An employee's job duties may include creating works of science, art and literature, i.e. intellectual property ("IP"). In that case the employee is recognised as the author, and what they create through their creative work is a work made for hire (the most common examples are software development and writing academic articles).

Such results of employees' creative work are called "works made for hire".

In practice, employers overlook the need to pay for the use of IP created by an employee, assuming it is included in the salary. This creates risks for both sides: the employer risks being forced to "pay twice" for the employee's work, and the employee risks not receiving the remuneration due to them.

The problem arises because there is no clear regulation of the procedure, conditions and amount of remuneration for works made for hire, which raises practical questions: (1) Is such remuneration really part of the salary? (2) If not, in what amount, how and when should it be paid? (3) If the employer does not pay separate author's remuneration, what legal mechanism does Russian law provide to protect the author's rights?

Author's remuneration: the legal nature of the payment

The legislator deliberately uses the separate concept of "remuneration", distinguishing it from "salary" and indicating the civil law nature of the payment.

An employee is paid a salary for creating a work made for hire in the course of their job, and remuneration (on top of the salary) for the use of the work (paragraph 2 of Article 1295(2) of the Civil Code).

Remuneration for works made for hire and salary are thus two different payments.

For this reason, it is not advisable to include the remuneration in the salary (Ruling of the Judicial Chamber for Civil Cases of the Supreme Court No. 78-KG20-1, 2-5974/2018 of 05.06.2020).

If the employer nevertheless decides to pay author's remuneration as part of the employee's salary, it is advisable to state expressly that the relevant amount is a salary that "includes" author's remuneration. In that case, the salary must be higher than the amount regularly paid (Ruling of the Sixth Cassation Court of General Jurisdiction of 27.04.2023 in case No. 88-10541/2023, 2-6026/2022).

Important! In all cases the remuneration is paid by the employer, even if the work is used by a third party under a licence agreement or the exclusive right to the work has passed to a new right holder (paragraph 3 of point 105 of Resolution No. 10 of the Plenum of the Supreme Court of 23.04.2019 "On the Application of Part Four of the Civil Code of the Russian Federation").

Determining the amount, procedure and timing of author's remuneration for a work made for hire

Civil law sets no mandatory requirements for the content of an agreement on remuneration for works made for hire and allows the employee and employer to agree all its terms themselves.

The employee and employer may themselves determine:

• How remuneration is paid (for example, fixed or percentage-based payments);
• When remuneration is paid (for example, one-off, monthly or quarterly payments);
• The amount of remuneration.

These terms may be set out in:

• The employment contract (for example, a supplementary agreement to the employment contract on the use of a work made for hire);
• A civil law contract (for example, an agreement on the payment of author's remuneration);
• An internal regulation of the employer (for example, a regulation on works made for hire). Note that the Civil Code states that remuneration should be settled in a contract (for example, paragraph 4 of Article 1295(1) of the Civil Code), so it is advisable to conclude a civil law or employment contract as well as adopting an internal regulation.

If the employer and employee have not agreed the amount of remuneration, or the employer does not pay the employee remuneration for the IP created, the employee may go to court to claim such remuneration in an amount they determine themselves, which the court may then adjust at its discretion (if necessary).

The legal mechanism for protecting the author's rights if author's remuneration for a work made for hire is not paid

If the employer fails to pay author's remuneration, the employee may go to court to claim:

• The author's remuneration from the employer;
• Compensation (a penalty) from the employer for late payment of the author's remuneration;
• Compensation for moral damage from the employer.

For the employee's claims to succeed, the employee must prove all of the following:

• The work is a work made for hire (Resolution of the Intellectual Property Court of 29.09.2021 in case No. A40-256611/2017);
• The employer became obliged to pay author's remuneration;
• The author's remuneration has not been paid in full or in part.

If the employee fails to prove any of these, the court will refuse to award author's remuneration (Ruling of the First Cassation Court of General Jurisdiction No. 88-28740/2023 of 16.10.2023 in case No. 2-163/2023; Ruling of the Eighth Cassation Court of General Jurisdiction of 01.02.2022 in case No. 88-444/2022).

Important! The use of IP created for hire does not depend on the employment relationship continuing. If, under the contract, the employer undertook to make regular payments to the employee for 5 years, the obligation to pay ends after 5 years, not when the employment ends.

Recommendations from the C Cases team

To avoid conflicts, we recommend preparing the following documents (in addition to the employment contract):

• A job description stating expressly that the employee's duties include creating works made for hire;
• Work assignments;
• A certificate of creation of the work made for hire and of the transfer of the exclusive right to the employer or of its retention by the employee;
• An author's remuneration agreement.

Conclusion

Remuneration for a work made for hire is not part of the salary but a separate payment of a civil law nature, triggered by the use of the IP. In the absence of detailed statutory regulation, internal agreements between employee and employer are no longer just a recommendation but a necessary condition for respecting the rights of the employee as the author of a work made for hire and minimising litigation and financial risks for both sides.

If, as an employer or employee, you need to work out who owns which rights in the IP created, determine what counts as salary and what as separate remuneration, regulate how author's remuneration is paid or check existing documents for legal risks, the C Cases team will help protect your interests, build a transparent and clear system of payments and prepare a "working" set of documents for you, or defend your rights in dealings with the other side, up to and including litigation.

Sources

• Civil Code of the Russian Federation (Part Four) No. 230-FZ of 18.12.2006;
• Government Resolution No. 1848 of 16.11.2020 "On Approval of the Rules for Paying Remuneration for Service Inventions, Service Utility Models and Service Industrial Designs";
• Resolution No. 10 of the Plenum of the Supreme Court of 23.04.2019 "On the Application of Part Four of the Civil Code of the Russian Federation";
• Resolution of the Intellectual Property Court of 29.09.2021 in case No. A40-256611/2017;
• Ruling of the Judicial Chamber for Civil Cases of the Supreme Court No. 78-KG20-1, 2-5974/2018 of 05.06.2020;
• Ruling of the Sixth Cassation Court of General Jurisdiction of 27.04.2023 in case No. 88-10541/2023, 2-6026/2022;
• Ruling of the First Cassation Court of General Jurisdiction No. 88-28740/2023 of 16.10.2023 in case No. 2-163/2023;
• Ruling of the Eighth Cassation Court of General Jurisdiction of 01.02.2022 in case No. 88-444/2022.