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Work Made for Hire

A "work made for hire" is "a work prepared by an employee within the scope of his or her employment" (Copyright Act, Section 101). The two criteria for work made for hire are 1) that it be prepared by an employee, and 2) that it be prepared within the scope of his or her employment. The term "work" typically refers to intellectual property rights, such as sermon materials, books, and music.

The criteria to determine if an individual is an employee is the same as the criteria used for federal income tax reporting. Some pastors are considered self-employed for income tax reporting purposes but may still be considered employees for work for hire purposes.

Work prepared within the scope of an individual’s employment is a work created during regular working hours, on the employer’s premises, using the employer’s staff and equipment. Examples of work made for hire relating to ministries include sermons, books, articles, dramas, and music.

Example: An assistant pastor of a church wrote a book on church drama. He worked on the book during regular working hours at the church utilizing the church computer and his secretary. The book meets the criteria of a work made for hire.

"In the case of a work made for hire, the employer or other person for whom the work was prepared is considered the author . . . and, unless the parties have expressly agreed otherwise in a written instrument signed by them, owns all of the rights comprised in the copyright" (Copyright Act, Section 101[b]). Therefore, work made for hire such as a book or sermon is the property of the employer unless expressly agreed otherwise in a written contract.

Although creating a written agreement legally transfers the copyright of a work made for hire to the employee, the transaction may trigger IRS intermediate sanction regulations, which prohibit excessive compensation for employees of a nonprofit. This may occur because the work made for hire is technically a ministry resource, likely with a future financial benefit. If the work given to the employee produces a substantial amount of income, it may result in excessive compensation. If work made for hire is found to be excessive compensation by the IRS, the intermediate sanctions penalties will be applied to the employee.

If intellectual property rights are owned by an individual rather than the employer, it is important that the rights be defined as owned by the individual from the outset and never produced as a part of the functions, duties, and compensation for services rendered to the organization. In such circumstances, intellectual property rights are never "granted" by the employer, and excessive compensation issues do not come into play.

It is important that ministries address this issue proactively. A document should be created outlining copyright law and the ministry’s policy on written agreements transferring ownership of work made for hire. This policy should be communicated immediately to current employees and upon hiring of new employees so that both employee and employer understand who owns what from the beginning. It is essential that ministries are aware of what constitutes a work made for hire and the applicable law.

A recent and prominent example of the importance of a written work made for hire policy is the Martha Graham case. Martha Graham School and Dance Foundation, Inc. v. Martha Graham Center of Contemporary Dance, Inc. 224 F. Supp 2nd 567 (2002) Martha Graham was a great pioneer of modern dance and died in 1991 at the age of 96 years after a lifetime of creating dance routines.

Ownership and work made for hire policies were not established between Martha Graham and the dance center and school she founded. Therefore, after her death, a dispute arose between her heir and the dance center and school for the rights to over 70 great dance works created by her before and during her employment with the organizations.

The key to ownership came down to whether Graham owned the dances at her death? if so, they belonged to her heir. But if the center and school owned them at her death, they would continue to own them. After a six-day federal trial in 2002, the court applied the work made for hire copyright law and determined that 45 routines were owned by the center and school, five belonged to those who had commissioned them, one belonged to the heir, ten were in the public domain, and no one could prove membership of nine routines.

Sample Work Made for Hire Policy. In the event that an employee’s job responsibilities require the creation of intellectual property, unless otherwise agreed to in writing between such employee and the organization, any intellectual property created by an employee in performance of their respective job duties shall be owned by the organization as a work made for hire under the Copyright Act of 1976. As such, the organization retains all rights to the use, duplication, distributions, and sale of all such materials.

 


This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

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