Copyright in the course of employment: the Court of Appeal for Ontario’s decision in Nexus Solutions Inc. v. Krougly

Under what circumstances do employers own the copyright to works made by employees in the course of their employment under section 13(3) of the Copyright Act? In a recent decision¹, the Court of Appeal for Ontario provided much-needed clarity on how courts should approach this rarely litigated area of copyright law. According to the Court of Appeal, the answer depends on the strength of the connection between the work and the employee’s actual responsibilities.

What you need to know

• The elements of a section 13(3) claim. A section 13(3) claim has three components: 1) the creator of the work must be, in law, an employee; 2) the work must have been created “in the course of… employment”; and 3) there is no agreement to the contrary.
• The scope of section 13(3). Section 13(3) is designed to ensure an employer obtains copyright where they have paid for and assumed the risks of developing a work. Consequently, claims under section 13(3) will only be successful where the employee made the work as part of their responsibilities to the employer—for example, under the employer’s instructions and using its resources. The guiding question is whether the making of the work was something the employee was asked or expected to do, whether expressly or impliedly, as part of their employment responsibilities. Absent an agreement to the contrary, employers will struggle to succeed under section 13(3) if creating the work did not fall within the employee’s actual job description and occurred on the employee’s own time using their own resources.
• Avoiding the effect of section 13(3). The clearest way to avoid the effect of section 13(3) is to enter into an intellectual property agreement with relevant employees that governs copyright ownership. Beyond such an agreement, employers can maximize their chances of success on a section 13(3) claim by ensuring that employees’ actual roles and responsibilities (including any expectation to create or innovate) are clearly defined and reflected in how work is assigned and carried out.

Background and context

The parties and dispute

Nexus Solutions Inc. is an Ontario software development company that develops and markets a product designed to monitor smokestack emissions. Vladimir Krougly was a full-time employee responsible for writing the product’s source code. While working at Nexus, Krougly developed a competing software product. Eventually, Krougly resigned from Nexus and attempted to market the new product. Upon learning of Krougly’s actions, Nexus sought, among other forms of relief, a declaration that they own the copyright to Krougly’s product under section 13(3) of the Copyright Act because Krougly created the product in the course of his employment with Nexus.

The trial judge dismissed Nexus’s copyright claim under section 13(3)

In phase 1 of a bifurcated trial, the trial judge dismissed Nexus’s copyright claim. Despite finding that Krougly had developed the competing product in secret while working at Nexus, the trial judge was not satisfied that the product was created “in the course of” Krougly’s employment. In particular, the trial judge noted that Nexus had not directed Krougly to develop the software at issue (i.e., developing the new software was not part of Krougly’s actual job description), nor had Nexus expended any major resources or taken on significant risks in the creation of the product. Krougly’s work was largely done outside of normal business hours, did not involve use of Nexus property, and was not within the control of anyone at Nexus. As such, the judge concluded, Nexus did not own the copyright under section 13(3).

Nexus appealed this finding, arguing that the trial judge misinterpreted section 13(3) and misapplied the evidence.

The Court of Appeal upholds the trial decision

The Court of Appeal dismissed Nexus’s appeal, holding that the factors the trial judge considered were relevant and were not given undue weight.

In its preliminary comments, the Court clearly set out the requirements for a successful section 13(3) claim: 1) the creator of the work must be, in law, an employee; 2) the work must have been created “in the course of… employment”; and 3) there is no agreement to the contrary. The Court also stated the purpose of section 13(3): to ensure that the copyright accrues to the employer when the employer has paid for the development of the work and assumed the risks associated with it.

With this purpose in mind, the Court reasoned that success under section 13(3) should only be possible where the employee made the work as part of their responsibilities to the employer. The guiding question for section 13(3) claims, therefore, is whether making the work was something the employee was asked or expected to do, expressly or by necessary implication, as part of their employment. Where the employee made the work on their own time, using their own equipment, and not as part of their assigned duties, the work will likely fall outside section 13(3), unless the employer and employee have an agreement to the contrary. In less clear-cut situations, the strength of the connection between the creation of the work and the employee’s professional responsibilities will govern.

Applying these principles to the case at hand, the Court held that the trial judge did not err by considering whether Nexus had directed Krougly to create the software. Nexus argued that they could not have directed Krougly to develop a program of which they were unaware. But the Court held that it is not necessary for the employer to direct that the specific work be made; all that is required is that the employee’s employment responsibilities include making this type of work. Because Krougly’s responsibilities were limited to the development of Nexus’s software system, the creation of a different system fell outside his actual responsibilities. The Court contrasted this situation to another case where the employee’s duties had specifically included using creative skills to innovate and generate new concepts that would benefit the employer². The fact that Nexus did not expend resources to develop the competing product was also a relevant consideration in Krougly’s favour.

Tips to avoid falling outside the scope of section 13(3)

The Court of Appeal’s decision in Nexus Solutions Inc. v. Krougly provides some practical lessons for employers seeking to protect their ownership of copyright in works made by their employees.

• Opt-out through an agreement to the contrary. The section 13(3) framework only applies in the absence of an agreement to the contrary. Employers seeking greater certainty over ownership of employee-created works should address copyright ownership expressly in agreements with relevant employees. While this is most commonly done at the outset of the employment relationship (for example, in an employment agreement), such agreements can also be implemented later, provided they are supported by valid consideration. Related workplace policies addressing innovation or employee‑created works can also reinforce expectations around ownership and the treatment of creative output.
• Clearly define and operationalize employees’ creative responsibilities. Success under section 13(3) requires that the work fall within the employee’s actual job responsibilities. Courts will look at how the role is defined and carried out in practice, including whether employees are expected, either on an ongoing basis or in connection with discrete projects, to create works as part of their role. Where innovation and creative output is inherent to a position, employers may wish to ensure that job descriptions accurately capture the scope of the role. Where specific works or projects are assigned on an ad hoc basis, documenting the expectation that the employee is being asked to create the work as part of their role may be helpful.
• Keep creative work visible and integrated into the business. Courts may consider whether employee‑created works are developed using company tools, systems, and processes, and with organizational awareness. Encouraging development work to occur through employer platforms and workflows helps reinforce that it forms part of the employee’s role.