Entering into work-made-for-hire agreements with California consultants can lead to significant problems under state law

I just read a useful reminder from attorney Sean Hogle. Take a look at California Labor Code section 3351.5(c). And suppose hypothetically that you engage an individual consultant in California to create a copyrightable work — let’s say, to translate some computer software from one programming language to another. The contract will probably provide that you’ll own the work product as a “work made for hire.” If that’s the case, then:

• According to California law, you’re required to get unemployment insurance and worker’s compensation insurance — and failure to do so can be punishable by up to a year in jail and a $10,000 fine under California Unemployment Insurance Code Sections 686 and Labor Code section 3700.5.
• California authorities might well come after you for failing to withhold state income tax, according to San Francisco lawyer June Lin, who said that it happened to one of her firm’s clients.
• Your contractor might later try to claim that, as an “employee” under the Labor Code definition, s/he was entitled to overtime and to employee benefits such as health insurance stock options, etc.

Sean Hogle suggests a possible way out of the dilemma: Skip the work-made-for-hire language, and instead include a present assignment (“I hereby assign . . .”) in the contract instead.

June Lin makes the same suggestion, and also points out that the individual contractor could form an LLC, in which case the hiring party could do the contract with the LLC instead of the individual.

See also this June 2008 article by Jones Day lawyers J. Patrick Toher and Shawn C. Helms.

Quaere whether these California requirements are an unconstitutional frustration of the work-made-for-hire provisions in the federal Copyright Act — see 17 U.S.C. § 101 (definition of “work made for hire”).