Work Made for Hire: What Is It and How Does It Affect Your Business?

When you think of work made for hire, what comes to mind? Most people picture an employee-employer relationship. But did you know it can also appear in commercial contracts?

Work made for hire is a legal concept rooted in U.S. copyright law. A business can hire someone to create a piece of work and keep ownership of it. Both parties can benefit from the arrangement.

This blog post covers everything you need to know about work made for hire. We explain how it can affect your business — both positively and negatively.

What Is Work Made for Hire?

Section 101 of the Copyright Act defines work made for hire as:

“work prepared by an employee within the scope of his or her employment” or “a work specially ordered or commissioned for use . . . if the parties expressly agree to in a written instrument signed by them that the work shall be considered a work made for hire.” (1)

Work Made for Hire in Limiting Employees

In an employee-employer relationship, non-competition agreements typically state that any work an employee produces for their employer’s direct benefit belongs to the employer. This expectation is standard.

Consider an engineer at a large tech company who designs new products. They cannot take a new product design and use it for personal gain. If they walk away and compete using work they created while employed, a dispute follows. A cease and desist is often not far behind.

It is also worth noting that work made for hire can apply to independent contractor arrangements, not just employees.

Work Made for Hire in Commercial Contracts

Beyond the employee-employer relationship, work made for hire can show up in commercial contracts — sometimes to the contracting business’s surprise.

Consider this: you pay someone to help with an ongoing project. They create work loosely related to your business — a marketing campaign, a website, or a software application. There is a good chance the agreement states that work belongs to you. You may also see such provisions in master supplier agreements, master sales agreements, and SaaS agreements.

Do not assume a work made for hire provision is harmless just because it does not match the intended relationship. If you sign it, you agree to it. A broad clause can accidentally hand over your intellectual property rights – both pre-existing and newly developed – unless you limit or remove it.

A Real-World Example

Say Company A offers SaaS to hospitals nationwide. Hospital System X wants to use that software to streamline its medical records. The hospital requires Company A to sign its standard vendor contract. That form covers all service providers – with language that may or may not apply to any given deal.

That standard contract contains a broad ‘work made for hire’ clause. Under it, the hospital claims ownership of all deliverables and any intellectual property they contain. In practice, however, the hospital has no right to claim any portion of Company A’s software. Even so, these clauses often reach beyond copyrightable material. They can sweep up inventions, ideas, know-how, and other intellectual property rights.

Ask yourself: what rights might you accidentally give up by signing a contract with that kind of sweeping language? If the other party enforces that clause as written, protecting your intellectual property becomes very hard. This is true even if you never intended to hand it over.

Work Made for Hire Provision Examples

After reading, reviewing, and negotiating countless commercial contracts, I have come across ‘work made for hire’ in many forms — from a full article covering every way deliverables can be owned to a short clause buried in the boilerplate.

Here is a simple example:

“The Work Product shall constitute works made-for-hire belonging exclusively to the Client. To the extent that any Work Product does not constitute a work made for hire owned by the Client, the Service Provider agrees to assign and transfer all of its right, title and interest in such Work Product to the Client.”

Here is a portion of a more detailed version:

“All right, title and interest in any and all writings, ideas, inventions, know-how, designs, improvements or other property created during Consultant’s consulting relationship relating directly to the business of the Company, constituting copyrights, patents, trademarks, service marks and related rights or other forms of proprietary rights or information (regardless of whether any such copyrights, patents, trademarks and service marks or other rights have or may be registered) that are created, adapted or improved by Consultant (whether alone or in conjunction with any other person or employee), and all material created during Consultant’s consulting relationship that includes any of the foregoing (collectively, ‘Covered Material’), shall be owned by the Company and, to the extent that it includes copyrightable subject matter, shall be deemed a work made for hire for the Company within the meaning of the United States Copyright Act of 1976 and for all other purposes. If any Covered Material is deemed not to be work made for hire, such Covered Material is hereby assigned by Consultant to the Company, and Consultant shall not have or claim to have, under this Agreement or otherwise, any right, title or interest of any kind or nature whatsoever in such Covered Material.”

Read more: Everything You Need to Know about Non-Disclosure Agreements (NDAs)

How Work Made for Hire Can Either Benefit or Hurt Your Business

There are two sides to this arrangement.

What are the benefits?

You own the work product outright. There is no risk of the person you hired later claiming ownership or royalties. In addition, the work-for-hire designation helps establish your company as the legal author — useful for marketing. It also helps protect your trade secrets and confidential information.

This type of provision is especially valuable when you are hiring someone to create a specific deliverable for your business. Examples include:

• A manufacturer hiring an engineering firm to solve a specific problem with their product
• A company hiring a marketing firm to create blog and social media content
• A furniture designer hiring an intern to help develop new product lines

The Downsides to Watch For

One risk is accidentally creating an employer-employee relationship where none existed. For example, if a service provider qualifies as an independent contractor under IRS rules, but you control their work like an employer would, a court could reclassify the relationship. That opens the door to employment claims.

Another risk is losing flexibility over how you use the work later. If someone creates a deliverable that builds on their own existing code, you may not have the right to modify or distribute it freely. That limits what you can do with what you paid for.

When do you not need a work-for-hire provision?

Sometimes no ‘work made for hire’ clause is needed. This is common when you sell a product or service with no custom deliverables. Examples:

• A manufacturer entering a master sales agreement with a big-box retailer
• A software company providing a SaaS subscription to a local municipality
• A product reseller entering a master supply agreement to sell and install products on-site

Conclusion 

Work made for hire is a nuanced concept. It can protect your business or expose it, depending on how the clause reads and which side of the contract you are on. Before signing, understand what the provision covers.

Are you comfortable with the contracts your business signs? Our experienced contract attorney can help. Contact Nocturnal Legal to create standard form documents or to review and negotiate your existing contracts — so your interests stay protected.