Independent Contractor’s, the “Work Made for Hire” Doctrine, and the Presumed Employee
The “work-for-hire” doctrine is presumably, for employees ONLY. After all, employees are hired, not independent contractors right? However, it is standard practice to have a “work-for-hire” clause in all independent contractor agreements in nearly every industry, nationwide.
In California, there could be serious issues with stating in an independent contractor agreement that all the intellectual property created by the contractor is a “work-for-hire” because in recent years California and federal agencies have started cracking down on mis-classified independent contractors. The “work made for hire” clause has been standard in all independent contractor agreements in the arts and entertainment industries and otherwise, historically. The problem is, the clause then potentially creates evidence of a “presumed employee” out of the independent contractor under CA Unemployment Insurance Code §686. That sort of clause may raise issues with the California Employment Development Department if audited, and may be brought up in a dispute between the parties, as to whether the independent contractor was actually an employee mis-classified as an independent contractor, and thereby raising potential liability for the other party (the employer/assignee) for unemployment and state disability taxes, penalties and interest, etc. and may also be precedent for other related legal claims. If the “work made for hire” clause is in the independent contractor agreement, the CA EDD may use this evidence to find an employee, not an independent contractor.
That said, is there a better way to handle the intellectual property creations of independent contractors in a contract? Consider possibly going against the standard practice and maybe stating that the intellectual property (i.e., copyrightable works, patentable works, trade secrets developed, etc.) created by the independent contractor are not a works for hire. Whoa, mind blown!
Usually the work-for-hire clause would be backed up by an assignment clause. The assignment in the independent contractor agreement should be clear and all-inclusive without limitation if that is the intent of the parties. It should include language like, “all rights, title and interest, throughout the universe, in perpetuity, in all media now known or hereafter devised”.
Maybe it is better to just have an assignment clause and forego the work-for-hire clause?
However, this raises other issues; for example, when dealing with copyrightable works, the issues arise with copyright law under the “termination of transfer” provisions of the Copyright Act. Section 203 of the Copyright Act allows the creator of the copyrightable works, who during his/her lifetime has transferred some rights to the copyrighted work (after 1978) to terminate the transfer by assignment and regain rights after some period of time, typically at least 35 years from the date of grant.
Additionally, these termination rights cannot be contracted away or waived in advance, and in fact, section 203 specifically provides protection of the author’s right to terminate. Because these termination rights cannot be contracted away or waived in advance, the use of words like “collaboration”, “co-authors”, and/or “joint-works” are a good thing in an independent contractor agreement with an assignment of all rights, title and interest to any intellectual property created by the contractor. This is because the right to terminate the assignment under section 203 of the Copyright Act requires a majority of the interest holders to agree to the termination in order to effectuate said termination and joint-authors are equal co-owners of the copyright in a completed work as a whole, regardless of the amount contributed by each, absent agreement to the contrary. So, by using words like “collaboration”, “co-authors”, and/or “joint-works” the notice of termination under section 203 may be circumvented and the contractor/assignor will not be able to cause a termination unless he can accomplish a majority of “co-authors”, which means he will need the hiring company’s/assignee’s consent to the termination. Just some fuel for thought.
It is important to note that if the notice of termination is not done timely (usually after year 35 and before year 36), then the right is waived and the employer/assignee would continue as owner under normal copyright law pursuant to the original assignment provision in the independent contractor agreement. That said, it is most effective to explicitly call the parties “co-authors” and the work a “joint-work” under the meaning of copyright law. That way, the independent contractor/assignor (presumably) could not cause a termination of the assignment without the signature of the hiring company/assignee.
That all said and done, you end up with “joint-authors” who are equal owners and one author grants his rights to the other by assignment, and the assignment cannot be terminated at the end of 35 years because the assignor cannot form the requisite majority. Maybe? Thoughts?
Last, if you decide that you’ll stick with the standard work-for-hire clause backed up by assignment in your independent contractor agreements, I would understand. Regardless, it is imperative that you have properly drafted independent contractor agreements that specify the relationships of the parties, i.e., as independent contractors, not as employee/employer, partners, joint ventures, etc. Similarly, the agreement should labor to include clauses specifying the responsibilities of the parties as to taxes, including income taxes, payroll taxes, and worker’s compensation and unemployment benefits. Word to the wise, don’t just download a form from google, hire an attorney and have an agreement properly drafted.
