Employee-Created IP and “Side Projects”: What Nexus v. Krougly Means for Employers

By George Waggott, founder and Roberto Fonseca-Velazquez, law student

George Waggott Law

The Ontario Court of Appeal’s decision in Nexus Solutions Inc. v. Krougly, 2026 ONCA 199, is a significant clarification of how section 13(3) of the Canadian Copyright Act will be interpreted in the employment context. The ruling underscores a narrowing of employer-friendly assumptions around ownership of employee-created intellectual property and carries important implications for Canadian workplaces.

Background and Decision

The Nexus Solutions case arose from a dispute between Nexus Solutions Inc., a software company, and a former employee, Vladimir Krougly. While employed as a software developer, Krougly secretly developed a competing software product and later sought to commercialize it. Nexus claimed ownership of the copyright in the software under section 13(3) of the Copyright Act, arguing the work was created “in the course of employment.” This phrase is significant because the legislation provides that works by employees which are created “in the course of employment” are the property of the employer.

At trial, the court rejected the company’s argument, finding the disputed software was not created in the course of employment, and was therefore not the employer’s property. Key factual findings included that the work was completed largely on personal time, without company resources, and involved work which was outside the scope of Krougly’s assigned duties.

The Court of Appeal upheld this result of the trial judge and confirmed that even where an employee creates a competing product while employed, and even where the conduct appears disloyal, copyright will not vest in the employer unless the statutory test is met.

Interpreting Section 13(3): A Narrower Lens

Section 13(3) of the Copyright Act creates an exception to the general rule that the author owns copyright, granting ownership to employers where a work is created “in the course of employment.” The Court of Appeal decision in Nexus Solutions clarified that this phrase must be interpreted narrowly and purposively. The central question is whether the work was something the employee was actually tasked or expected to create as part of their job, either expressly or implicitly.

Importantly, the Court rejected a broader “could have been assigned” approach. It is not sufficient that the work falls within the general field of employment or could theoretically have been directed by the employer. Instead, the focus is on the employee’s actual responsibilities, not hypothetical ones, and whether or not the work in question was within the scope of those assigned responsibilities. The decision also reinforces the underlying policy rationale: employer ownership is justified only where the employer has funded, directed, or assumed the risk of creating the work.

Implications for Employers

This decision has immediate and practical consequences for employers across knowledge-based industries:

1. Default statutory protection is limited:  Employers can no longer rely on section 13(3) of the Copyright Act as a broad safety net. Even closely-related or competitive employee creations may fall outside its scope.

2. “Side projects” may belong to employees: Work created outside of assigned duties, even if overlapping with the employer’s business, may remain the employee’s intellectual property and not the employer’s.

3. Misconduct does not equal ownership: The Court implicitly confirmed that questionable employee behaviour (such as secretly, developing a competing product) does not automatically transfer copyright ownership to the employer. Other legal remedies may exist, but not under section 13(3).

4. Role definition is critical: Courts will scrutinize what the employee was actually hired and directed to do, not what the employer believes falls within the role.

Recommendations for Employers

In light of the decision in Nexus Solutions, employers should consider the following proactive steps to protect intellectual property:

• Implement clear IP assignment clauses: Employment and other related agreements should expressly assign to the employer all IP created during employment, including work related to the business or developed using employee expertise.

• Define roles broadly and carefully: Job descriptions should capture not only current tasks but also anticipated areas of development and innovation.

• Address side projects explicitly: Policies and agreements signed by employees should clarify whether employees may engage in external or personal development projects, and under what conditions.

• Use confidentiality and non-competition protections: While distinct from copyright, these tools may provide alternative remedies where section 13(3) does not apply.

• Document direction and expectations: Evidence of assigned tasks and expectations can be critical in establishing whether work falls within the course of employment.

Key Takeaway

The Nexus Solutions decision signals a more disciplined and employee-centric interpretation of section 13(3) of the Copyright Act. For employers, the message is clear: if ownership of employee-created IP matters, it must be secured contractually and not assumed.

For more information about George Waggott Law, please see: www.georgewaggott.com, or contact: george@georgewaggott.com