July 21, 2026

By Jacob Thompson

Canada’s Copyright Act provides that, in the absence of an agreement to the contrary, an employer is the first owner of copyright in a work created by an employee “in the course of” their employment. This applies not only to the sort of written documents that we might immediately think of, but also to software innovations.

So, this should be simple and straightforward, right?

Not so fast.

THE ISSUE

Determining whether or not the creation occurred “in the course of” their employment is a question of fact, and sometimes those facts fall into legal grey areas. Then we look to precedent cases to try to sort them out.

It might seem works created during regular working hours belong to the employer (but see below!).

What about “after hours” efforts?

Not so simple, just like sometimes the whole concept of just what are the employee’s working hours can be complex. Flex time arrangements and work from home can complicated this further.

For some employees, responsibility for product development may be such a big part of their job that courts will recognize that their creativity is not limited to actual hours at work- it is a truism in some industries (law included) that we sometimes get our best ideas in the shower, or the middle of the night when we cannot sleep.

THE CASE

The Ontario Court of Appeal provides some clarification in Nexus Solutions Inc. v. Kroughly.

Kroughly was a senior software developer employed full time to write source code for a product which monitors and reports on smokestack emissions. While still employed, he began to secretly develop a program which performed similar, but not identical functions. Once he had a working product, he resigned his employment and tried to market his program in competition with his prior employer.

There was no written employment agreement.

The employer sued for breach of copyright.

The court adopted a test from a British decision which establishes that:

the following circumstances may be considered in determining whether a work has been created “in the course of” a person’s employment:

(i) the terms of the contract of employment;

(ii) where the work was created;

(iii) whether the work was created during normal office hours;

(iv) who provided the materials for the work to be created;

(v) the level of direction provided to the author;

(vi) whether the author can refuse to create the work; and

(vii) whether the work is “integral” to the business.

The trial judge had followed this same test, and gave detailed reasons why, based on the particular facts of the case, They found that the competing program was not created “within the course of his employment.”

Crucial to that decision were the findings of facts by the trial judge that:

• Kroughly’s primary role with his employer was to work on the existing software, and he was not permitted to create any other software without prior authorization.
• Although the creation of the new program was “intimately related” to his work, it was ‘clearly a side venture.”
• The employer “did not bargain for, or expend resources for the development” of the product.
• The employer “did not assume any major financial, organizational, or associative risks involved in the creation, production, and distribution” of that program.

 

You might be surprised to learn that some of the work done by Kroughly on his program WAS done during regular hours but because the BULK of the work was done outside those hours, this did not shift the ownership to the employer.

The trial judge distinguished an earlier trial level decision on the basis that “Kroughly was not authorized to create new products and was directed only to develop Nexus’s existing CEMView software.” In the prior case, the employee’s duties included coming up with new strategies and ideas and to identify opportunities for product extensions. This differed rom Kroyghly’s employment.

Based on this fact, the work of creating the new software “was not part of his assigned responsibilities.”

The trial judge recognized that this was a “harsh result” because of Kroughly’s sneaky behaviour.

Thus, the trip to the Court of Appeal.

That court reviews the  purpose of section 13 of the Copyright Act:

where the employer has paid for the development of the work (including through compensating the author(s) for their work in developing it), and assumed the risks associated in its development, the “just reward” should accrue to the employer rather than the individual author(s). Allocating reward to the entity that caused the work to be created is consistent with the principle that copyright should vest in the entity for whom the work was created and who paid for it.

The court goes on to explains that:

The overriding issue is whether the making of the work in question is something that the employee was asked or expected to do, either expressly or by necessary implication, as part of their employment responsibilities.

The fact that an employer could assign a duty to an employee does not mean that they actually assigned the particular function to the employee.

The court concludes that what matters most is whether or not “the employee’s actual (as opposed to potential) responsibilities included making the work.”

They agreed with the trial judge that Kroughly was the owner of the copyright in the new software.

It is important to note that this decision only dealt with the copyright issue. The employer also sued for other remedies including for conversion, breach of contract, breach of fiduciary duty, conspiracy to injury and inducing breach of contract. Those issues remain to be resolved.

So, this is not the end of their story.

TAKEAWAYS

• In the absence of an agreement to the contrary, an employer is the first owner of copyright in a work created by an employee “in the course of” their employment.”
• It is important to clearly define what is the in “course of employment” for any employee involved in creative work. This could include any creative work- in the age of precents and AI, almost any form of communication or document preparation might qualify.
• Narrow focussed duties are vastly different from duties which require the employee to develop ideas, concepts, and strategies, or use their skills to identify new opportunities.
• Well thought out employment agreements help to clarify these issues. They might include:
  • the required “agreement to the contrary, or
  • define the “course of employment.”
• Legal assistance in drafting employment contracts may prevent expensive disputes after the fact.
• The actual facts will always be more important than the paper relationship.
  • Note the emphasis on the distinction between what the employer could have done versus what they actually did.
    • It is important to “walk the walk’ not just “talk the talk.”
• Existing contracts should be reviewed regularly to make sure that they continue to reflect actual responsibilities.

 

WHAT WEILERS LLP CAN DO TO HELP YOU

Whether you:

• Need help drafting an employment contract, whether it is:
  • a custom contract for a single employee or
  • a template agreement.
• Are being asked to sign a contract;
• Need help to update an existing contract; or
• Need advice or representation to resolve or avoid a dispute,

we can apply our experience and skill for your benefit.

In the non-unionized sector, we act for both employers and employees.

For all your employment law needs, give Weilers LLP a call to see if we are the right lawyers for you.