I am asked often whether using a freelance contractor found on the web, such as designers found through Odesk or Elance, creates a valid work for hire agreement. In fact, the question of whether you own whatever your freelance contractor creates is the critical legal concern with using these freelance providers. The short answer is that the terms of service contained on both popular freelance sites provide that the creator transfers copyright ownership to the hiring party upon job completion and successful payment in full.
Work For Hire Agreements
An agreement signed directly by the creator under a work-for-hire situation would obviously leave no doubt whether the creator intended to retain ownership of any work(s). Your business should ask all freelance designers to sign a simple Work for Hire Agreement. Any contractors who have been hired through Elance or oDesk have already agreed to do so anyways under the terms of service. But, a work for hire agreement should absolutely be signed by your freelance designers if they have not previously agreed to such terms directly through a freelance provider forum.
This is yet another area where the law as yet to catch up with technology. I suppose the technically correct answer is that until a court of law decides the issue, we can only make an educated guess using the principles of established law. This would represent a fact pattern not yet seen by the courts: a work for hire dispute found on a freelance Internet forum whereby all parties have agreed to terms and conditions upon registration. This is worth discussing given the popularity of Elance and the growing popularity of oDesk.
We can take a look at the Copyright Act and previous cases like the Playboy case to help answer this question. There has to be a signed writing that expressly contemplates a work for hire arrangement for some work commissioned by the hiring party. A work for hire arrangement is made clear when you use Elance or Odesk under their terms and conditions. Is it a signed writing though? All users must click on a link acknowledging they have read and agree to the terms and conditions during the registration process.
Given the genesis of Internet law with electronic signatures, this type of assent shows acceptance of the terms under established electronic contract principles. Since you are hiring a contractor to create a work on your behalf, it is commissioned by your or your business. The critical question really boils down to whether the parties intended that it be a work for hire arrangement. Of course, this comes down to the specific facts in each instance.
However, I would be surprised if a court ever did rule that a valid work for hire arrangement does not exist with contractors found on Odesk, Elance or some other forum, provided the nature of all work as a work for hire is made clear during the registration process. In other words, it must expressly state a work for hire agreement is made with all contracts entered into for eligible works (and assign and transfer all copyrights over to the hiring party as a backup).
Beware of California!
California state law prohibits transferring copyrights from the creator to a client under any work for hire agreements unless the creator is also treated as an employee under state law. The law provides that one who commissions a “work made for hire,” as defined in Section 101 of the Copyright Act, is considered the employer of the creator of the work for purposes of workers’ compensation and unemployment insurance. (Cal. Labor Code §3351.5 and Cal. Unemployment Insurance Code § 686 (2009)). When an author creates a work on a “work made for hire” basis, that creator becomes an employee under California law.
Basically, this means your business MUST carry workers compensation insurance for any creator you hire who resides in California. In addition to being liable for failure to maintain workers’ compensation insurance, your company is also potentially liable for failing to comply with the requirements of the California Unemployment Insurance Code.You may even have to withhold federal and state taxes from any payments made to them. This includes any independent contractor you may find on Elance, O-desk, or some similar freelance exchange forum. California labor law requires that worker’s compensation insurance be purchased and in place before you sign a Work for Hire agreement and before any work is done and payment is made. It is a crime not to comply with this law and you could potentially be liable for up to a year in jail and/or a stiff fine.
This law could apply to your business even if it is not located in the State of California. Clearly these laws apply to a California business and a California resident creator. But the laws may also apply to a creator located in California that is engaged by a business located in another state.The reach of these laws through long arm statutes is not clear. This lack of clarity should make any Internet business, no matter where located, hesitant to engage a California creator. If you plan on entering into this type of relationship, I strongly urge you to seek a qualified California based business attorney to clarify the reach of California’s law on your out-of state business.
Using Licenses Instead
A copyright is essentially a bundle of rights. Thus, agreements involving the creator licensing various rights to use the work, but retaining all other rights, can be entered into. You don’t have to sign a work made or hire arrangement legally. If the designer is not an actual employee, the parties have flexibility in the type of agreement that can be reached. Licenses to use the content in a certain way for certain periods of time and which includes other rights can be used freely. But, again, you should still try to secure the full bundle of rights by a valid work made for hire agreement.