23 May 2011

Who owns this IP? Independent contractors vs employees in IP ownership disputes

by Jim FitzSimons, Alexandra Bridges

Generally in the workplace context, any intellectual property (IP) created by an employee in the course of their employment is, in the normal course, owned by the employer.[1]

However, this is not the case for independent contractors, who are presumed to own the proprietary rights to any intellectual property that they create. The distinction between independent contractor and employee is therefore a very important one in relation to IP that has not been created pursuant to a clear contractual relationship.

The recent tax case in the Federal Court of On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3) [2011] FCA 366 serves as a useful restatement of the main principles to apply when determining whether someone providing services for hire is an independent contractor or an employee. Although this case is predominantly a superannuation and industrial relations decision, it has broader implications that may be useful in an IP context.

The facts

On Call Interpreters and Translators offered interpretation and translation services through a panel of interpreters whose services were engaged whenever a job arose that matched their language skills. The interpreters were free to reject the job and to work for other companies.

In 1989 the Australian Tax Office had advised that it considered the interpreters to be independent contractors. However, the ATO recently changed its mind and brought legal proceedings against On Call Interpreters and Translators for its failure to pay the required superannuation contribution for its employees. One of the major issues for the court to decide was therefore whether the interpreters were employees or independent contractors.

How to know the difference?

It is not a clear-cut task determining whether someone is an independent contractor or an employee. The problem arises as both independent contractors and employees provide their personal services for hire. It also does not help if the contract states explicitly whether a person is being hired as an independent contractor or as an employee, as the courts will look beyond contractual descriptions to the substantive nature of the relationship.

The courts will look at a range of factors, none of which is determinative. For example, does the person have a business name and ABN? Do they advertise their services, have goodwill attached to their business or hold their own insurance? In order to determine whether the translators were independent contractors or employees the Court asked:

"is the person performing the work an entrepreneur who owns and operates a business; and, in performing the work, is that person working in and for that person’s business as a representative of that business and not of the business receiving the work?"

If the answer to that question is "yes", the Court stated, then the person is likely to be an independent contractor. If "no", then the person is likely to be an employee.

In this case, although the interpreters working at On Call Interpreters and Translators Agency considered themselves to be independent contractors, the court found that in the majority of cases they were not. Generally, they did not have business names (although they had an ABN) and they did not poach clients, have goodwill attached to a business, advertise their services, sub-contract or hold their own insurance. They were therefore, for the most part, employees and not independent contractors.

Conclusion

An employer has a much stronger claim to IP rights over IP created by an employee than over IP created by an independent contractor. While it is always better to make contractual provision for IP ownership in the first place, in situations where a contract is silent as to IP ownership rights, it is important for an employer to know whether they are dealing with an employee or an independent contractor.

While none of the factors listed by the Court in On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3) is determinative, it is useful to be aware of the general hallmarks of an independent contractor, versus an employee, in any IP ownership disputes.

You might also be interested in ...

[1] See, for example, the Copyright Act 1968, section 35(3), and the Designs Act 2003, section 13(1)(b). For a recent decision relating to the allocation of copyright in an employment context, see EdSonic v Cassidy [2010] FCA 1008.Back to article

Related Knowledge

Get in Touch

Get in touch information is loading

Disclaimer

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.