The cardinal principle of copyright law is deceptively simple. It protects a creative work as it passes from the fevered brow of its creator to something more tangible – a writing pad, an electronic manuscript, a sound recording, a stone tablet, etc., and, at that moment, ownership vests in the creator. But, of course, deceptively simple rules never are and always have exceptions. In this instance, one of those exceptions is the so-called Work Made for Hire principle.
If a creative work is “made for hire” by an employee, the employer is generally considered to be the author. Under the 1976 Copyright Act, a “work made for hire” is either a work prepared by an employee within the scope of his/her employment or certain works specifically ordered or commissioned by the employer. But neither the act nor the legislative history made any attempt to define these terms and so it has been left to the courts to inject them with meaning. In doing so, the courts have ruled that an employee for these purposes does not have to be a “regular” or “formal employee,” and the nature of the employee’s compensation, or even whether there is any compensation, is not critical. In 1989, the U.S. Supreme Court resolved many of these questions by concluding that the existence of an employment relationship under the work made for hire principle is determined by applying traditional agency principles.
Many employers, especially those in the business of developing software and other intellectual property, are understandably concerned about leaving the resolution of potentially “bet the company” issues to such a vague standard that may vary from employee to employee. In response, they have insisted that their employees and contractors execute agreements that grant copyright ownership, and/or assign such rights to the employer. These undertakings are often contained in the initial employment agreement. However, even this strategy is not without risk, especially for California employers. A “work made for hire” clause transferring ownership to the employer can convert an independent contractor into a statutory employee for workers’ compensation and unemployment law purposes. (California Labor Code §3351.5(c); California Unemployment Insurance Code §§ 3351, 621(d) and 686.) Thus, if a company insists on a “work made for hire” clause, and does not classify its “contractors” as employees, it may be subject to penalties and fines for noncompliance. An employer that seeks to resolve the complexities of the “work made for hire” rule through an agreement with its employees/contractors may avoid unintended consequences by consulting knowledgeable copyright and employment attorneys.
Finally, managers confronted with an asserted genius in the workforce may reflect on the maxim that “the difference between stupidity and genius is that genius has its limits.” (A quotation often, in error, attributed to Albert Einstein. To whomever is the real author, we assert the “Fair Use” doctrine.)