The following article is provided for informational purposes only and is not a substitute for qualified legal advice. By reading this article, you understand and agree that there is no solicitor-client relationship between you and the author of this article.
It’s not uncommon these days for employees to have side businesses – or side hustles – in addition to their 9 to 5 employment. After all, who wouldn’t want a second stream of income? But where that side hustle involves the creation and commercialization of intellectual property, there is a risk that the employee’s use of that IP may infringe their employer’s copyright, even if the employee created that IP in their free time. As it turns out, in certain circumstances, an employer will own the copyright in works created by their employees outside of work hours. Consequently, it’s vital that employees with side hustles know how to identify these circumstances so that they can reduce the risk of costly legal disputes with their employers.
The general rule is that when an employee creates a work (that is, a thing capable of copyright protection such as a song, a document, a photo, artwork, or source code to name a few), the employer, rather than the employee, will own the copyright in that work if the employee authored it in the course of their employment. The employer’s ownership of the copyright means that the employer, and not the employee, will have the exclusive right to produce, copy, publicly display, and publicly perform that work, and also will have the exclusive right to authorize others to do so (i.e. the right to grant a license). In other words, the employer will have the exclusive right to monetize the work.
This general rule – that an employer owns the copyright in works created by employees in the course of the employment – can become contentious when an employee owns a side business which also aims to monetize intellectual property. For example, consider a software developer who is employed by a company but also does freelance work on the side. In this situation, the employee will need to be cautious that the copyright in the software they develop as part of their side hustle doesn’t actually belong to their employer. If such copyright does, in fact, belong to their employer, then the employee will likely infringe their employer’s copyright if the employee exercises any of the employer’s rights in that software, including the right to reproduce, sell, or license out that software. This could lead to a very costly lawsuit against the employee and obviously would undermine the ability of the employee to continue their side business.
Given the risk of an infringement lawsuit, any employee with a side business will want to have confidence that the works they create for their side business are not works created in the course of their employment with their employer. But what does it mean to author something in the course of employment?
Perhaps surprisingly, the answer to the question of whether something was authored in the course of employment relates less to whether it was authored during working hours, but instead more to whether creating that work was within the scope of the employee’s duties. This, however, raises another question. How does one know if creating a work was within the scope of their employment duties? There isn’t always an easy answer to this, but David Vaver, one of Canada’s leading intellectual property scholars, has proposed a helpful two-part test for solving this problem:
- Would the employee breach their employment contract by not producing the work? and
- Would the employee’s ownership of copyright in the work breach their duty of good faith or loyalty to their employer?
If the answer to either of these questions is yes, then the work was likely created in the course of employment. Otherwise, if the answer to both questions is no, then the work was likely not created in the course of employment meaning that the employee is likely the owner of the copyright. Of course, copyright ownership can be modified by contract. Employees should always check their employment agreement to determine just how much IP they assign to their employer – sometimes it can be a surprisingly large amount and can include works created outside of the course of employment!
Readers of this blog post should be aware that the above information, while helpful, is a simplification of a complex area of law. In practice, determining who is the true owner of copyright can be a complicated task. If you are an employee with a side hustle, you should consider speaking with an intellectual property lawyer to help confirm whether you or your employer owns the IP your business intends to commercialize. Failure to do so could result in a copyright infringement claim against you or your business which is never a good time.