-doct...

There's a separate point here though - your contractor wrote the code which you claim not to be using, but he most likely also did a great deal of software design - data modelling, layouts, behavioral descriptions, navigation, etc. If you are using any of that, you are still using his work.

Legally speaking, even if he was as terrible a developer as you say, you are probably screwed for the money he was owed unless you had a lawyer write his contract with an eye toward not paying for poor work. That's just how contracting works.