Most agency contracts say the client owns the code. Most agency subcontracts say the agency owns it, usually in one line borrowed from a template, and that line is often the wrong one. If you hand overflow work to a subcontractor and the paperwork relies on the phrase "work made for hire," the client may not own what they paid for, and in California you may also have made the subcontractor your employee.
Neither problem shows up while the project is going well. They surface when a client's lawyer runs diligence before an acquisition or a funding round and asks for the chain of title on the repository.
What does "work made for hire" actually mean?
The phrase is defined in the US Copyright Act. According to 17 U.S.C. § 101 (as published by Cornell's Legal Information Institute and checked on 30 September 2026), a work made for hire is one of two things. Either it is "a work prepared by an employee within the scope of his or her employment," or it is a work "specially ordered or commissioned" for one of nine listed uses, and only if "the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire."
The nine uses are a contribution to a collective work, part of a motion picture or other audiovisual work, a translation, a supplementary work, a compilation, an instructional text, a test, answer material for a test, and an atlas. Custom application code is not on that list. A clause in your subcontract cannot add a tenth category.
So there are really two routes to "work made for hire" for a contractor's code: the contractor is legally an employee, or the work happens to fit one of the nine boxes. For a subcontractor engineer building a client's web app, neither is something you should want to bet a repository on.
Why is the employee route a trap?
In Community for Creative Non-Violence v. Reid, decided on 5 June 1989, the US Supreme Court held that whether someone is an "employee" for this purpose is decided by the general common law of agency, not by a label in a contract. The Court listed factors including the skill required, who supplies the tools, the location of the work, the duration of the relationship, the method of payment, and the tax treatment of the worker, and said no single factor is decisive (Cornell LII, case text).
Read that list as an agency owner. A subcontractor with their own laptop, their own company, a fixed-fee or invoiced arrangement and several other clients is an independent contractor on nearly every factor. That is exactly the relationship you built on purpose. The moment you start controlling their hours and tools so the employee test comes out your way, you have taken on employer obligations to get an IP outcome. That is a bad trade.
What does California add?
California adds a second problem. Labor Code § 3351.5(c) defines "employee" to include any person "engaged by contract for the creation of a specially ordered or commissioned work of authorship in which the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire," where the commissioning party obtains ownership of the copyright (text as published by FindLaw, checked 30 September 2026). Unemployment Insurance Code § 686 does the same for the definition of "employer": the commissioning party "shall be the employer of the author of the work for the purposes of this part" (FindLaw, same date).
In plain terms, a "work made for hire" clause in a contract with a California-based individual can make you their statutory employer for workers' compensation and unemployment insurance purposes, even though the clause probably does not work as a copyright matter for software in the first place. Whether it reaches a particular engagement depends on who the author is, where they work, and which law governs. That question is for your counsel. The point for an owner is narrower: the clause that feels like the protective one is the one with a cost attached.
What should the clause be instead?
The Copyright Act has a plainer tool. Under 17 U.S.C. § 204(a), "a transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner's duly authorized agent" (Cornell LII, 30 September 2026).
That is the whole mechanism: a signed written assignment from whoever owns the copyright. No employee test, no list of nine categories, no California employer status. It is also why an email saying "of course the code is yours" is not enough. A document has to exist, and the right person has to have signed it.
Where does the chain break in a real subcontract?
Picture a 12-person agency that signs a build with a client, then brings in a four-engineer subcontractor team to cover the overflow. Ownership has to travel down four links and back up again: client, agency, subcontractor company, and each individual engineer.
Copyright starts with the person who wrote the code. If an engineer is a contractor of the subcontractor, the subcontractor gets ownership only if the engineer signed something that gives it. The agency gets it only if the subcontractor signed something that passes it on. The client gets it only if the agency's agreement assigns it, and assigns it on payment, not "on request." A gap at any link is invisible until someone asks for the paperwork.
Four questions find nearly every gap:
- 1.Does the subcontract contain a present assignment to the agency ("hereby assigns"), rather than a promise to assign later?
- 2.Does the subcontractor have signed assignments from each individual who touched the code, including freelancers it pulled in without telling you?
- 3.Does the agency's own client contract assign to the client, and does its timing match what the subcontract gives you?
- 4.Is there a carve-out for the subcontractor's pre-existing tools and libraries, with a licence for the client to use them, so nobody discovers a proprietary build script in production?
None of this is exotic. It is a short amendment, and a lawyer can write it once for all your subcontracts.
When is a subcontract the wrong answer?
If a client's master agreement bars subcontracting outright, or requires every person on the work to be your named employee, no clean assignment chain fixes it, and you should hire or decline the work. The same goes for work where the client needs an employee-only security posture. An honest vetting process, like the one in our guide to vetting a global development partner, tells you early whether a subcontract fits the job at all.
Before the next handoff, pull your current subcontract template and search it for "work made for hire." If it is there, ask your counsel whether it should be replaced with a present assignment plus a pre-existing-IP carve-out, and whether any California-based individual ever signed it. Then trace one live project end to end: can you name the signed document behind every link from the client to each engineer?
The margin side of the same arrangement is covered in the economics of white-label development, and the day-to-day handoff side in our write-up on managing an offshore bench. If you are an agency owner weighing overflow capacity and want the assignment chain and a paid pilot settled before anything client-facing depends on it, see how our partner arrangement works, look at a dedicated team built for you if a subcontract is not the right shape, or tell us the scope. This post is general information, not legal advice.
Sources
- Cornell LII: 17 U.S.C. § 101, definition of work made for hire
- Cornell LII: 17 U.S.C. § 204, execution of transfers of copyright ownership
- Cornell LII: Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989)
- FindLaw: California Labor Code § 3351.5
- FindLaw: California Unemployment Insurance Code § 686