In my previous entry, Work Made For Hire Agreements: Who Owns the Copyright? Part 1: Federal Law, we reviewed the federal copyright law governing work for hire agreements. This entry will examine the California state law implications of work for hire agreements for both employers and independent contractors.
Work Made For Hire Doctrine Under US Copyright Act
To begin, let's revisit the United States Copyright Act of 1976. Under this Act the copyright immediately becomes the property of the author who created the work, subject to two limited exceptions, as follows: 1) if the work is created by an employee within the scope of his or her employment, then the copyright ownership vests in the employer; and 2) if the work is a "work made for hire", copyright ownership vests in the hiring party.
As discussed in my previous post, the work made for hire doctrine permits businesses hiring freelancers to acquire the rights to the creative work if two conditions are satisfied: (1) the work must be within one of the nine categories of works listed in the Act, and (2) there must be a written agreement signed by both parties stipulating that the work is a work made for hire.
In California, state law changes the independent contractor's status to that of an employee for purposes of workers compensation and unemployment benefits.
Statutory Employee Status
In California, an individual engaged to produce work on a work made for hire basis is regarded as a "statutory employee." When this is the case, the hiring party is responsible for payment of state disability insurance and unemployment insurance. California Labor Code § 3351.5 (c) defines "Employee" in relevant part as:
"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 Section 101 of Title 17 of the United States Code, and the ordering or commissioning party obtains ownership of all the rights comprised in the copyright in the work."
Additionally, the hiring party's failure to acquire workers' compensation insurance once a work made for hire agreement is entered is subject to criminal penalties under California law. See California Labor Code § 3700.5 There may be serious consequences for the misapplication of California's "statutory employee" laws which must be considered when entering a work for hire agreement in California.
How Can California Employers Best Navigate Work For Hire Complexities?
One option is to simply handle independent contractors like employees regarding unemployment insurance and workers' compensation.
A second option is to leave the "work for hire" wording out of independent contractor agreements completely. Choosing this route requires adding an assignment provision to the agreement; whereby, the independent contractor agrees to assign all intellectual property created by the contractor to the hiring party.
Finally, an employer may request the independent contractor to form an LLC that is treated as a corporation for federal income tax purposes. If the independent contractor agrees to this, the employer could validly enter a "work for hire" agreement with the LLC without incurring the insurance obligations under California's statutory employee law since LLCs cannot be employees. See California Unemployment Insurance Code § 621(d)
In summary, both California employers and individuals must carefully evaluate the implications of work for hire agreements before entering such arrangements.
Related Blog Posts