Summary
In Nexus Solutions Inc v Krougly, 2026 ONCA 199 (CanLII), the Ontario Court of Appeal (the “ONCA”) clarified the test for when an employer will own the copyright over software and other works that are created by an employee during their personal time. The decision highlights the limits to employers’ ownership rights under the Copyright Act, and reinforces the benefit for employers in knowledge-based industries to have employees sign written employment contracts with language protecting the employer’s intellectual property rights.
Creators of work are generally the first owners of copyright. Section 13(3) is a limited exception where employers will own the copyright if an employee creates the work only in the course of their employment.
Background Facts
Nexus is a software company that develops and markets CEMView, an emissions monitoring system. During his employment, Krougly created Limedas, a competing program with similar functions but also substantially different including in its source code and the algorithms used by the software.
Krougly built Limedas in secret during his personal time. Shortly after resigning, Krougly attempted to commercially market his new software – including to Nexus’ customers.
Nexus sought a declaration from the courts that Nexus owned the copyright for the Limedas software, arguing that Krougly created Limedas while employed by Nexus.
The Copyright Act provides that the creator is generally the owners of copyright, with a narrow exception in s. 13(3) entitling employer to the copyright over any work that is generated by an employee “in the course of [their] employment” with the employer.
The trial judge was not persuaded, on a balance of probabilities, that Krougly developed Limedas “in the course of his employment” and found that Nexus did not own the copyright for the software.
The ONCA Decision
On appeal, the ONCA upheld the lower courts decision and confirmed that Krougly owned the copyright over the Limedas software.
In interpreting section 13(3), the ONCA found that there are three conditions for an employer to own the copyright in an employee’s creation, namely:
(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.
The ONCA held that whether something is created “in the course of [their] employment” involves consideration of the employee’s job duties for their employer. Specifically, the court distinguished between employees whose job duties involvegenerating new ideas, products or concepts for the benefit of their employer versus those whose job duties do not. When an employee’s job duties do not involve generating new ideas, products or concepts, any creation made during the employee’s personal time is not likely the property of the employer.
In Krougly’s case, his job duties at Nexus solely involved maintaining and developing Nexus’ existing CEMView software and did not extend to generating or developing new software products or ideas. The ONCA held that Limedas represented a new product which Krougly was not assigned to, or permitted to, generate in the course of his duties for Nexus. The ONCA therefore held that Limedas was not created “in the course of” Krougly’s employment. It did not matter that Nexus could have assigned Krougly to perform generative work, because Krougly’s actual assigned job duties did not involve creating new software for Nexus.
Since Krougly created Limedas during his own time, with his own resources, and since there was no written contract specifically granting Nexus copyright in these types of circumstances, the ONCA held that Krougly owned the copyright in Limedas.
Practical Takeaways
Nexus Solutions Inc v Krougly highlights the limits that the Copyright Act places on employers’ ownership over employee creations. Absent an agreement providing employers with greater ownership rights and protections, employers only own the copyright over creations that are made by an employee “in the course of” their employment. As this case illustrates, that determination is highly fact dependent.
For employers in knowledge-based industries, formal employment agreements are powerful tools in protecting their intellectual property interests. Employers would be well advised to consider including in their employment agreements:
- whether employees may engage in outside work during employment that could conflict with the employer’s interests;
- clear terms addressing ownership of copyright and other forms of intellectual property; and
- restrictive covenants, where appropriate.
Need More Information
For more information or assistance with IP-related matters, please contact Cavina Tsoi at ctsoi@filionlaw.com, or your regular lawyer at the firm.