When Is Employee-Created Copyright Owned by the Employer?

Ontario Court of Appeal Clarifies “In the Course of Employment”

By Jahdiel Larraguibel

In Nexus Solutions Inc. v. Krougly, 2026 ONCA 199 (“Nexus Solution”),[1] the Ontario Court of Appeal provides important guidance on the meaning of “in the course of employment” under s. 13(3) of the Copyright Act.[2] The Court draws a clear line: copyright ownership vests in an employer only where the work is created as part of the employee’s actual assigned responsibilities, not merely because the employer could have directed the work or because it falls within the employee’s general skill set.

Under the Copyright Act, authors are presumptively the first owners of copyright. Section 13(3) creates a limited exception: an employer will own copyright in a work created by an employee where (i) the individual is an employee, (ii) the work is created “in the course of employment”, and (iii) there is no agreement to the contrary. In Nexus Solutions, only the second requirement was in dispute.

Background

Nexus Solutions Inc. develops emissions monitoring software, including its flagship CEMView system. Vladimir Krougly, a former shareholder who later became a senior employee, was primarily responsible for developing that software.

While still employed, Krougly secretly developed a competing product, Limedas. Although it performed similar functions to CEMView, it differed in architecture and design. After resigning in 2011, Krougly attempted to market Limedas, including to Nexus’s customers. Nexus commenced an action claiming, among other things, that it owned the copyright in Limedas because it had been created in the course of Krougly’s employment.

Trial Decision

The trial judge held that Limedas was not created in the course of employment. Although functionally similar to Nexus’s software, it was independently developed, largely outside working hours, using Krougly’s own resources, and without direction or authorization from Nexus. It was, in substance, a side venture beyond his assigned duties. Nexus neither funded its development nor assumed the risks associated with it.

The trial judge emphasized the purpose of s. 13(3): copyright should vest in the party that paid for, directed, and assumed the risks of creating the work, with employees compensated through their salary.

To assess whether a work falls within the course of employment, the trial judge applied the non-exhaustive factors from Penhallurick:[3] (i) the terms of the employment contract; (ii) where the work was created; (iii) whether it was created during normal working hours; (iv) who provided the materials; (v) the level of direction given to the author; (vi) whether the author could refuse to create the work; and (vii) whether the work is integral to the employer’s business.

The Appeal

On appeal, Nexus argued that the trial judge (i) placed undue weight on the absence of direction to develop Limedas, (ii) relied on irrelevant considerations by referring to whether Nexus had expended resources or bargained for the work, and (iii) erred in finding that Krougly had not been directed to create the software.

Court of Appeal: Clarifying “In the Course of Employment”

The Court applied modern statutory interpretation principles, emphasizing that “in the course of employment” must be understood in light of the Copyright Act’s text, context, and purpose. Copyright law balances incentivizing creation with ensuring a just reward for the party that funded and assumed the risks of producing the work.  

Within that framework, s. 13(3) is a narrow exception. It allocates copyright to employers where the work is created as part of the employee’s responsibilities. Where the employer directed the work, paid for it, and assumed the associated risks, it should receive the benefit. Where a work is created independently, on the employee’s own time and resources, and outside assigned duties, copyright will generally remain with the employee.

The Court confirmed that the Penhallurick factors remain a helpful guide, particularly in close cases. However, they are not determinative. The central question is whether the work was something the employee was asked or expected to produce, either expressly or by necessary implication, as part of their role.

No Error in the Trial Decision

1. Actual Responsibilities Govern

The Court rejected Nexus’s argument that it was sufficient that Krougly could have been directed to develop software like Limedas. The relevant inquiry is what the employee was actually tasked or expected to do, not what the employer could have required in theory.

While the ability to assign a task is relevant, it is not sufficient. A work falls within the course of employment only if it forms part of the employee’s actual responsibilities. Extending employer ownership based solely on the general type of work would improperly capture independent side projects.

Here, Krougly’s role was limited to maintaining and developing CEMView. He was not tasked, expressly or implicitly, with creating new software products, and had in fact been told not to do so.

2. Employer Investment Is a Relevant Factor

The Court also rejected Nexus’s argument that the trial judge imposed a requirement that the employer must have “bargained for” or “expended resources” on the work. Properly understood, the trial judge simply considered the absence of employer investment as one relevant factor.

Krougly developed Limedas on his own time, using his own equipment, and without additional compensation. Nexus did not fund, direct, or assume the risks of its development. These facts supported the conclusion that the work fell outside the course of employment.

3. Speculative Future Work Is Not Enough

Finally, the Court found no reviewable error in the trial judge’s finding that Krougly had not been directed to develop new software. Evidence that Nexus had discussed a potential future product was insufficient. At most, it reflected a tentative idea, not an assigned responsibility.

The record supported the conclusion that Krougly’s duties were confined to developing and maintaining existing software.

Key Takeaways

This decision provides guidance on the limits of employer copyright ownership:

• Focus on actual duties, not theoretical scope: The question is what the employee was actually expected to do, not what the employer could have required.
• Employer investment is relevant: Whether the employer funded, resourced, or assumed the risks of the work is an important contextual factor.
• Side projects may remain employee-owned: Even where a work is competitive or closely related to the employer’s business, it may fall outside the course of employment if it is independently created.
• Contracts and policies are critical: Employers can reduce uncertainty by clearly addressing ownership of employee-created IP, including side projects, in employment agreements and workplace policies.

For employers, Nexus Solutions is a clear reminder that copyright ownership does not automatically follow from employment alone, even where the work is closely related to the employer’s business. For employees, it confirms that independently created work may remain their own, provided it falls outside their assigned role.

If you have questions about copyright ownership or employee-created IP, contact Jahdiel Larraguibel, Intellectual Property Lawyer, at jlarraguibel@sorbaralaw.com or call (519) 741-8010 ext. 360. For employment-related questions, please reach out to our employment law team, who work closely with Jahdiel to provide practical advice informed by specialized intellectual property expertise.