Scope of Employment

Copyright has several rules which apply automatically. If an employee creates a work in the scope of employment, and absent an agreement to the contrary, the employer is the first owner of the copyright in the work.^[1] The Ontario Court of Appeal had occasion to focus on what is meant by the words ‘in the scope of employment’ in Nexus Solutions Inc. v. Krougly, 2026 ONCA 199.

At trial, the Court held that the employer, Nexus Solutions, did not establish that the software in question was created by Krougly ‘in the scope’ of employment, even though Krougly secretly developed it while he was employed by Nexus and the software competed with Nexus’s software. Nexus raises several issues in its appeal. It argues that the trial Court erred “by requiring Nexus to show that it had specifically directed Krougly to develop the software at issue before it could succeed in claiming copyright pursuant to s. 13(3)”.

The Court of Appeal found that none of the alleged errors were made, and its analysis illuminates the meaning of the critical term ‘in the course’ of employment.

Background

Nexus is a software development firm that develops and markets a continuous emissions monitoring system (“CEMS”) software product called CEMView, which monitors and reports the compounds in smokestack emissions produced by heavy industry.

Krougly was an employee hired as a senior software developer to write source code for CEMView.

Several years before he left Nexus, Krougly began surreptitiously developing a competing CEMS software that was named “Limedas”, standing for “Live Measurement Data Acquisition System”. Krougly continued the development of Limedas until he resigned from Nexus, effective January 4, 2011. Following his resignation, he attempted to commercially market Limedas, including to some of Nexus’s customers.

Nexus discovered this activity and commenced legal action, raising several claims, including that it owned the copyright in Limedas as the work was developed ‘in the course of’ employment with Nexus.

The trial judge held that the factors relevant to the assessment of whether a work was created ‘in the course’ of employment were set out in the caselaw as follows:

(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.^[2]

The trial judge was not convinced that Nexus had established that these factors applied in the instant case. He found that the relevant factors were:

(1) There were certain similarities between CEMView and Limedas, since both programs were designed to collect, store, display, and report emissions monitoring data and used similar communication protocols to communicate with and acquire data from physical devices in smokestacks called “analyzers”. However, there were also substantial differences, including the fact that their source codes were different, and the algorithms they used and data they acquired were dissimilar. Krougly did not copy any substantial portion of CEMView in creating Limedas;

(2) The bulk of Krougly’s work in developing Limedas was done outside normal business hours and did not involve the use of Nexus property;

(3) Krougly’s primary role at Nexus was to develop the company’s existing CEMView software and he was not permitted to create any other software for Nexus without receiving prior authorization. Had Nexus become aware that Krougly was developing Limedas, his employment at Nexus would have been terminated;

(4) Krougly did not have a written contract of employment, and there was no written agreement that prohibited Krougly from working on his own projects on his own time, or allocated ownership of anything that he might create, whether during Nexus’s time or his own personal time;

(5) The development of CEMS was squarely within Krougly’s duties at Nexus, and had he been ordered to develop a program such as Limedas, he would have been required to do it. However, Krougly was not asked or directed to develop the software akin to that used by Limedas, and his work in creating it was not at the direction or within the control of anyone at Nexus. Krougly’s work on Limedas, although intimately related to the work he was doing at Nexus, was clearly a side venture;

(6) Nexus did not bargain for, or expend resources for the development of Limedas; and

(7) Nexus did not assume any major financial, organizational, or associative risks involved in the creation, production, and distribution of Limedas.^[3]

The Court of Appeal held that the purpose of the exception in section 13(3) of the Copyright Act is “premised on the determination that the employer ought to hold copyright over works that were made by the employee as part of their responsibilities to the employer. The supporting rationale is that the employee was paid to make the work and did so in fulfillment of their agreed role with the employer.”^[4]

While the factors set out in Penhallurick cited by the trial Judge may be relevant, the Court of Appeal held 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.”^[5]

The Court of Appeal articulate the test as follows:

The fact that an employer could require an employee to carry out a task is a necessary, but not a sufficient condition for that task to fall within the employee’s course of employment. Whether or not the task falls within the employee’s course of employment depends on whether the employer has actually assigned responsibility to the employee to carry out the task or perform the function in question. At the same time, the employer need not have specifically directed the employee to produce a particular work for that work to have been made in the course of employment. What is necessary, however, is that the employee’s actual (as opposed to potential) responsibilities included making the work.^[6] {Emphasis in original]

The Court of Appeal addressed the argument that Nexus argued that it was an error to require it to show some consideration flowing to Krougly for making Limedas stating that:

Nexus misconstrues the larger point the trial judge was trying to make, which is simply that Nexus did not expend resources to support the development of Limedas. This is why the trial judge regarded it as relevant that Krougly was being paid “the same salary he was being paid prior to starting Limedas on his own time”. In other words, because Krougly did not receive any increase in compensation when he began developing Limedas, and he undertook this work almost entirely on his own time and using his own equipment while still working full-time in his existing role with Nexus, Nexus did not fund the creation of Limedas by paying Krougly’s salary or otherwise. Read in context, this is all the trial judge was attempting to convey in his “bargain for” comment.^[7]

In conclusion, the Court of Appeal found there was no overriding or palpable error made by the trial judge and refused the appeal.

Lessons

There are important lessons for software developers from the decision.

An agreement to the contrary is contemplated by the wording in Section 13(3), and a developer would be wise to employ a well-crafted agreement setting out the rights of the employer and employee, the ownership of intellectual rights in work product and whether or not the employee could develop competing software. By directing the parties to consider these issues would serve to help them be aware of the possibilities of problems and, through agreement, avoid the problems.

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^[1] See Section 13(3) Copyright Act

^[2] See Nexus Solutions Inc. v. Krougly, 2026 ONCA 199 at para 10 relying on Penhallurick v. MD5 Ltd., [2021] EWHC 293 (IPEC), aff’d [2021] EWCA Civ 1770.

^[3] See Nexus Solutions Inc. v. Krougly, 2026 ONCA 199 at para 11.

^[4] See Nexus Solutions Inc. v. Krougly, 2026 ONCA 199 at para 27.

^[5] See Nexus Solutions Inc. v. Krougly, 2026 ONCA 199 at para 29.

^[6] See Nexus Solutions Inc. v. Krougly, 2026 ONCA 199 at para 34.

^[7] See Nexus Solutions Inc. v. Krougly, 2026 ONCA 199 at para 48.