work for hire agreements

Work For Hire and the CA Conundrum

In Blog, Contracts 101, Copyrights 101, Independent Contractors, Online Business Necessities by Shannon Montgomery

For those of you that don’t know, I decided to take the CA bar last year and have since become a fully licensed CA attorney. Which is great! But, CA is probably the one state with the most to know when it comes to laws and regulations. And, it has a tendency to be an outlier on a lot of things the rest of the country and the federal government are pretty consistent on.

And, in the borderless online world we live in- sometimes knowing what is happening out there on the west coast is important for your business here on the east. One such regulation is CA’s take on works made for hire and independent contractors.

Independent Contractors

A lot of my clients face situations in which they need to hire someone to create copyrightable material for them in connection with their business. This happens a lot in the fitness industry where content creation is the name of the game. The most common thing to do is hire an independent contractor, (if you don’t know what that is, take a look through some of my past posts I’ve talked about it a lot) to create that content when it doesn’t make businesses sense for my client to do it themselves. Think of logo design, video editing, even ghostwriting are all services people contract out to others with expertise in those areas.

Work For Hire Agreements

When one of the above situations occurs, it is customary for the independent contractor agreement to contain a work for hire provision. A work for hire provision ensures that the copyrightable material created by the contractor belongs to the person who hired them to do the work, and not them. Without this agreement in place, copyright law states that the contractor actually owns the work. But, all is well because if you hire an independent contractor you simple need a contract in place with the right work for hire language.

Unless of course, the contractor you hire is in California. And here’s why.

CA Labor Code Section 3351.5

Traditionally an employer does not have to worry about minimum wage, overtime, insurance, benefits, and withholding taxes for an independent contractor. However, the CA labor code has a specific exception for contractors working on a work for hire basis ie providing copyrightable material as their job. Essentially the law states that if a CA-based independent contractor is working on a work for hire basis, they are to be considered an employee for employment purposes, and you as the employer must comply with the various labor laws of CA. This includes paying workers compensation and unemployment insurance for that contractor as you would have to for any regular employee in CA.

This is problematic for many reasons. Most employers hiring contractors envision a relatively brief working relationship that is project based and they have no idea they are supposed to provide any kind of insurance benefits under the employment laws. Therefore, they are in violation of CA law the moment they have an independent contractor sign an agreement with work for hire language.

How to handle this

So what do you do if you’re a CA-based company, or you want to hire a CA-based contractor? There are a few options. One, you can hire contractors that have their own legal entity set up and are doing work under that entity rather than as a sole proprietor. This is because the CA labor code only applies to individuals, not business entities.

Another option is to only add assignment language to your independent contractor agreement or to have an exclusive license agreement in place. By adding assignment language or building in an exclusive license you are effectively saying that you acknowledge that the copyrightable material belongs to the contractor but that they are giving “assigning” it to you or giving you the right “license” to be the exclusive user of that copyrighted material. But, this isn’t full proof as the copyright act does allow certain “authors” who transferred rights by contract to regain those rights after 35 years under certain circumstances, and without work for hire language, the contractor is likely the “author” for this purpose.

Some argue that because the list of “works made for hire” in the copyright act is limited, that anything falling outside of that specific list wouldn’t be subject to the CA labor laws. But, I haven’t located any case law on this exact nuance yet.

Your best bet might be simply to contact an attorney prior to making any decisions on independent contractors and works made for hire with someone in CA.

If you have more questions on this feel free to email me at Shannon@montgomerypllc.com I am happy to help you work through the never-ending maze that is CA law.

 

Please note that this is not meant to be legal advice for you or your situation, this is merely some legal research and knowledge on the given topic.