Working For Or Against You: Copyright Ownership And The "Course Of Employment"

Without explicit provisions in employment agreements, employers risk employees retaining copyright in works they create, even when employees secretly develop a competing product. Employers presumptively own copyright in works made by employees in the course of their employment under s. 13(3) of the Copyright Act (the Act).¹ However, a recent decision of the Court of Appeal for Ontario demonstrates the limited scope of this statutory presumption and underscores why employers should not exclusively depend on it for protection.

In Nexus Solutions Inc. v. Krougly,  2026 ONCA 199,² the Ontario Court of Appeal affirmed the trial judge’s decision that an employer had no recourse under copyright law where an employee developed a competing product because it was not created “in the course of” employment and there was no agreement to the contrary.

Background and trial decision

Nexus Solutions Inc. (Nexus) develops and markets a software product that monitors smokestack emissions. Vladimir Krougly (Mr. Krougly) was a full-time senior software engineer at Nexus. His primary responsibility was writing source code for Nexus’s emissions-monitoring software. Mr. Krougly had been involved with Nexus for over a decade, including through previous roles as a shareholder, officer, director and independent contractor. At no point did Mr. Krougly ever sign an employment agreement with Nexus that governed the employment relationship.

During his last two years of service as an employee with Nexus, Mr. Krougly secretly developed a competing software product. When Mr. Krougly eventually resigned from his employment with Nexus, he tried to market this software, including to some of Nexus’s customers. After discovering Mr. Krougly’s actions, Nexus sought various relief, including a declaration that it owned the copyright in Mr. Krougly’s competing software. Only the copyright claim was considered in this case.

The trial judge dismissed Nexus’s copyright claim because Mr. Krougly had not developed the competing product “in the course of” his employment with Nexus. In reaching this conclusion, the trial judge considered various factors, including that Mr. Krougly did not copy any substantial portion of Nexus’s product, the bulk of his work was done outside of normal business hours and did not use Nexus’s resources, Mr. Krougly was responsible for developing Nexus’s existing software but was not permitted to create any other software without prior authorization, no written contract prohibited him from pursuing his own works and Nexus did not assume any major risks in the development of Mr. Krougly’s competing software.

Court of Appeal decision

The Court of Appeal for Ontario upheld the trial judge’s decision. At the outset of its analysis, the Court of Appeal clarified that three conditions are required for an employer to hold copyright in a work under s. 13(3) of the Act:

1. The creator must be an employee;
2. The work must have been created “in the course of” employment; and
3. There is no agreement to the contrary.

Since Mr. Krougly was clearly an employee and there was no employment or other agreement addressing proprietary rights, only the second condition was in dispute. The Court of Appeal noted that the assessment of this condition turns on the employee’s actual, not potential, responsibilities. A work is created “in the course of” employment only where it falls within the responsibilities actually assigned to the employee, including work that the employee was expressly or implicitly asked to perform to fulfill their employment duties.

While it is not necessary that an employer specifically directs the making of a particular work, the employee’s actual responsibilities must include making the work. It is not enough that an employer could have required an employee to carry out a specific task.

Because Mr. Krougly’s actual responsibilities were limited to work on Nexus’s existing software product and did not include creating new software, the Court of Appeal maintained that Mr. Krougly’s development of the competing software was not in the course of his employment with Nexus and therefore Nexus did not own copyright in that work.

Key takeaways

This case provides clarity on the circumstances when the default ownership provision under s. 13(3) of the Act  applies. At the same time, it serves as a cautionary tale and provides several valuable lessons for employers.

• The need for contractual agreements with detailed intellectual property assignment provisions: Employers should ensure that copyright and other proprietary rights are expressly conveyed in written agreements with employees. In this case, there was no written agreement governing the ownership of works created by Mr. Krougly – or any other aspect of the employment relationship. Protection under s. 13(3) of the Act alone is not guaranteed, even where an employee creates a work that relates to their duties and competes with the employer’s business. While not specifically addressed by the Court of Appeal, we remind employers that to be valid, copyright assignments must be signed and in writing.³ Oral copyright assignment agreements will not withstand scrutiny.
• Avoid assumptions based on history or seniority:  Written agreements and other precautionary measures remain essential even where an individual has previously been engaged with the employer in other capacities. In this case, Mr. Krougly had previously been involved with Nexus as a shareholder, officer, director and independent contractor. His transition to employment should have been accompanied by a written employment agreement that included clear intellectual property assignment provisions. Trust and loyalty cannot be assumed based on history.
• Copyright is only one component of an employer’s protections:  Copyright law alone cannot be relied upon for comprehensive protection from disloyal or competitive actions by employees. To meaningfully mitigate risk, employers must consider a broader suite of protections and tailor them to the unique circumstances of their organization and employee relationships. These protections include, but are not limited to, utilizing clauses that: 1) prohibit employees from competing with the employer’s business during the term of employment; 2) prohibit competition post-cessation of employment in the narrow circumstances where permitted by the Ontario Employment Standards Act, 2000, as amended or replaced; 3) require employees to devote their full time and attention to their employer; 4) require employees to agree that they will not maintain employment during the term with any other company or entity without the express written consent of the employer; and 5) prohibit the solicitation of clients, customers, employees, etc. within a specified restrictive period.
• Undertake regular reviews of duties and intellectual property assignments:  As positions and responsibilities evolve over time, employers should plan to regularly review job responsibilities and associated intellectual property protections to ensure alignment and minimize risk.

Following the Ontario Court of Appeal’s decision, employers should anticipate closer scrutiny of claims to proprietary rights in works created by employees and take proactive steps to ensure that their intellectual property protections are robust and effective. Dentons’ Intellectual Property and Employment teams work closely together to assist employers in protecting their valuable intellectual property and navigating complex ownership issues in the employment context.

For more information on this topic or for answers to any related questions, please contact the authors, Meredith Bacal and Meaghen Russell.⁴

Footnotes

1. Copyright Act, RSC 1985, c C-42 [Act].

2. Nexus Solutions Inc. v. Krougly,  2026 ONCA 199.

3. Act, supra  note 1,  s. 13(4).

4. The authors thank Alison Balcom, articling student, for her meaningful contributions in preparing this article.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Specific Questions relating to this article should be addressed directly to the author.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.