Work Made For Hire Clauses in Contractor Agreements - Are You Really Getting What You Bargained For?

"Legal Briefs" is a new quarterly blog series by Erica Bristol, an attorney and Principal of EB Resource Group. "Legal Briefs" will provide WITI members with information on laws, court cases, legal news and events affecting the technology industry.

"Work Made For Hire" Clauses in Contractor Agreements -
Are You Really Getting What You Bargained For?

Copyrights are legal rights in original creative works, such as software, graphics, audio and video recordings, visual presentations and technical manuals. Technology companies often include a "work made for hire" clause in agreements with software developers, graphic artists and other contractors, to ensure that any copyrights in the work they create are owned by the company, and not the contractor. But technology companies don't always get the copyrights they bargained for. It's important to understand the significance of "work made for hire" clauses, and consider certain issues before including (or excluding) those clauses in contractor agreements.

"Work Made For Hire" is a concept found in Section 101 of the Copyright Act of 1976. It's 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. (The "author" has significant rights, which will be explained later on.) Under "work made for hire," a third party, rather than the creator, is deemed the "author" and owner of the copyrights. For example, if an employee creates a copyrighted work during the course and scope of employment, the employer owns the copyrights rather than the employee. Similarly, if a work falls under a 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 the "author" and owner of the copyrights, not the person who created the work.

A "work made for hire" clause is typically included in contractor agreements to ensure that the company is the owner of copyrights in software, graphics and other items created by the contractor. However, the list of specially commissioned works in the Copyright Act is very limited, and many works assumed to be covered, are not. To address this potential gap, companies typically include an assignment clause, which states that if the work is not deemed a "work made for hire," the contractor assigns all of his or her copyrights in the work to the company.

Many believe that an assignment clause, rather than a "work made for hire" clause, will solve the ownership problem. 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 contractor may be deemed the "author" and may be able to regain the copyrights in the work later on, which could serve a severe blow to a company when the work turns out to be highly valuable.

California has its own twist on "work made for hire" clauses. In California, a "work made for hire" clause can turn an independent contractor into a statutory employee for workers' compensation and unemployment purposes. California Labor Code section 3351.5(c) and 621(d) and 686 of the California Unemployment Insurance Code say that if a contractor agreement contains a "work made for hire" clause, and the company retains ownership of all copyrights, the contractor will be deemed a "statutory employee" for California workers compensation and unemployment insurance purposes, even if the parties intended or agreed in writing that the person would be an independent contractor. The company may be subject to penalties and fines for not complying with workers compensation and unemployment laws. There may be some exceptions, such as contracting with a corporation or limited liability company rather than an individual, but the exceptions should be discussed with an employment law attorney.

"Work Made For Hire" clauses are a good way to protect ownership rights in copyrighted works. Before including or excluding a "work made for hire" clause in a contractor agreement, be sure to consult with a copyright attorney, and perhaps an employment law attorney in California as well, to make sure you get the copyrights (and understand the obligations) you bargained for.

Erica Bristol is an attorney and Principal of EB Resource Group, a consulting, education & training and mediation services provider in Encino, California.

The opinions expressed in this Blog are those of Erica Bristol and do not necessarily represent those of WITI.com, its parent, subsidiary or affiliated companies.

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