Master or servant – Who owns the fruits of labour?

Master or servant – Who owns the fruits of labour?
17 Oct 2019

The existence of an employment relationship is a key factor in determining ownership of intellectual property (IP). It is generally accepted, in terms of our common law, that IP created by an employee in the course and scope of employment, is owned by the employer.

An employer may be described as any person who employs a person in exchange for remuneration, and who permits such person to assist him in conducting his business. An employment relationship exists where an employee is subject to the control or direction of the employer; the employee works or renders services only to the employer; the employee is provided with tools of trade and equipment by the employer; the employee’s hours of work are subject to the control of direction of the employer; and the employee is economically dependent on the employer.

In an employment relationship, an employee has a duty to act in good faith towards his employer. This fiduciary duty includes a duty not to work against an employer’s interest, not to compete with the employer, not to make profit at the expense of the employer, a duty to act honestly, and a duty to promote and protect the employer’s business.

A 2008 SCA judgment dealing with ownership of IP created in the course and scope of employment under a contract of service (King v South African Weather Services 2008 BIP 330 (SCA)) indicates that the phrase ‘in the course of employment’ is a standard concept in employment law; that the phrase is clear and does not require a broadening or narrowing interpretation; and that a practical and sensible approach in respect of the facts will usually produce the correct results. In this judgment, the Court also warned against developing generally applicable rules to determine whether IP was created in the course and scope of employment, but rather that the circumstances of each case should be considered.

A useful question to ask is whether the IP would not have been created but for the employee’s employment with the employer. A further practical test is to ask whether an employee would have been in breach of his contract of employment or in breach of a duty towards the employer, if he had been requested by his employer to undertake a task but refused to do so. If the answer to either of these questions is YES, then it is likely that any IP resulting from the performance of that task is created in the course and scope of employment and will be owned by the employer.

This seems simple enough but an employment arrangement may not be that simple. What of where an employee is jointly employed or where he is seconded to another entity by his employer?

Secondment may occur upon agreement between the employee, the employer and the entity to which the employee will be seconded. It is possible that a seconded employee may be regarded as an employee of both the employer and the entity, depending on the circumstances of the secondment. In these circumstances, it might not always be clear who the owner is of any intellectual property (“IP”) created in the course of the secondment relationship, in the absence of an agreement between the parties.

The question of ownership is further complicated in a secondment relationship, where the scope of an employee’s work in respect of his employer and the host entity to whom he is seconded, is not mutually exclusive. If there is an agreement between the employer and the host entity regarding ownership of the IP resulting from the secondment, then the question should be quickly resolved. However, absent such an agreement, there is risk of a dispute over IP ownership.

The answer may come down to determining who the employer is in respect of the duties performed, and determining what the state of affairs is when an employee’s scope of work is not mutually exclusive and his interests are conflicted.

A leading case on co-employment is Board of Executors Limited v McCafferty 2000 (1) SA 848 (SCA) (the “McCafferty case”) in which a subsidiary company had administrative responsibility for payment of an employee’s salary and benefits, and another subsidiary company exercised direct power of supervision and control over the employee’s daily tasks. The holding company of these two subsidiaries encouraged the development of the employee’s capacity. The Court held that the holding company had ultimate direct control over the employee’s activities and was therefore, at least, a co-employer of the employee.

If an employee is seconded to a host entity for a period of time, where the host entity is liable for the employee’s remuneration, exercises direct control over the employee’s tasks, and the employee’s tasks are outside the scope of his employment with his original employer, then it is likely that any IP created in the course of this secondment would belong to that host entity as his employer in respect of those tasks.

If, however, the scope of work is not mutually exclusive, there is room for interpretation. The agreement of the employer to second the employee to the host entity may be reckoned to be evidence of the employer’s consent for the employee to act in the best interests of the host entity (even if this is at the expense of the original employer). Alternatively, as in the McCafferty case, where one entity has direct power of supervision or control over an employee’s daily tasks, and another entity has administrative responsibility for payment of the employee’s salary and benefits, then the entities may be considered to be co-employers. In this scenario, it is likely that any IP created in the course of the secondment would probably belong to both entities as co-owners.

This article was first published in Business Brief

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(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)

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