Salary or separate remuneration: how to compensate employees for the use of their creative works?

An employee's job duties may include the creation of works of science, art, and literature, i.e., the result of intellectual activity (hereinafter referred to as "RIA"). In such a case, the employee is recognized as the author, and what they create through their creative work is considered a work made for hire (the most common examples: software development, writing scientific articles).

Such creative works by employees are referred to as "works made for hire."

In practice, employers often overlook the need to pay for the use of RIA created by an employee, assuming it is covered by their salary. This creates risks for both the employer and the employee: the employer risks being compelled to "double pay" for the employee's work, while the employee risks not receiving the remuneration due to them.

This issue arises due to the lack of clear regulation regarding the procedure, conditions, and amount of remuneration for works made for hire, leading to practical questions such as: (1) Is such remuneration truly part of the salary? (2) If not, what should be its amount, payment procedure, and deadlines? (3) If the employer still does not pay separate author's remuneration, what legal mechanism for protecting the author's rights is provided for in Russian legislation?

The legislator specifically uses the separate term "remuneration," distinguishing it from "salary" and indicating the civil law nature of such a payment.

Thus, for the creation of a work made for hire during the performance of job duties, an employee receives a salary, and for the use of the work made for hire, remuneration (in addition to the salary) is paid (para. 2, cl. 2, Art. 1295 of the Civil Code of the Russian Federation).

Therefore, remuneration for works made for hire and salary are two distinct payments.

For this reason, it is not recommended to include the amount of remuneration as part of the salary (Ruling of the Judicial Collegium for Civil Cases of the Supreme Court of the Russian Federation dated 05.06.2020 No. 78-KG20-1, 2-5974/2018).

If, however, the employer decides to include author's remuneration as part of the employee's salary, it is recommended to explicitly state that the corresponding amount represents a salary that "incorporates" the author's remuneration. In such a case, the salary amount should be higher than the regularly transferred sum of money (Ruling of the Sixth Cassation Court of General Jurisdiction dated 27.04.2023 in case No. 88-10541/2023, 2-6026/2022).

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

Civil legislation does not impose mandatory requirements on the content of an agreement for the payment of remuneration for works made for hire, allowing the employee and employer to independently agree on all its terms.

Thus, the employee and employer can independently determine the terms regarding:

• The procedure for paying remuneration (e.g., fixed or percentage payments);
• The deadlines for paying remuneration (e.g., one-time/monthly/quarterly payments);
• The amount of remuneration.

These terms can be defined in:

• An employment contract (e.g., an addendum to the employment contract regarding the use of a work made for hire);
• A civil law contract (e.g., an agreement on the payment of author's remuneration);
• a local regulatory act of the employer (e.g., a regulation on work-for-hire creations). We draw attention to the fact that the Civil Code of the Russian Federation specifies that the issue of remuneration must be settled in a contract (e.g., paragraph 4, clause 1, Article 1295 of the Civil Code of the Russian Federation), therefore it is recommended to conclude a civil law or employment contract in conjunction with the adoption of a local regulatory act.

If the amount of remuneration is not independently determined by the employer and employee, or if the employer fails to pay the employee for created intellectual property, the employee has the right to petition the court for payment of such remuneration. The employee will determine the amount, and the court will subsequently adjust it at its discretion (if necessary).

Should an employer fail to pay an employee royalties, the employee has the right to petition the court for:

• Recovery of royalties from the employer;
• Recovery of compensation (penalties) from the employer for delayed royalty payments;
• Recovery of compensation for moral damages from the employer.

For an employee's claims to be satisfied, they must prove the following cumulative circumstances:

• The work qualifies as a work-for-hire (Decision of the Intellectual Property Court dated 29.09.2021 in case No. A40-256611/2017);
• The employer incurred an obligation to pay royalties;
• Royalties have not been paid in full or in part.

Should the employee fail to prove one of the aforementioned circumstances, the court will deny the claim for royalty recovery (Ruling of the First Cassation Court of General Jurisdiction dated 16.10.2023 No. 88-28740/2023 in case N 2-163/2023, Ruling of the Eighth Cassation Court of General Jurisdiction dated 01.02.2022 in case No. 88-444/2022).

Important! The use of work-for-hire intellectual property is not contingent on the continuation of employment. If, under a contract, an employer committed to making regular payments to an employee for 5 years, that payment obligation will cease after 5 years, not upon the termination of the employment relationship.

What documents are recommended to draft to avoid conflicts (in addition to the employment contract):

• A job description explicitly stating that the employee's duties include the creation of work-for-hire creations;
• Work assignments;
• An act confirming the creation of a work-for-hire object and the transfer of exclusive rights to the employer / retention of exclusive rights by the employee;
• Royalty agreement.

Remuneration for a work-for-hire is not part of the salary but constitutes a separate payment of a civil law nature, contingent on the use of the intellectual property. Due to the lack of detailed legislative regulation, the necessity of concluding internal agreements between the employee and employer shifts from a recommendation to a mandatory condition, ensuring the protection of the rights of the employee—the author of the work-for-hire—and minimizing legal and financial risks for both the employee and the employer.

If you, as an employer or employee, need to understand who owns which rights to created intellectual property, determine what constitutes salary and what constitutes separate remuneration, regulate the procedure for paying author's remuneration, or check already prepared documents for legal risks, the C Cases team will help protect your interests, build a transparent and clear payment system, and prepare a practical set of documents for you, or defend your rights in relations with the other party, up to litigation.

Sources

• Civil Code of the Russian Federation (Part Four) dated December 18, 2006, No. 230-FZ;
• Decree of the Government of the Russian Federation dated November 16, 2020, No. 1848 "On the Approval of Rules for Paying Remuneration for Employee Inventions, Employee Utility Models, and Employee Industrial Designs";
• Resolution of the Plenum of the Supreme Court of the Russian Federation dated April 23, 2019, No. 10 "On the Application of Part Four of the Civil Code of the Russian Federation";
• Decision of the Intellectual Property Court dated September 29, 2021, in case No. A40-256611/2017;
• Ruling of the Judicial Collegium for Civil Cases of the Supreme Court of the Russian Federation dated June 5, 2020, No. 78-KG20-1, 2-5974/2018;
• Ruling of the Sixth Cassation Court of General Jurisdiction dated April 27, 2023, in case No. 88-10541/2023, 2-6026/2022;
• Ruling of the First Cassation Court of General Jurisdiction dated October 16, 2023, No. 88-28740/2023 in case No. 2-163/2023;
• Ruling of the Eighth Cassation Court of General Jurisdiction dated February 1, 2022, in case No. 88-444/2022.