Meaning
Third-party employment services can create unexpected exposures regarding the transfer and ownership of technical innovations. Under standard arrangements, employer of record liabilities arise when the intermediary fails to secure a complete and valid assignment of intellectual property from the worker to the ultimate client. This failure can leave the technology assets in the hands of the individual developer or the intermediary.
Investors often flag these gaps during due diligence because a break in the chain of title can jeopardize the entire asset valuation.
Contractual Gaps
The chain of title can break if the service agreement between the client and the intermediary does not match the employment agreement signed by the worker. If the worker’s contract lacks strong patent assignment language, the client company cannot acquire these rights. This creates a defect in the patent portfolio that must be corrected before any exit.
Labor Regulation
Labor laws in some jurisdictions treat the intermediary as the sole employer, which prevents direct assignment from the worker to the client company. This requires a double assignment process where the worker assigns to the intermediary, and the intermediary then assigns to the client. This complex structure increases the risk of transfer failures.
Asset Protection
Companies mitigate these risks by using direct confirmatory assignments with the individual workers. These separate agreements create a direct legal link between the developer and the client company, bypassing the intermediary. This secondary route ensures the client holds clear, uncontested title to all developed technologies.
