Works Made for Hire in California: An Exceptional State, An Exceptional Law

California is a state known for being exceptional, and its Labor Code is no different. While it is commonplace throughout the country for businesses to engage independent contractors to create work on their behalf, under California labor law those contractors can be deemed employees for specific purposes. That gives contractors new rights, and it creates significant issues for the many California businesses, especially in the creative industries, that rely on them.

The federal baseline: work made for hire.

Under the Copyright Act of 1976, the creator of a work owns its copyright. The Act, however, includes a provision for "works made for hire": an employer owns the copyright in works created by its employees, and in works created by independent contractors who sign a work-made-for-hire agreement for specially commissioned works. This lets a business engage a contractor to create, say, its website, and freely use the result because the business owns the copyright. It also allows brief, flexible engagements, filmmaking is the classic example, without the costs and obligations of the employment relationship, and it carries longer copyright protection: 120 years after creation or 95 years after publication, which matters to industries that live on archives, syndication, and licensing.

How California is different.

California Labor Code Section 3351.5(c) provides that a person engaged by contract to create a specially ordered or commissioned work of authorship, where the parties expressly agree in writing that the work is a work made for hire, is an employee for certain purposes. In other words, signing the very agreement that secures the company's copyright converts the individual contractor into a statutory employee, obligating the business to provide workers' compensation and disability coverage, regardless of contrary language in the contract. This California-specific rule opens businesses to liabilities few are aware of. It does not negate work made for hire, but it raises the cost and complexity of those engagements.

The workarounds, and their limits.

The most vigilant businesses engage only contractors that are entities (corporations or LLCs), because Section 3351.5 applies to individuals. That works, but many talented up-and-coming creators have not formed entities, and that talent exists across industries.

The other common alternative is a copyright assignment: replace the work-made-for-hire language with an assignment clause that clearly transfers ownership. An assignment, though, is best suited to works a company will use for a finite period, because Section 203 of the Copyright Act lets the author terminate the assignment between the 35th and 40th year after it is made, and that termination right cannot be waived by agreement. For works that still generate revenue decades later, think of a classic television series still running in syndication, a terminated assignment can force a costly renegotiation.

Since this article was first published, California has further tightened contractor classification generally, most notably through AB 5 and its ABC test. The details have shifted; the lesson has not: weigh the costs and benefits of each structure before you sign your next contractor agreement, not after.