Since their release in 1978, hit albums like Bruce Springsteen’s "Darkness on the Edge of Town," Billy Joel’s "52nd Street," the Doobie Brothers’ "Minute by Minute," Kenny Rogers’s "Gambler" and Funkadelic’s "One Nation Under a Groove" have generated tens of millions of dollars for record companies. But thanks to a little-noted provision in United States copyright law, those artists — and thousands more — now have the right to reclaim ownership of their recordings, potentially leaving the labels out in the cold.The artists in question, along with many others, are in a position to enact the "termination rights" granted to them by the United States' 1976 Copyright Act. Under the Act, a creator who sells or otherwise transfers ownership of a copyright can terminate the transfer of that copyright, and therefore restore themselves to ownership of the copyright, after thirty-five years so long as the transfer occurred on or after January 1, 1978. This is of course problematic for record labels who have controlled the copyrights for decades and who rely on back-catalogue revenues for a percentage of their profits: over the next six years, an enormous number of extremely important back-catalogue works will see their termination rights activate: Back in Black by AC/DC (currently owned by Warner Music Group), Brothers in Arms by Dire Straits (likewise), The Gambler by Kenny Rogers (EMI), Purple Rain by Prince (Warner again), The Wall by Pink Floyd (Sony and EMI), Darkness on the Edge of Town by Bruce Springsteen (Sony again) and, probably most impressively, Off the Wall and Thriller by Michael Jackson (both Sony).
The Recording Industry Association of America's counter to the potential loss of income from these major back-catalogue works has been to argue that the musicians who created the works were employees rather than independent contractors, thus rendering the albums works-for-hire: in essence, the RIAA is arguing that musicians were hired by the record companies to produce music for them, and that the copyrights in the works were always theirs to begin with, thus rendering termination rights moot - work-for-hire is the most important exception to the general rule that copyright inherently belongs with the creator of a work.
Creators will challenge their status as employees if the work they have created is valuable or important enough for them to do so - the most recent and famous example is that of the estate of Jack Kirby, the legendary comic book artist widely acknowledged as the co-creator of Captain America, the Fantastic Four, the X-Men, the Hulk and Thor, among others. Kirby's heirs sought to terminate the purported transfer of copyright in Kirby's works to Marvel Comics, but their action was terminated by summary judgement when a district judge in New York decided that an agreement Kirby signed in 1972 was an admission that the work he had done for Marvel was stirctly work-for-hire. (The Kirby estate is attempting to appeal the decision.)
However, music companies will have a more difficult time establishing that the musicians who created the works were in a work-for-hire relationship. In Community for Creative Non-Violence v. Reid, the American Supreme Court case laid out many of the factors that can distinguish employees from independent contractors as regards work-for hire:
In determining whether a hired party is an employee under the general common law of agency, we consider the hiring party's right to control the manner and means by which the product is accomplished. Among the other factors relevant to this inquiry are the skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party's discretion over when and how long to work; the method of payment; the hired party's role in hiring and paying assistants; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party.As the New York Times points out, traditionally recording artists pay for the production of music themselves, using advances on their royalties from the record company to finance that production, and their contracts typically contain exemptions that distinguish them from typical employees, keeping them from claiming many of the statutory benefits available to employees (and also, in fairness, imposing few of the statutory obligations upon an employee). Musicians work locally and usually relatively independently of the corporate label, and barring incompetence or malfeasance they typically hire their own staff. They cannot typically be assigned additional work by the label.
In short, the label/artist relationship looks very little like a work-for-hire relationship. This is problematic for record companies seeking to preserve their back-catalogue profits, but sympathy is hard to muster in this case; the termination rights issue has been lurking quietly in the background for over thirty years at this point, and record companies have literally had decades to try and create an arrangement with their artists. Any failure to address this issue satisfactorily is theirs and theirs alone.