AB 5: COPYRIGHT IMPLICATIONS
Ivan Hoffman, B.A., J.D.
Editorial Note: In an effort to remedy the defects in AB 5, the California legislature recently passed and the Governor signed a new bill, AB 2257. (read that article) The new statute replaces Labor Code section 2750.3, and amends or adds other statutes.
However, the reader should read all the AB 5 articles on my site before reading the article about AB 2257 since my article refers to those prior provisions contained in AB5. Keep in mind though, that AB 2257 controls.
California laws under the provisions of AB 5 (the reader should read “AB 5: An Overview” as well as “AB 5: The Bona Fide Business-to-Business Rule”) will likely have significant implications under the copyright law for intellectual property creators and those who seek to acquire rights from them. As discussed in “Work Made For Hire Agreements Under California Law,” any party that might otherwise have been considered to be an independent contractor under California state law but who signs what amounts to a work made for hire agreement (as defined under federal law) is considered to be an employee and thus covered by California laws governing workers compensation and unemployment insurance (and perhaps other laws).
Again, let me remind the reader that AB 5 deals with workers and employers of all kinds but because I practice intellectual property law, this article and the others in this series cover only issues related to intellectual property creators and those who acquire intellectual property rights.
But AB 5 goes beyond the above provisions about work made for hire agreements since, as to most parties who are intellectual property creators and who might otherwise be considered to be independent contractors, they are made employees unless the provisions of the statute are complied with to show otherwise.
The United States copyright act of 1976 provides these definitions of when a work and an agreement related to that work is considered to be a work made for hire. Read “Work Made for Hire Agreements.” The statute states in part:
“A “work made for hire” is—
(1) a work prepared by an employee within the scope of his or her
(2) a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.
Under (1) above, the creator must be an actual employee at the time the work was created. Furthermore, the work must have been created within the scope of the employment, meaning that it was part of the job duties of the creator to create the work. Merely because an actual employee creates a work that is then acquired by the employer is not sufficient if the creation was not part of their job duties and scope of employment.
Under (2), a person who is not an employee but an independent contractor can still fall within the work made for hire concept but only within the express examples above, only if it has been specially ordered or commissioned by the hiring party and only if the parties have executed a written agreement declaring a work made for hire contract, generally speaking signing it before the work was created. (see above as to the implications under California law and “The Work Made for Hire Agreement: Further Issues (Revised 2018)”)
The Reasons It Matters
Operating as a work made for hire means that, absent provisions in any written agreement, the creating party is not entitled to royalties or credit. The term of copyright of such works are somewhat longer than those created in non-work made for hire situations. Further, the party engaging the work is deemed to be the author of the work and thus there is no real “transfer” of rights involved. Moreover, when there were issues about renewal rights in copyright, work made for hire issues were also relevant. Otherwise, during the first 35 to 40 years, there are few if any other meaningful differences between a transfer of exclusive rights compared to a work made for hire agreement.
Where these issues become important (other than as concerns workers compensation, unemployment insurance and other matters) is as to what are known as termination of transfer rights. Read the various articles on my site under the link “Terminations of Transfers.” And in this regard, both federal code sections which define the structure of termination of transfer rights (17 USC sections 203 (a) (1) and 304 (c)) expressly exclude work made for hire agreements from the operation of these rights. That means that any agreement which is a work made for hire agreement or any work created by a bona fide employee during the scope of employment is not terminable and thus rights “transferred” by that agreement cannot be “recaptured” This can mean a substantial loss of income to the creator or the creator’s heirs etc. and a consequent potential substantial gain to the original transferee (or its successors)
In Community for Creative Non-Violence vs. Reid, 490 U.S. 730 (1989), the United States Supreme Court was called upon to determine what “employee” and “scope of employment” meant within the context of the work made for hire statute. The Court stated in part at 490 U.S. 730, 740-741:
In past cases of statutory interpretation, when we have concluded that Congress intended terms such as "employee," "employer," and "scope of employment" to be understood in light of agency law, we have relied on the general common law of agency, rather than on the law of any particular State, to give meaning to these terms. See, e. g., Kelley, 419 U.S., at 323 -324, and n. 5; id., at 332 (Stewart, J., concurring in judgment); Ward v. Atlantic Coast Line R. Co., 362 U.S. 396, 400 (1960); Baker, supra, at 228. This practice reflects the fact that "federal statutes are generally intended to have uniform nationwide application." Mississippi Band of Choctaw Indians v. Holyfield, ante, at 43. Establishment of a federal rule of agency, rather than reliance on state agency law, is particularly appropriate here given the Act's express objective of creating national, uniform copyright law by broadly pre-empting state statutory and common-law copyright regulation. See 17 U.S.C. 301(a). We thus agree with the Court of Appeals that the term "employee" should be understood in light of the general common law of agency.
The Court then set out the factors it used, according to the “common law,” as to who is an employee for these federal purposes. It discussed the issue of “control” as the key factor and then added, at 751 and 752:
Among the other factors relevant to this inquiry are the skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party's discretion over when and how long to work; the method of payment; the hired party's role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party.
These factors seem to more or less track the California factors, both under Dynamex and, more significantly for purposes of “professional services,” under Borello.
The Court concluded that the sculptor was not an employee under those standards (and the work did not qualify under the second section of 101 above).
Thus AB 5 appears to operate to deprive the very parties that it was intended to help of potentially valuable rights and work. On the one hand, while it may make these parties potentially more “hirable” because, in hiring them, the acquiring party gains more rights, it does so at the expense of those being “hired.” A person (or business) is deemed to be an employee and thus has to give up valuable rights and that person’s (or business’) other choice is not to accept the work. Two bad choices.
Moreover, these intellectual property creators may be less likely to obtain work, especially if they reside or are legally based in California, since potential “hirers” face difficult burdens of proof as to the independent contractor or employee status of the parties they would like to engage. Furthermore, the “hirers” appear to be legally and financially conflicted since, on the one hand, they want to avoid the legal and financial burdens imposed on them if the creators are deemed employees but, on the other hand, if they are employees, the creations are likely to be deemed works made for hire by employees and that redounds to the benefit of these “hirers.” So since the burden of proof as to status is upon those who would be “hirers,” which choice will they make?
And in the end, the actual legal outcome of the determination as to employee or independent contractor is almost irrelevant since the chilling effect of “guessing wrong” by the hiring party (which has that burden of proof) is likely to make that party less likely to want to take the risk and instead, find another intellectual party creator in another state or another country.
Copyright © 2019 Ivan Hoffman. All Rights Reserved.
This article is not legal advice and is not intended as legal advice. This article is intended to provide only general, non-specific legal information. This article is not intended to cover all the issues related to the topic discussed. You should not rely on this article in any manner whatsoever and you should not draw any conclusions of any sort from this article. The specific facts that apply to your matter may make the outcome different than would be anticipated by you. This article is based on United States laws but the laws of other countries may be different. You should consult with an attorney familiar with the issues and the laws of your country. This article does not create any attorney client relationship and is not a solicitation.
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