Hiring independent contractors can be an appealing option for companies, and small businesses or start-ups, in particular. Employers don’t have to offer contractors benefits like health insurance or pay overtime, and they don’t have to withhold income tax or pay into state unemployment insurance. But contractor relationships can present some unique issues for employers when it comes to owning the rights to the work produced.
Copyright law protects a work from the time it is created in a fixed form. Only the author, or those deriving rights from the author, can claim a copyright. The exception to this concept is what is known as a “work made for hire.” This designation is important for companies that want to own the copyrights to a given work because without it, the creator can revoke copyright assignments and take ownership of their works again 35 years after assignment.
Under the Copyright Act, a work that is created by an employee as part of their employment is automatically considered a “work made for hire,” and the employer owns the work. But when a contractor creates the work, things get a little more complicated.
In these types of situations, the law says it can be a work-for-hire only if (a) it falls within one of nine specific categories of works and (b) there is a written agreement between parties specifying that the work is a “work made for hire.”
Two of the most significant categories of works are commissioned contributions to a collective work (i.e., a newspaper or magazine) and works ordered for use as part of an audiovisual work (like a motion picture). Any business that engages contractors to create a work and intends to own the copyright should have a written agreement that specifically says the work product is a “work made for hire.” But many types of work that small businesses and start-ups frequently hire contractors to create – websites, mobile apps, custom software – are not included in specified categories and likely are not eligible to be a work for hire. In that case, the written agreement should include a provision assigning the copyrights to the business.
Companies that use work-for-hire agreements need to also be cognizant of the laws of the particular state where they do business. In California, for instance, someone who creates a “work made for hire” under a written agreement is considered an employee. That means as their employer, you can be responsible for certain things that come along with that distinction (e.g., contributing to unemployment insurance, etc.). If you are in a state where such laws apply, it would be advisable to replace “work for hire” language in a contract with a clause that simply states the contractor assigns all rights in the work to you.