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No company with a legal rep is going to be happy with that situation - ever.

Who even owns the code the person is working on? Who is responsible when it goes wrong?

Never happy is a bit of an exaggeration. SYSV UNIX had all of these risks and various legal departments went through them as they do regularly for more typical types of research.

When it was explicit, and part of the relationship, sure. Because those questions aren’t questions.

Which is why I said you'd sit everyone down and thrash it out.

That’s the “firming up” bit. You have a contract that deems the code “work for hire” even though the money flow is wonky. Legally the guy is like any 1099.

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