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The Importance of Signing Agreements with Independent Contractors

By Bidisha Idnani and Sonjui Kumar Email By Bidisha Idnani and Sonjui Kumar
April 2015
The Importance of Signing Agreements with Independent Contractors

Is someone building a website for you? Developing software? Designing a brochure? It is important to address who will own copyrights for all such copyrightable tasks.

Many businesses hire third parties to assist them in building their websites, writing their marketing materials, and developing software. Each of those materials—the website, the brochure, and the software—are copyrightable. If you fail to discuss your expectations with the third party and sign the right agreement, you may find yourself in a legal battle over copyright ownership and infringement. Similarly, founders and key employees often contribute towards the core development of a company’s technology. However, if they have not signed assignment agreements transferring their rights to the company, the company may have to pay these parties later (sometimes twice) to ensure their rights over the software. These scenarios are unfortunately too common and entrepreneurs spend unnecessary time and money to correct situations that could have been easily addressed before the work began. The importance of getting an assignment from a software developer especially cannot be overstated. Knowing what to include in an assignment provision and clearly setting expectations beforehand will protect the rights of the business owners.

The Work for Hire Doctrine and Independent Contractors. Typically, a person who creates a work is the legally recognized author of the work. However, under the Work Made for Hire Doctrine, when an employee creates a work as part of his or her job, it belongs to the employer and not the individual employee. Keep in mind that the employee’s work must be done “within the scope of employment.” Therefore, if you are employing a programmer who has pre-developed software, without the proper contractual language, you may not be able to obtain rights to the pre-existing work. Additionally, a co-founder who is not being paid may believe that their work is being done outside their duties as an owner of the company, causing a question about ownership of their deliverables down the road.

Under U.S. copyright law, if you hire an independent contractor, the work must be specifically commissioned, it must be under one of nine enumerated categories under the statute, and there must be a written agreement. However, computer software does not fall under any of the categories. Therefore, an independent developer will not have to turn over his or her rights even if there is contractual language regarding work for hire in the contract.

Assignment Clauses. The way to circumvent the independent contractor limitation and the issue of pre-existing software is by placing an assignment clause in the contract. Once parties sign the agreement, the developer has effectively signed over his or her rights to the software to the company. However, precise language is required to obtain the exact rights your company may be seeking. Companies can demand a variety of rights, ranging from licensing rights to complete ownership. Therefore, the more precise the language of the clause, the less likely there will be room for debate. Some assignment provisions contain the right to modify the software and address topics such as transferability, and exclusivity. Depending on the needs of your company and the expectations of the developer, the language can vary significantly from contract to contract.

Steps to Take. When entering into an agreement with a developer, it is important to set the expectations upfront. Although companies are ideally pursuing the highest level of ownership possible, the developer may not be willing to relinquish all of their rights or may have plans to develop similar software for other parties, including competitors. Open communication between the parties can ease the negotiation process. If each party understands the other’s motivation for entering into the agreement, it is easier to address the potential sticking points, reducing costly litigation down the road.

More importantly, a thorough understanding of these issues will help your company obtain exactly what it has paid for.

[Business Insights is hosted by the Law Firm of Kumar, Prabhu, Patel & Banerjee, LLC (KPPB).
Sonjui Kumar is a founding partner in KPPB. Her areas of practice include general corporate law, complex commercial transactions, and trust and estate planning.
Bidisha Idnani is of counsel at KPPB. She was previously an Assistant Solicitor in Cleveland, Ohio.
Disclaimer: This article is for general information purposes only, and does not constitute legal, tax, or other professional advice.]

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