Hiring independent contractors (ICs) can be an essential way to boost productivity and streamline your resources, especially during the startup phase, when you have limited access to capital and can’t afford to hire a full roster of employees.
And even after your operation grows beyond its fledgling period, contractors are often vital for completing one-off projects or rounding out your team during particularly busy periods. That said, working with ICs also creates a number of unique legal and financial risks for your company.
Outside of the risk of getting sued or hit with hefty fines for misclassifying an employee as a contractor, you must also be careful to properly secure ownership of anything an IC creates for you. This is particularly true when it comes to intellectual property (IP).
Make Sure You Actually Own The Work You Pay For
Unlike employees, with whom you generally own automatic copyrights to everything they produce while working for you, ICs typically retain full copyrights to their work—unless they’ve signed a written agreement stating otherwise.
Indeed, if you don’t have properly drafted agreements in place, you may not even own the work you pay ICs to produce for you. My mentor and the founder of New Law Business Model, Ali Katz, learned this the hard way during her early days as a lawyer when she hired a friend to create a website that helped parents name legal guardians for their kids online.
When Ali went to move the website to a different developer, her friend claimed the source code was his, and he said she’d have to pay him $25,000 on top of the $25,000 she’d already paid him because they didn’t have an agreement containing a “work-for-hire” clause.
Because Ali trusted her friend, she figured she didn’t need a formal written agreement to govern their relationship, and in doing so, she didn’t own the website she had paid her friend, the developer, to create as an independent contractor. And this is true of all creative works of authorship you might hire an IC to produce, including graphic design, written content, software, computer code, photos, videos, and other content.
Fortunately, it’s fairly easy to secure full ownership of such works by using the proper legal agreements. However, this is only possible if you actually put such agreements in place with every IC you work with—and yes, this means every single person, even those you may have worked with for years without a single problem.
When it comes to using legal agreements to secure ownership of the work you hire an IC to produce, you have a couple of options. One option is to include a work-for-hire clause in their independent contractor agreement.
A work-for-hire clause states that you, not the IC, own all copyrights to the deliverables he or she produces for you under the agreement. Such a clause effectively makes it as if you created the work yourself, and as such, it allows you to use the work in any way you wish.
Just be sure to have the IC sign the agreement before he or she starts working. If not, it may be too late to acquire full ownership. Additionally, work-for-hire clauses only cover certain types of materials. According to the U.S Copyright Office, in order for a work-for-hire to apply, the work being created must fall into one of the following nine categories:
a contribution to a collective work, such as a magazine or anthology
a part of an audiovisual work or movie
a supplementary work, such as a forward, editorial notes, appendix, bibliography, or chart
a compilation created by selecting and/or arranging preexisting works
an instructional text
answer materials for a test
It is important to point out that if the work you hired an IC to create does not fall into one of these nine categories, a work-for-hire clause would not give you full ownership. This catches many business owners by surprise, who falsely assume having such a clause is all they need. If the work you are paying for doesn’t fit into these categories, you will need a different type of agreement.
Copyright Assignment For works that fall outside of the work-for-hire domain, you will need to include an assignment clause in the contractor’s agreement, in which the IC transfers some or all of their copyrights to your business. Without this clause, the IC would retain all rights to the work, even if the agreement contained a work-for-hire clause.
Adding an assignment clause to the IC’s agreement is fairly simple, and for maximum protection, you can even include such a clause alongside a work-for-hire provision. Simply add a brief clause stipulating that if the work is not deemed a work for hire, the IC assigns all copyrights to your company. Contact us today to ensure you have proper agreements in place.
Although both work-for-hire and copyright-assignment clauses are not difficult to create, because each work is unique, there is not a specific template or generic form that would cover every job. What’s more, the wording of each agreement is important, and some states require specific language for work-for-hire agreements.
Given this, you should steer clear of generic legal agreements you find online, and always have us, your Family Business Lawyer™ review your IC agreements, even if they were drafted by another lawyer. Whether you need your existing agreements reviewed or need help creating new contracts, we can support you in developing sound employment agreements that will give you the most comprehensive ownership rights possible with every contractor you hire.
This article is a service of Tammy Silvas, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.