When Employees Create Competing Work – Court of Appeal

A recent decision from the Ontario Court of Appeal is a reminder of something many employers assume is already protected, but often isn’t. When employees create intellectual property, ownership is not automatic.

In Nexus Solutions Inc. v. Krougly, 2025 ONCA, the Court of Appeal confirmed that software developed by an employee outside work hours, not requested by the employer, that directly competed with the employer’s business and with no written agreement, belonged to the employee, not the company.

For many employers, that result will feel counterintuitive. It was described by the trial judge as “harsh.” But it was also entirely predictable based on how the employment relationship had been structured.

What Actually Happened

The employee, a senior software developer, worked on a specific product for his employer. There was no written employment agreement. There were no intellectual property assignment provisions. There were no clear restrictions on side projects.

While still employed, he developed a competing software product on his own time, using his own resources. After resigning, he attempted to market that product, including to the employer’s clients.

The employer argued that it owned the copyright under the Copyright Act, which generally provides that works created “in the course of employment” belong to the employer.

The Court disagreed.

Why the Employer Lost

The key issue was not whether the work competed with the employer. It was whether the employee had been asked, expected, or required to create that work as part of his job. He had not.

The Court focused on practical, fact-driven considerations:

The employee had no written agreement assigning IP to the employer
The work was created outside of working hours and offsite
The employer did not direct or request the work
The employee’s role was limited to a specific product, not broader innovation

In other words, the Court looked at what the employee was actually hired to do, not what the employer could have asked him to do. That distinction proved decisive.

What This Means for Employers

Many employers rely on assumptions when it comes to intellectual property:

If it relates to the business, we own it
If it was created during employment, we own it
If it competes with us, we must have rights over it

Nexus Solutions makes it clear that those assumptions can be wrong.

The Copyright Act offers some protection, but it is narrower than many believe. It does not capture work that falls outside the employee’s defined duties, even if that work is closely related to the employer’s business.

Without a written agreement, employers are left arguing about scope, timing, and intention. That is not a strong position to be in.

The Real Risk Isn’t Just IP

What makes this case particularly challenging is that the employee’s conduct itself was not enough to change the outcome.

The Court acknowledged the conduct was problematic, but copyright law is not designed to punish bad behaviour. Other claims, such as breach of fiduciary duty or misuse of confidential information, may still exist, but they were not the basis for deciding ownership.

That leaves employers in a difficult position. Even where something feels wrong, the legal remedy may not align with expectations.

Don’t Leave Ownership to Assumption

This case is not about a technical legal gap. It is about a preventable one.

Ownership of employee-created work should be addressed at the outset of the employment relationship, not after a dispute arises.

That means:

Clear, written employment agreements
Properly drafted intellectual property assignment clauses
Defined roles, particularly for employees involved in development or innovation
Appropriate confidentiality and restrictive covenants where enforceable

The absence of these protections is what ultimately determined the outcome in Nexus Solutions.

How Minken Employment Lawyers (Est. 1990) Can Help

Employment law and intellectual property issues often intersect in ways that create significant risk for employers.

Minken Employment Lawyers (Est. 1990) advises employers on drafting enforceable employment agreements, protecting intellectual property, and managing risk at every stage of the employment relationship.

If your organization relies on employee-created work, it is critical to ensure your agreements reflect that reality.

Contact Minken Employment Lawyers (Est. 1990) today for a confidential consultation at 905-477-7011 or contact@minken.com to connect with our team.

“Your Workplace is Our Business” ™

Sign up for our Newsletter to learn about new Employment Law legislation and Court decisions impacting your workplace.

Please note that this article is for informational purposes only and does not constitute legal advice or opinion.