Employers, Employees and Independent Contractors – Who Owns the Copyright?

I frequently encounter intellectual property disputes between companies and independent contractors doing work for those companies. Often, the disputes involve trying to determine who owns the copyright to materials developed during their working relationship. Whether you are an employer or a worker, failing to know your rights with respect to copyright can be a costly mistake.

Companies often get into trouble by falling into the trap of assuming that they completely own whatever their employees or contractors produce. By contrast, contractors and employees often unknowingly sign agreements that transfer copyrights to the employer.

Nature of Relationship

The first question to ask is whether the person who creates the copyrighted material is a contractor or an employee. This is a crucial question, because if the person is an employee and the material was created in the course of regular employment, then the employer has substantial rights to the material in question.

For instance, if a company hires someone whose job is to write updates or create graphics for the company’s Web site, the company is the owner of the material posted to the Web site. Simply put, an employer usually owns the copyright to material created by employees. In such situations, the law considers the company to be the author, not the employee.

It is more complex, however, with independent contractors. An independent contractor is someone who does work for a company but is not fully integrated into the company as an employee would be. In both the United States and Canada, determining whether someone is an independent contractor or an employee depends upon how much control the employer has over the person.

Workers who can refuse assignments, who set their own hours, use their own equipment and only get paid for the actual work performed are very likely to be contractors. By contrast, those who have no discretion to accept or reject assigned tasks, who work on a fixed schedule, are provided equipment and supplies by the company, and are paid a regular salary are very likely employees.

While a company may be entitled to more rights to materials created by employees, simply calling someone an employee doesn’t make it so. As the Supreme Court of Canada put it, “it is the true nature of the relationship” that matters, as opposed to the label given to the relationship by the parties.

In the example of the Web site developer, a contractor who developed the Web site would retain the copyright to the content or graphics created for the Web site (assuming there was no contract between them that covered intellectual property rights). The developer could then use the copyrighted material on other Web sites for other clients. In short, a company might spend a substantial amount of money for a contractor to create something for the company, only to find out that the contractor can then turn around and sell the same material to a competitor.

Even if there isn’t a signed contract, a company would not be without some rights to the material. At a minimum, the company would be permitted limited use of the material created by the developer. However, if the company wanted to sell the material or stop someone else from using it, then it would become a real problem, as the company would not have any right to do that. This is why it is critical to establish ownership and control of copyrighted materials before the work even begins.

Establish Ownership First

It’s common for those on one side of a dispute to misunderstand their legal rights. Often, in such cases, a business relationship can turn acrimonious and become a casualty. When one side learns the legal reality, it is often a shock. Imagine being a company vice president and having to explain to the CEO that your company doesn’t actually own the copyright on its own Web site. Or imagine being a contractor who sells software, only to learn you no longer own the rights to it.

If there is no contract, or the contract is inadequate, it is almost inevitable that at some point a dispute will arise as to who owns the copyright. In the absence of a written agreement, a company is taking a huge risk that could cost it the rights to copyrighted material. There is very little middle ground in these sorts of disputes. Either one side or the other owns the copyright. Accordingly, these disputes often become nasty and lead to litigation, which can be both risky and expensive.

There are also hidden costs that can arise from the loss of the working relationship. For example, if a computer programmer learns that a company is asserting ownership of software written by the programmer, the programmer may refuse to do any more work on the project, which could render the software useless. Or, other contractors may learn of the dispute and could become suspicious of dealing with the company.

Fortunately, these and many other potential problems can be avoided. In fact, there is little excuse for there ever to be such a problem. Simply put, before any business hires an employee or contractor to create copyrightable works, the company should insist upon a written agreement establishing in clear language what will be created and who will own the copyright to such work. When parties make efforts to establish clear boundaries before the work begins, acrimony can be avoided.

Similarly, if you do not have contracts with your employees or contractors governing your copyrights, the best time to remedy that is before any dispute begins. If handled appropriately and with proper legal advice, you can put out these fires before they start.