Tag Archive for work-for-hire

Hiring for your Development Company

April 9, 2008 Business Planning No comments

In the beginning, most independent developers don’t think about hiring employees. Much of the work is done on an independent contractor basis, and the projects are small enough to not require additional labor. However, once you earn a reputation and you begin pulling down more projects, you may find that hiring additional employees is necessary to manage your workload.

Employment and labor law differs from state to state, country to country. Workers’ Compensation, employee discrimination, and sexual harassment are all very serious issues that employers have to consider when setting up their business. There are also other logistics, such as managing payroll and tax withholdings that may require additional software or accounting to ensure state and federal tax compliance. If you are considering hiring employees, it’s always smart to consult an attorney that is versed in employment and labor law. Failing to do so could lead to failure to comply with certain jurisdictional guidelines. Furthermore, lawsuits by disgruntled former-employees can create serious problems for developers and can often be avoided if certain quality of life and human resource issues are addressed prior to the hiring process.

The following checklist has been adapted to address issues peculiar to developers.

1) Get your tax information squared away.

This means a) filing an SS-4 for your EIN for federal taxes, b) registering with your state’s labor department to pay unemployment taxes, and c) set up a payroll system for state and federal withholdings. Turbotax is a great program for setting up payroll tax withholdings and is the one currently recommended by accountants. To determine what forms you will need to file come tax season, visit the IRS website (federal) and the FTA (state) for more information.

2) Get insured

Employers are required to carry workers’ compensation insurance to cover on-the-job injuries. You have to comply with your state’s guidelines when you file for insurance, and you can typically do so in one of three ways—self-insurance, state-administered insurance plans, and private insurance. To get insured, first figure out what your state requires and/or permits. Next, do your homework and determine which option is best for your purposes.

3) Develop Safety and Quality of Life Guidelines

Companies are required to comply with OSHA (Occupational Safety and Health Act), which sets out the baseline requirements to ensure the safety and health of your employees. Health and Safety becomes an issue for developers when you’re dealing with a lot of computers in a small space. There is the possibility of fire, electrical outages, electrical shock, improper grounding, spills, and various other risks and hazards that must be addressed. You must also comply with any applicable municipal building codes. Make sure your electrical wiring is up to date and provide employers with guidelines for how to properly handle certain situations. Make sure your fire alarms are all fully functional, and have appropriately spaced and well-marked emergency exits in your place of work. You may also be required to admit the fire marshal to ensure building code compliance, so be sure to notify your employees on the day she or he will be in the building.

4) Comply with Department of Labor posting requirements

Visit the DoL website to determine what information and notices you need to provide to your employees. You are required to inform them of their rights under federal (and some state) law. Make sure to comply with the posting requirements as well.

5) Create Personnel Files

Every employee should have their own file that contains their application, their signed NDA, their resume, other work related documents, their I-9 and their W-4. The file may also include employee evaluations, complaints, and other information relevant to their employment. Any medical information MUST be kept separate from the main file and locked away due to HIPPA and state health care privacy laws. Disclosure of any health care related information could lead to both civil and criminal sanctions depending on your state’s laws.

6) The employee handbook

Your employee handbook should describe office procedures, complaint reporting requirements, sexual harassment policies, anti-discrimination efforts, disciplinary measures, and confidentiality requirements. It should describe how you want your employees to behave. It should also describe your goals as a company and your standard business practices. It is important to enforce your disciplinary procedures, particularly in the areas of confidentiality/non-disclosure to maintain protection of trade secrets. You may also want to describe any employee benefits that employees can apply for if you’ve taken steps to provide a 401(k) or health insurance policies to your employees.

7) Annual reporting

You need to fill out a form 940 or a form 940-EZ every year for your federal unemployment tax. A form 940 is required if you are required to pay unemployment taxes in more than one state or if you failed to pay all of your unemployment taxes by January 31 of that year. Otherwise you may fill out the 940-EZ. You are also required to pay those taxes you withheld in you employees’ paychecks. These withholdings account for federal income taxes, medicare taxes, social security taxes and FICA. You can find all of the appropriate federal filing information at the IRS website. In particular you will need to fill out forms 941, 943, 944, and an annual W-2. A copy of the W-2 must also be provided to employees. Note that these are just for your federal tax filings. You must also comply with state tax filings.

Caveat: A lot of developers hire programmers and designers from other countries. If those employees are relocating to the United States, they MUST obtain the proper work visas and fill out an I-9 form. For more information on I-9, visit the USCIS website.

With each new employee that you hire, you must do three things:

1) Notify your state’s employee reporting agency;

2) Every new employee must fill out an I-9 to show that they are allowed to work in the U.S. This is required for both US and non-US citizens.

3) Have the employee fill out a W-4 and withholding allowance certificate.

 

What is a Work-for-Hire?

March 23, 2008 Contracts No comments

A lot of agreements
will contain language similar to this:

“XXX agrees that all
work performed in connection with XXX’s services and all derivatives thereof
shall constitute “works made for hire” as that term is defined under 17 U.S.C.
sec. 101 and the author and owner of the work made for hire is Y Corp.”

This can create
confusion for some people, especially for independent contractors. Does a work
for hire agreement create an employer/employee relationship? The short answer
is no. A Work made for hire determines the ownership of the work performed and
not the actual relationship of the parties.

A “work for hire” or
a “work made for hire” is a copyright term of art. The definition is spelled
out in § 101 of the Copyright code.  Works made for hire are property of the
contracting party or employer. If a company hires you as an employee, any work
you do for that company is a work for hire and is considered owned and authored
by the company. Similarly, if you are hired as an independent contractor for a
project and your contract contains a work for hire provision (like the one set
forth above), the work you do in connection with that project is deemed a work
made for hire.

The independent
contractor relationship is a bit trickier than the more straightforward
employment relationship. The definition is narrowly tailored to include: “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..
if the parties expressly agree in a written instrument that the work shall be
considered a work made for hire.”

An independent
programmer contributing to a game would probably fall under the “contribution
to a collective work” category. However, the language above means a couple of
things for the contracting party/company.  

1) The contract MUST
contain language like that stated above—i.e., it must clearly state that the
work is a work made for hire as that term is defined under 17 U.S.C. sec. 101.
This isn’t negotiable.

2) The contract
should also contain an assignment provision on the off chance that the
independent contractor’s work doesn’t fall under one of the work for hire
categories. It should also address droit morale and other author rights that
may or may not be waivable.

An assignment of
rights will look something like this:

“In any event, XXX
does hereby assign, transfer, and set over to Y Corp., its successors and
assigns, one hundred percent (100%) of XXX’s entire right, title and interest
in and to all works in connection with Z Project and all derivatives thereof (individually
and collectively herein “Works”), including without limitation any and all
so-called “moral rights” in and to Works, together with all copyright therein
throughout the world and any and all renewals and extensions of copyright
therein now known or hereafter existing under any law, rule, statute and/or
regulation now known or hereafter enacted, and including without limitation
exclusive rights to administer the Copyrights to Works. Works are the sole and
exclusive property of Y Corp free from any claim by XXX or any other person or
entity… XXX hereby waives any and all moral and author rights held by XXX in
connection to Works throughout the world to the extent that those rights are
waivable.”

For the sake of
brevity, I’ve cut that down a bit. It’s saying that XXX (the independent
contractor) is assigning/transferring all of his remaining rights in and to his
work on the project to the contracting company. It also says that he has waived
his foreign moral and author rights to the extent that they are waivable (some
are not).

Here’s a brief and
by no means all-inclusive list of things you should have in your agreement if
you are the contracting party (i.e.,
the company):

1) The words “work
for hire” or “work made for hire” and reference to sec. 101 of the Copyright
Act;

2) An assignment provision
assigning/transferring all rights in and to the desired work, including any and
all rights that may arise at some future time;

3) A waiver of any
and all moral and author’s rights to the extent that they are waivable (this is
important. Failing to include “to the extent that they are waivable” may cause
the contract to be voided in some countries);

4) A specific
description of the works deemed as “works made for hire”.

Here are some things
you want if you are an independent
contractor:

1) A statement of
any work that is being contributed to the project that should NOT be deemed a
work for hire—for instance, if you’re bringing in specific know-how or a
program you previously wrote, that needs to be distinguished from the work you
are doing as a work made for hire. You want to include an addendum setting
forth everything you are bringing in to the project;

2) A retention of
rights for those things you are bringing to the table;

3) A clear statement
that any and all work performed outside the scope of the contracting party’s
particular project by the independent contractor is the independent contractor’s
sole and exclusive property (unless it too is subject to a work-for-hire
agreement, of course) and/or is not subject to the work made for hire
agreement. If you already know you are going to be working on something else,
you may want to consider spelling that out as well.

4) If you are
bringing in propriety know-how or your own trade secrets, you will definitely
want a NDA protecting your interests and prohibiting the misappropriation of
those trade secrets by the company. Limit the use of those trade secrets and
processes to the particular project in question, and take steps to retain the
confidentiality of those trade secrets.

 

Happy Easter!

Confidentiality and Non-Disclosure Agreements

March 21, 2008 Contracts No comments

What is a NDA?

A NDA, or Non-Disclosure Agreement, is a contract between two or more parties whereby one of the parties promises the other (or the parties promise each other) to not divulge proprietary information to third parties. In English, it’s a promise to keep quiet about trade secrets, business practices, and other information acquired on the job/during negotiations/in the course of doing business that is not publicly known. The contract defines what constitutes proprietary information that cannot be disclosed and may also state the foreseeable damages for breach of the agreement. The existence of a non-disclosure agreement permits the injured party to sue for damages on the contract in the event of a breach (in other words, if the other party to the agreement shares proprietary information with a third party/competitor).


Who needs them?

Any developer, designer, artist, or other development team member is probably familiar with NDAs. If not, review your employment agreement—many employment agreements contain covenants (i.e., restrictions) such as covenants not to compete, non-disclosure, and confidentiality clauses.

Any company or individual who wants to keep his or her ideas within the four corners of the office needs a NDA. You’ll almost always see NDAs in an employment context, particularly in the areas of technology and science. They are also common in a business negotiation context between two or more companies. In those cases, the agreements may be mutual. NDAs are a standard industry practice in software, tech, and game development companies because often the ideas and processes used by that company is the source of the company’s success. These are things that aren’t always protectable under standard Intellectual Property Laws via Copyright, Trademark, or Patent. A particular way to manipulate software or a game engine to create a desired effect, or the specific process of a game mechanic, may be proprietary information even if it isn’t a patented process. There is also confidential information, such as future plans that have not been implemented yet, that must remain within the four corners of the company to preserve that company’s competitive edge. 

What constitutes a trade secret?

A trade secret can be many things– valuable ideas and information, the communications and bargains made during negotiations, or special "know-how" like a manufacturing process or a specialized customer list—anything that gives the company a competitive advantage that would have a potentially damaging effect on the profitability and/or well-being of a company if disclosed to third parties or competitors.  The agreement defines the scope of proprietary/protected information, but trade secrets can’t rely on NDAs alone to remain safe. A company must adopt stringent business practices to keep trade secrets protected. Marking documents as confidential, prohibiting lower level employees from having access to trade secret information and prohibiting third parties from observing processes and methods intended as trade secrets, and generally keeping a tight lid on any information that needs to remain confidential, will all help in protecting your trade secrets and the NDAs you have in place.

Anyone who uses the improperly obtained trade secret to the harm of the
company may be subject to damages for misappropriation of a trade
secret, which may include 1) profits the plaintiff has lost as a result
of the misappropriation, 2) a reasonable royalty for the defendant’s
use of the trade secret during the time at issue, or 3) the amount of
profits the defendant made a result of the misappropriation. The
Uniform Trade Secrets Act also authorizes punitives for willful or
malicious trade secret misappropriation.  Otherwise the damages are
limited to damages on the contract, or projected profits lost as a
result of the disclosure.

What a NDA protects

A NDA protects trade secrets and other proprietary/confidential information as those terms are defined under the terms of the Agreement. For instance, a NDA may define confidential/proprietary information as:

        "Invention description(s), technical and business information relating to proprietary ideas and inventions, ideas, patentable ideas, trade secrets, drawings and/or illustrations, patent searches, existing and/or contemplated products and services, research and development, production, costs, profit and margin information, finances and financial projections, customers, clients, marketing, and current or future business plans and models, regardless of whether such information is designated as "Confidential Information" at the time of its disclosure." — Sample Agreement

    Once defined, the Agreement goes on to state what constitutes a disclosure. A disclosure usually means any unauthorized statement or communication concerning proprietary information to third parties, with the exception of information already publicly known or information readily discoverable by  third parties by methods or means outside of confidential company communications. The Agreement may also set forth a damages provision. NDAs don’t necessarily create a confidential relationship, as a confidential relationship is often assumed in an employment context. However, it does put the employee on notice of the specific confidential he or she is not authorized to disclose. 

What an NDA does not protect

    Obviously, NDAs and Trade Secrets don’t protect information that’s publicly available, nor will it protect anything that is discoverable by ordinary means outside of company communication. For instance, if a company employs a business practice that is standard and widely used in the industry, the use of that business practice would probably be discoverable by a outside observer without any kind of unauthorized communication. That kind of information typically isn’t protected by Trade Secret laws or a NDA.

Practically speaking, once a person breaches a NDA, the harm is already done. While you can  get an injunction or TRO (temporary restraining order) to prohibit further injury, you can’t make people forget what they already know. The most you can get are damages (if any can actually be shown), so really a NDA only goes as far as you can trust the person to keep quiet.

If you need more than just this basic primer, check out Web & Software Development: A Legal Guide.