I agree this is important, Mojo. If my post was unclear, it's certainly important to clarify this, so newcomers won't get into trouble. Copyright law is a specialist area, there are very few practitioners world wide, and I'm not a lawyer for sure. I will only share what I've been close reading as a songwriter interested in these issues.
Pitching a demo to an artist, and then rerecording the song, is not considered re-use as far as I know.
You can safely pay a lower rate for a demo in Nashville or elsewhere, because this is considered non-commercial use. A "demo" is a demonstration recording only, used in B2B, that you won't make a dime from pitching. BUT if you plan to use this demo for commercial use, like tv/film, you will get in trouble if the music is used. Libraries have issues with union recordings, because unions claim re-use and new-use fees ("clip use" is a new use fee, where a short section of an existing recording is re-used again in a different production), everytime a master is used for a new show, and these fees are more than the sync and license fees alltogether.
While it may be true that some Nashville musicians would work "off the card", they are actually not allowed to sign a work-for-hire agreement as union members. So, here's one liability, which may fall back on the songwriter as the "employer" of a union member. In the US it is the employers responsibility to check if the worker is allowed to work for you or not (and you must use the term "employer" in the work-for-hire contract in order for it to be valid, as sound recordings cannot be made work-for-hire under US Copyright Act). This is not the employees responsibility, which is why this is usually not a problem up front.
Here's the thing, if you have union musicians on your demo, and get the buy out (the master) with a work-for-hire deal. The work-for-hire may be valid, but the union or the state can sue you for putting a union musician on a work-for-hire (which you are not allowed). Even if the work-for-hire is valid, and the library signs the song. The union can claim for new use fees if the song is used more than once in different productions, because of the dispute with the union musician, and it will fall back on you, because the library will not be liable for paying these fees. So, buying out the master may not be enough, you also have to make sure that there are no union musicians on it. The studios can sell you any master rights you want, but in the end it is the songwriters responsibility to make sure the work-for-hire is done by the book.
Libraries may not ask you, but some does in fact include information on union musicians in their FAQ (PM me if you need an example). It will state something like you are responsible to pay new-use/ re-use fees yourself, as they will not accept these terms. So, while it is true libraries will not ask you, it is not true that they are not explicit about this.
All of this is why it's smart to produce your own music when doing film/tv, or work with Taxi members who produce their own music.
To my mind this is the major difference between working in Nashville and working in LA; LA studio musicians don't work off the card because they mostly work for thoroughly unionized major studios rather than primarily for publishers and songwriters as they do in Tennessee. It's why you see some prominent LA sidemen working under assumed names from time to time. (well, that and some of them also have record deals of their own and are under exclusive contract, but that's another kettle of worms) LA musicians working directly on television shows collect fees, plus residuals, when the shows are re-broadcast, which is another fairly major difference.
It's maybe important to note that I'm not talking about double and triple-scale guys who play on records by major country acts; these are blue collar guys/gals doing grunt work for publishers and playing in road bands. There's never been as much work in Nashville as LA, so the union gives them and independent, unsigned writers a break; I'm sure the rules are similar, but down there, they don't yank your card for trying to put food on the table. This is also the case for live music pretty much anywhere in the country, aside from New York and LA, because there simply aren't enough union gigs to make a living. Now, on to specifics...
A work for hire agreement is essentially a quit-claim to future royalties by an employee of the contractor; in Nashville, you just tell whoever does your tracks that they're masters and you need work-for-hire agreements from all concerned, and it's the contractor's responsibility to hire appropriately; you do not have to vet whether anybody is union or not.
By all means, if you go to a union shop and pay a demo rate, the union can enforce their master rates on any and all master usage; it happens from time to time, and it's a simple matter of paying the difference between the two rates. You're correct that libraries accept no responsibility for this; why would they? However, you pay this once, and your demos are now masters; they're not coming after a piece of every sync fee from here to eternity as your post implies, though the rate difference will almost certainly amount to several thousand dollars, which is a lot more than most sync fees. If this should happen for some reason, you'll have to work out whether the cost outweighs the benefit.
The bit about re-use fees I believe applies to sampled portions of the phonorecording; that just muddies the waters here, and this:
Kolstad wrote:In the US it is the employers responsibility to check if the worker is allowed to work for you or not (and you must use the term "employer" in the work-for-hire contract in order for it to be valid, as sound recordings cannot be made work-for-hire under US Copyright Act).
Is fundamentally incorrect, otherwise no work-for-hire agreement would be valid in the US; it applies to the song, not the recording thereof.