Work Made For Hire Clauses: Independent Contractor or Statutory Employee Under California Law?

"Work Made For Hire" Clauses: Independent Contractor or "Statutory Employee" Under California Law?

Technology companies, startups and sole proprietors often include a "work made for hire" clause in agreements with independent contractors, such as programmers and graphic artists, to ensure that any copyrightable aspects of work created by the independent contractor are owned by the company/sole proprietor who contracted the work. But did you know that under California law, if an agreement with an independent contractor contains a "work made for hire" clause and that the contracting party owns all copyrights in the work, the independent contractor may be deemed a "statutory employee" for workers compensation, unemployment insurance and other California employment law purposes? Companies working with independent contractors should understand the significance of "work made for hire" clauses, and consider certain issues before including (or excluding) such language in independent contractor agreements, at least in California.

"Work Made For Hire" is a concept found in Section 101 of Title 17 of the Copyright Act of 1976. It establishes an exception to the general rule that the person who creates a work protected by copyright law is the "author" and owner of the copyrights in the work. Under "work made for hire," a third party, rather than the creator, is deemed the author and owner of the copyrights in the work. For example, if an employee creates a copyrighted work during the course and scope of employment, the employer owns the work rather than the employee. Similarly, if a work falls under the list of specially commissioned works in the Copyright Act and the parties have a written agreement stating the work is a "work made for hire," the person or entity that commissioned the work will be deemed the author and owner of the copyrights in the work, rather than the person or entity who actually created it.

Technology companies typically include "work made for hire" language in independent contractor agreements to ensure the company is deemed the author and owner of copyrights in works such as software, graphics and programs, created by individuals who are hired as independent contractors.

However, California Labor Code section 3351.5(c), and 621(d) and 686 of the California Unemployment Insurance Code, basically state that if a contract with an individual contains a "work made for hire" clause and the contracting party retains ownership of all copyrights, the individual will be deemed a "statutory employee" for California workers compensation, unemployment insurance and other California employment law purposes, even if the parties intended or agreed in writing that the person is an independent contractor. If the individual is deemed a "statutory employee", the contracting party may be subject to penalties and fines for not complying with workers compensation, unemployment and other California employment law requirements.

Many companies believe that including an assignment of copyright, rather than a "work made for hire" clause, will solve the problem of ownership. However, there are issues to consider before excluding a "work made for hire" clause. The Copyright Act of 1976 allows certain "authors" who have transferred copyrights by contract or otherwise, to regain those transferred rights after 35 years under certain circumstances. If a company does not include a "work made for hire" clause in the agreement, the independent contractor, rather than the company, may be deemed the "author," and the independent contractor may be able to regain the copyrights in the work later on, which could serve a severe blow to companies with highly profitable works.

The list of specially commissioned works in the "work made for hire" section of the Copyright Act is very limited. There is some argument that any works falling outside the specific list in the Copyright Act are therefore excluded and not subject to the "statutory employee" laws in California. However, there haven't been any published court opinions addressing the matter, so the issue remains unclear.

Until there are answers, some possible ways to avoid the problem are to work with an individual who has created a corporation, LLC or other business entity (other than sole proprietor) and contract with the entity rather than the individual (entities are not considered employees under California employment law), and to evaluate the importance of the work and try to predict how valuable the copyrights in the work will be after 35 years, should the individual be deemed the "author" and try to regain the copyrights.

Perhaps the best piece of advice, however, is to consult with an employment or intellectual property attorney before including or excluding a "work made for hire" clause with an independent contractor, to ensure the contracting party is making a fully informed decision.

Opinions expressed by the author are not necessarily those of WITI.