Will a work-for-hire agreement protect your IP in California?

On Behalf of | Sep 29, 2023 | Business Law

Collaborating with independent contractors can be a strategic move for your business and a great way to supplement your workforce, especially when you need creative talent – but it also comes with inherent IP risks.

In recent years, companies have struggled to make sure that they have clear agreements about the ownership rights of any intellectual property that is created on their behalf. In a lot of states, “work for hire” agreements are used to make it clear that anything created by the contractor for the company automatically becomes the company’s intellectual property. Under the U.S. Copyright Act, that makes perfect sense – but California has its own rules.

Work-for-hire confers employee status

This is one of the most “employee-friendly” states in the nation, and California Unemployment Insurance Code Section 686 makes it very clear: If your agreement with a worker states that they’re producing “work for hire,” then they’re your employee – not an independent contractor.

This is true regardless of your intentions and the worker’s intentions for your relationship. That means that you need to tax the worker as an employee, and failing to do so can lead to significant financial penalties for your company.

In other words, a work-for-hire agreement will protect your intellectual property rights with a contractor but it will likely create other problems – and having to treat a contractor as an employee generally negates the benefits of using contractors in the first place.

Instead of blanket agreements with your contractors, you may want to investigate other legal avenues to mitigate your IP risks. You can include, for example, a sharply tailored non-disclosure agreement in your contracts with your workers and/or specifically address the ownership of any intellectual property by spelling out the ownership rights of whatever is created during a project.

IP risk mitigation strategies can get very complicated in the modern business environment, especially when state and federal policies don’t always intersect well. Ultimately, a carefully considered approach and experienced legal guidance can help you safeguard your company’s innovations and prevent you from tripping up in other areas.