Technology is growing exponentially and new software can become very valuable. What happens when one of your employees creates a competing product to yours which he has access to as part of his employment?

The Ontario Court of Appeal in Nexus Solutions Inc. v. Krougly  provided guidance on when an employer has a copyright claim over work created by an employee. In this case a senior software developer, Vladimir Krougly, in secret, developed a competing software program while employed by Nexus Solutions Inc. (“Nexus”). The software was not only similar to Nexus’s existing product but was a competitor. The software in issue was developed on Krougly’s own time, using his own resources, and not under the direction or with the knowledge of Nexus. After discovering the competing product, Nexus sought a declaration that it owned the copyright under s. 13(3) of the Copyright Act, which provides that in the absence of an agreement to the contrary, an employer owns the copyright for work made “in the course of employment.” The case turned on whether the software was made in the course of Krougly’s employment.

At trial, the judge found that the software was not created “in the course of employment.”

This decision was appealed. At the Court of Appeal, Nexus argued that the judge misinterpreted s. 13(3) and the evidence at trial, in summary:

• Krougly was hired to develop software, any similar work, even if done independently, should fall within the scope of his employment.
• Requiring specific directions from the employer would create an impossible standard where the employee acts secretly.

The Court of Appeal rejected these arguments and upheld the trial decision. It confirmed that the key question is not what an employee could have been asked to do, but what they were actually tasked or expected to do as part of their role. While Krougly’s work related to Nexus’s business, he had not been directed, expressly or implicitly, to create a new product like the one at issue, nor did Nexus provide resources or assume risks in its development. As a result, the work fell outside the scope of his employment, and copyright remained with Krougly.

This decision is significant for employers, particularly in technology and creative industries, as it draws a clear boundary around the “course of employment” requirement. It highlights those absent clear contractual terms; employers cannot rely on broad job descriptions to claim ownership over employee-created work. Instead, ownership will turn on the employee’s actual duties, level of direction, and the employer’s involvement in the creation process. The case serves as a cautionary reminder to employers to implement explicit intellectual property agreements if they wish to secure rights over employee innovations developed beyond assigned tasks.