Ontario Court of Appeal Rules Employee-Owned Software Developed Independently Despite Employer’s Competing Business

The Ontario Court of Appeal recently delivered a significant ruling in Nexus Solutions Inc. v. Krougly, 2025 ONCA 199, clarifying the ownership of intellectual property created by employees outside the scope of their employment. The court confirmed that software developed independently by an employee, outside work hours, without employer request, and in direct competition with the employer’s business, is owned by the employee rather than the company.

This decision may strike many employers as counterintuitive. The trial judge even described the outcome as “harsh.” However, the court’s reasoning was firmly grounded in the specific employment relationship and the absence of any written agreement addressing intellectual property rights.

The employee in question was a senior software developer engaged in creating a particular product for his employer. Crucially, there was no written employment contract, no intellectual property assignment clause, and no explicit restrictions on side projects or competing work.

During his employment, the developer independently created a competing software product using his own resources and time. After resigning, he sought to market this product, including to clients of his former employer.

The employer contended that it owned the copyright under the Copyright Act, which generally vests ownership of works created “in the course of employment” with the employer. However, the court emphasized that the critical issue was not competition but whether the employee was asked, expected, or required to create the software as part of his job duties. Since he was not, the work fell outside the scope of employment.

The court’s analysis focused on the employee’s actual job responsibilities rather than hypothetical or potential tasks the employer might have assigned. This distinction was decisive in determining ownership.

The Copyright Act provides some protection to employers, but its reach is narrower than commonly assumed. It does not automatically cover works that fall outside an employee’s defined duties, even if the work relates closely to the employer’s business.

In the absence of a written agreement, employers face uncertainty and must rely on arguments about the scope of employment, timing, and intent—positions that courts may find unpersuasive.

What complicates this case further is that the employee’s conduct, while problematic, did not influence the copyright ownership decision. The court acknowledged concerns about the employee’s behavior but noted that copyright law is not intended to penalize misconduct.

Other legal claims, such as breach of fiduciary duty or misuse of confidential information, might still be available to employers but were not the basis for the court’s ruling on intellectual property ownership.

This outcome places employers in a challenging position, where even conduct that feels wrongful may not yield the expected legal remedies regarding ownership.

The Nexus Solutions case underscores the critical importance of addressing intellectual property ownership explicitly at the outset of the employment relationship. Without clear contractual provisions, employers risk losing rights to valuable employee-created work.

Ronald S. Minken, a senior lawyer and mediator at Minken Employment Lawyers in the Greater Toronto Area, and Tanya (Tejpreet) Sambi, a lawyer at the same firm, authored the analysis of this case.

This decision serves as a timely reminder for employers to implement comprehensive intellectual property agreements to safeguard their interests and avoid costly disputes.