Think You Own Everything Your Employees Create? The Ontario Court of Appeal Says Otherwise

Overview

Think you own everything your employees create? That assumption could cost you.

The Ontario Court of Appeal (“ONCA”) in Nexus Solutions Inc. v. Krougly, 2026 ONCA 199, recently opined on Section 13(3) of the Copyright Act (the “Act”), which provides that an employer is the first owner of copyright in works created by employees in the course of their employment. The decision is a reminder that determining ownership is highly fact-specific and turns on the nature of the employment relationship and the scope of the employee’s actual duties. It also highlights the importance of clearly drafted employment agreements in managing intellectual property risk.

Background

Nexus is a software development company that develops and markets a continuous emissions monitoring system (“CEMS”) software known as CEMView, which monitors and reports compounds in smokestack emissions produced by heavy industry. The respondent, Vladmir Krougly (“Krougly”) was employed by Nexus as a senior software developer, where he contributed to the development of CEMView by writing source code.

During his employment with Nexus, Krougly began developing Limedas, a competing CEMS software product. After resigning from Nexus, he began marketing Limedas commercially in competition with Nexus, including targeting Nexus’ existing customers. In response, Nexus commenced legal proceedings against Krougly, seeking a declaration that it owned the copyright in Limedas on the basis that it was created in the course of his employment at Nexus.

At trial, the judge considered several factors to determine whether Limedas was created “in the course of” Krougly’s employment, including:

                (i)      the terms of the contract of employment;

               (ii)      where the work was created;

              (iii)     whether the work was created during normal office hours;

              (iv)     who provided the materials for the work to be created;

               (v)      the level of direction provided to the author;

              (vi)     whether the author can refuse to create the work; and

              (vii)     whether the work is “integral” to the business.

Ultimately, the trial judge held with “considerable reluctance” that Krougly retained ownership of the copyright in Limedas.

Outcome

On appeal, the court considered the proper interpretation of Section 13(3) of the Act. The ONCA simplified the provision into three main conditions that must be satisfied for an employer to hold copyright in a work created by an employee:

                (i)     the creator of the work must be, in law, an employee;

               (ii)     the work must have been created “in the course of employment”; and

              (iii)     there is no agreement to the contrary.

In upholding the trial judge’s decision, the ONCA found that there was no dispute with respect to the first and third conditions, and that the appeal turned on the interpretation of “in the course of employment”. The ONCA held that an employer will own copyright in works created by an employee “as part of their response to the employer’s instructions”.

In other words, where an employee is paid to perform work agreed upon with the employer, particularly where the work is carried out under the employer’s direction and using its resources, the resulting work will generally fall within the course of employment. In contrast, where work is created on the employee’s own time, using their own resources and outside the scope of their assigned duties, it will fall outside the course of employment.

Applying these principles, the ONCA held that the trial judge had not erred. Although it is relevant to consider whether an employer “could” require an employee to carry out a task, the key question is whether the task was “actually” assigned. The ONCA further clarified that an employer need not specifically direct an employee to produce a particular work, rather, the task must form part of the employee’s actual responsibilities. In this case, Krougly’s responsibilities were limited to the ongoing development of CEMView, and the creation of a separate CEMS product fell outside the scope of his employment.

Key Takeaways

The decision underscores the importance of having clear, written employment agreements in place, rather than relying on informal or implied arrangements. Employers should consult legal professionals when drafting and updating employment agreements to ensure they adequately protect the company’s interests and remain aligned with current law, including the incorporation of non-competition, non-solicitation and confidentiality clauses where appropriate. Employers should also ensure that employees’ job responsibilities are clearly defined and documented, and that clear records are maintained of assigned work, ongoing projects and the use of company resources. Proactive and well drafted employment agreements are essential to protecting intellectual property and reducing legal risk in the employment context.

For more information about intellectual property and information technology in Canada, please contact Roland Hung or Laura Crimi of Torkin Manes’ Technology and Privacy & Data Management Groups.

The authors would like to acknowledge Torkin Manes’ Articling Student Kayla Oliveira for her invaluable contribution in drafting this bulletin.