Early stage startups and small businesses do not have the resources to hire employees to meet their staffing needs. They usually hire independent contractors for software development, UX designs, or product development. Startups engage the services of independent contractors by entering into independent contractor agreements setting forth their scope of services, and making it clear that they are not entitled to health or employee benefits, or other privileges enjoyed by an employee as defined under the laws of each State.
A common issue that comes up in such situations is ownership in copyright to the work created by the independent contractor. Generally, the author of a work protected by copyright has the exclusive right to make copies, derivative works, and to publicly display, distribute and perform the work. But in an employer-employee relationship, any work created by an employee is usually considered a work made for hire and is owned by the employer. Under the US Copyright law, “work made for hire” is defined as, “(1) a work prepared by an employee within the scope of his or her employment; …”. Independent contractors fall outside the scope of definition of work made for hire and ownership in the work does not transfer automatically to the hiring company.
The meaning of the term “employee” under Copyright law is different from the commonly understood meaning of the term. Under Copyright Law, three factors aid in determining whether there is an employer-employee relationship:
- Whether the employer has control over the employee’s work.
- Whether the employer has control over the employee.
- Whether the employer is in the business of creating such works, provides the employee with benefits, or withholds tax from the employee’s payment.
In the case of startups working virtually, or from coworking spaces, it is not always clear whether the person employed is an employee or an independent contractor. The only effective way to transfer ownership in works created by an independent contractor is by written agreement. Oral arrangements, or proof of payment to the independent contractor to create the work are not sufficient to transfer ownership in the work to the hiring company.
Some important clauses to be included in a work for hire agreement are:
- Scope of work.
- Time to complete the work.
- Payment for the work, including expenses to complete the work.
- Right of the hiring company to change and alter the work.
- Statement of independent contractor relationship.
- Ownership in the final work product.
- Assignment of the right, title and interest in the work to the hiring company.
Work for hire agreements can be complicated due to the nuances presented by Copyright law. It is best to hire an attorney to determine the relationship between your company and the person you are hiring and to draft an appropriate work for hire agreement.