Labor and employment issues are frequently triggered in the entertainment space, particularly in California. Some of these issues are well-known by practitioners in both areas of practice, while others can be a bit more obscure. This article addresses one important area of overlap that is often the source of confusion for practitioners and their clients alike who, unbeknownst to them, have created employment relationships with their commissioned independent contractors, simply by including standard, boilerplate copyright language in their contracts.
Under U.S. Copyright Law, only the author of a work can rightfully claim the copyright in that work. Obviously, when you have a number of “authors” contributing to a creative work – which happens frequently in music, film, television, etc. – joint authorship in that work can become problematic if not impossible to manage.
As a result, the Copyright Act created what is known as a “work made for hire,” i.e., a work prepared by an employee within the scope of his or her employment, OR a particular type of work specially ordered or commissioned for use, where expressly agreed upon in writing. In such instances, the employer or person commissioning the work is considered the “author” of the work.
It is common within the field of entertainment for individuals and companies alike to insist that talent – whether it be actors, writers, illustrators, or any other myriad of creative contributors –sign a “work made for hire” agreement. There are a number of benefits to having a “work made for hire” agreement in place – most notably, the person or company can engage a number of creative individuals to contribute various elements to an overall work, such as a film or musical recording, and that person or company can then own and control the work as a whole, for the entire duration of its copyright.
Despite its significant benefits under Copyright Law, there are some serious ramifications in California for companies and individuals who believe they are simply commissioning a work of authorship from an independent contractor. While the Copyright Act makes a distinction between “employees” preparing a work within their scope of employment, and commissioned authors, California Labor Code § 3351.5(c) defines any person while engaged by contract for the creation of a specially ordered or commissioned work of authorship to be an “employee.” This is also the case under California Unemployment Insurance Code §§ 686 and 621(d).
Suddenly, your consultant or independent contractor may be entitled to minimum wage, overtime, back taxes, penalties and interest, rather than the flat fee that you initially paid them for their contribution to your creative project. California also requires employers to register with the EDD within fifteen days after paying an employee in excess of $100 in wages, to maintain workers compensation and unemployment insurance, and to post certain notifications for its employees. While the creation of an employment relationship comes as no surprise to major film studios or record labels, the growth of the independent market, and use of boilerplate contracts secured online for a fraction of the cost of hiring an attorney, have exacerbated this problem.
If you are hired to consult an entertainment company or individual producer who needs to engage other creative individuals on their project, there are a few options to consider to help avoid creating an unintentional employment relationship where none was ever contemplated. First, consider commissioning the work directly from a loan-out company for the talent, if possible, as the California Labor and Unemployment Insurance Codes relating to works made for hire apply to individuals, rather than entities. Second, consider using transfer and assignment language, in lieu of the “work made for hire” language. While such transfers can be terminated in the future (17 U.S.C. §§ 203 and 304) and therefore are not as beneficial as the work-made-for-hire, the termination of transfer rights is not automatic, and must be exercised under stringent notification and timing requirements. On the balance, use of this language may be preferable under certain circumstances in order to help circumvent the accidental creation of an employment relationship in the State of California.