Creating Profits for Someone Else

In small business it is tempting to do a lot of work on a handshake and worry about the details later. This often works, and works well.

It tends to stop working when one party is making the money, and the other is not, or the relationships between the parties break down.

Doing Business on a Handshake Works Until Someone Wants Money

A recently reported court case is a great practical example – EdSonic P/L v Cassidy [2010]

Cassidy worked with EdSonic to adapt some teaching materials into an online format for sale. They were her materials to start with, but EdSonic had the idea to put them online. Cassidy was promised shares in EdSonic and royalties from sales of the online materials.

Cassidy must have some skills because at about the same time she was asked to write some material for the Property Council of Australia for its own online courses. She didn't want the hassle and paperwork of setting up as a sole trader so she asked EdSonic to sign the contract for the work and then pay her. EdSonic did.

There was a breakdown in the working relationship between Cassidy and the director of EdSonic and EdSonic claimed ownership of the material that Cassidy had developed; all of it. Of course, Cassidy didn't agree and the Court was asked to sort it out.

The Employer claimed ownership of ALL the copyright material produced

EdSonic relied upon a provision in the Copyright Act (section 35(6)) [Australia] which says that copyright material created by an employee as part of his or her employment or contract of service, belongs to the employer.

So the court had to work out what the combination of shares, royalties and employment benefits worked out to for the teaching materials and the Property Council Materials.

The Court had to figure out:

  • whether or not Cassidy was an employee of EdSonic and if she was,
  • whether or not the online materials, or some of them, were produced as part of her employment.

What the Court decided was that there was not just one answer, with evidence suggesting that Cassidy was AND wasn't an employee. The Court decided that the Cassidy kept copyright in the teaching material she was adapting, because she was doing that work under and agreement that she would receive shares and royalties, rather than under a contract of employment.

On the other hand, even though the PCA approached her directly to complete their work, she actually performed the work under an employment contract with EdSonic, so that copyright did belong to EdSonic.

So if your employees are off doing their own thing, in your time or theirs, don't just assume that you can have a piece of the pie.

Likewise, employees need to think about the joint ventures and other agreements they are entering into with their employer and whether that means they do or don't get a piece of the pie in the end.

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