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In California, a Person Who Enters Into a Written Agreement to Produce Works Made for Hire Is an Employee

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In California, a Person Who Enters Into a Written Agreement to Produce Works Made for Hire Is an Employee MCLE ARTICLE AND SELF-ASSESSMENT TEST By reading this article and answering the accompanying test questions, you can earn one MCLE credit. To apply for credit, please follow the instructions on the test answer sheet on page 27. by Matthew Swanlund WORK MADE FOR HIRING In California, a person who enters into a written agreement to produce works made for hire is an employee CALIFORNIA BUSINESSES face a choice advantage of the benefits afforded by the likely only a matter of time until the focus when hiring consultants and independent work-made-for-hire doctrine of the Copyright lands on the practice of hiring independent contractors to create or develop intellectual Act but be treated under California law as contractors to create works made for hire. property. A conflict between federal and state an em ployer, or they may sacrifice the benefits Generally, under the Copyright Act, the law could have critical operational and legal of the work-made-for-hire doctrine yet main- creator of the creative work is the author of consequences. The use of work-made-for- tain the independent contractor status of its that work and therefore the owner of the hire agreements by businesses engaging cre- creative workers. Whichever decision the busi- copyright in that work.4 However, if the cre- ative independent contractors is well estab- ness makes could have lasting legal and prac- ator is an employee of the business and acting lished. However, California businesses may tical consequences. within the scope of employment when the be violating California state law when engag- Oddly, this conflict of law is not a new creator creates the work of authorship, then ing creative independent contractors in work- issue. In fact, it was raised in legal journals the employer owns the copyright by operation made-for-hire agreements. Similarly, artists, in 1984 and 1995.2 However, there appears of federal law.5 The Copyright Act also pro- designers, programmers, and other creative to be very little of record in the past 20 years. vides a specific, limited mechanism in which individuals may be unknowingly waiving There is a dearth of federal and state case an independent contractor can be treated important rights and remedies granted to law interpreting this conflict, and there are similarly to an employee with regard to the them under California state law. no California Labor Department opinions creation of intellectual property. If an inde- In 1982, the California legislature enacted indicating any intent to enforce the California pendent contractor creates the work of au - Labor Code Section 3351.5(c) and Unem - laws. This has led to a general ignorance of thorship as a work made for hire, the business ployment Insurance Code Sections 686 and the laws in both the creative and legal com- 621(d), which directly address the express munities. With the increasing scrutiny on the Matthew Swanlund is the founder and principal terms of the U.S. Copyright Act regarding classification of independent contractors and of Aesthetic Legal, a boutique Los Angeles business creative works made for hire.1 California employees under California law, as evidenced law firm representing creative businesses, indi- businesses face a critical decision in dealing by the recent decisions involving Uber drivers vidual artists, performers, designers, advertisers, with this potential conflict. They may take and unpaid interns at Fox Searchlight,3 it is and creative entrepreneurs. Los Angeles Lawyer March 2016 25 that engages the creator is deemed to be the the work, 3) to distribute copies of the work, comprised in the copyright in the work. author of the work and therefore owns the 4) to perform the work publicly, and 5) to The ordering or commissioning party underlying copyright in the work.6 display the work publicly.8 This list makes shall be the employer of the author of For works created after January 1, 1978, clear why it is imperative that the business the work for the purposes of this part. the Copyright Act defines a “work made for obtain and retain copyright ownership in the Unemployment Insurance Code Section hire” as, among other things, a work specially creative work product that independent con- 621(d) defines “employee” with reference to ordered or commissioned for use as a con- tractors create or develop. Section 686. Similarly, Section 3351.5(c) of tribution to a collective work, as a part of a the Labor Code contains a similar definition California Labor and Unemployment motion picture or other audiovisual work, of “employee” to include someone entering Insurance Codes or as a compilation if the parties expressly into written agreements to produce works agree in a written instrument that the work In California, however, there are state statutes made for hire. Therefore, if a California busi- is a work made for hire. A work created by that effectively negate the work-made-for- ness engages an independent contractor, yet an independent contractor can be a work hire provision of the Copyright Act.9 Under has a written agreement stating that any intel- An employer under California law has an affirmative legal obligation to secure workers’ compensation insurance covering employees before any agreement is even commenc ed. This law is deemed to be violated at the moment the work-made-for-hire agreement is executed without having the insurance. made for hire only if it falls within one of California Labor Code Section 3351.5(c), a lectual property created by the independent the listed categories and there is a written person who creates a work of authorship contractor is a work made for hire, the busi- agreement between parties specifying that under a contract that expressly provides that ness will be deemed under California law to the work is a work made for hire.7 A work- the work is to be considered a work made be an employer, and the independent con- made-for-hire contract provision serves to for hire, is an employee.10 Similarly, under tractor will be deemed to be an employee. transfer copyright to the business that engages Cal ifornia Unemployment Insurance Code What are the practical ramifications if an the independent contractor without the re - Sections 68611 and 621(d),12 a party com- independent contractor is deemed to be a quirement to formally hire the independent missioning a work under a contract that ex - statutory employee, and the business is deemed contractor as an employee. This would apply pressly provides that the work is to be con- to be a statutory employer, under California to an actor hired by a production company sidered a work made for hire, is an em ployer.13 law? First, employers must register with the to act in a film or to a studio musician hired Most businesses engage independent con- Employment Development Depart ment (EDD) by a record producer to play on a song record- tractors in work-made-for-hire engagements within 15 days after paying an employee in ing. However, this also applies to graphic to secure copyright ownership of the work excess of $100 in wages.14 Second, employers designers hired to create company logos, of authorship without affording the creator must report new employees within 20 days marketing materials, or websites; or to pro- the job, wage, or benefit security of a formal of the employee’s start-of-work date. Third, grammers or software developers hired to employee. employees must be provided with pamphlets create computer code or design apps or wid- California businesses may well continue on employee with holdings, unemployment gets. Extending this even further, it could to take advantage of the work-made-for-hire insurance (UI), state disability insurance (SDI), also include photographers, set designers, benefits of the Copyright Act and secure and paid family leave (PFL).15 State and federal visual artists and camera operators. copyright ownership in the creative work regulations require employers to display var- Because copyright ownership is initially product. However, the California Labor and ious posters and notices to inform their established at the time the creative work of Unemployment Insurance Codes are clear— employees of certain laws and regulations authorship is created, creative businesses businesses that do so will be deemed employ- pertaining to employment and working con- need to be vigilant in ensuring that copyright ers of the independent contractors who create ditions such as UI,16 SDI,17 and PFL18 claims is properly secured. Customarily, a business works made for hire. Section 686 of the and benefits information. Employers must acquires the work of authorship created by California Unemployment Insurance Code then make UI, employment training tax the independent contractor because it intends specifically defines “employer” as: (ETT), SDI, and California personal income to integrate it into a motion picture, television [A]ny person contracting for the cre- tax (PIT) payroll tax deposit (DE 88) pay- show, internet product, software program or ation of a specially ordered or com- ments. Subsequently, employers must file a application; or incorporate it into marketing missioned work of authorship when Quarterly Contribution Return and Report materials, websites, and logos. Therefore, the parties expressly agree in a written of Wages (DE 9) form to reconcile the tax having the ability to reproduce, sell, distribute, instrument signed by them that the and withholding amounts with the DE 88 or license these materials is of utmost impor- work shall be considered a work made deposits for the quarter.19 Finally, employers tance to a business. The Copyright Act grants for hire, as defined in Section 101 of must file a Quarterly Con tribution Return owners of copyright five distinct exclusive Title 17 of the United States Code, and and Report of Wages (Contin uation) (DE 9C) rights: 1) to reproduce the copyrighted work, the ordering or commissioning party form to report total subject wages paid, PIT 2) to prepare derivative works based upon obtains ownership of all of the rights wages, and PIT withheld for each employee 26 Los Angeles Lawyer March 2016 MCLE Test No.
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