Who actually owns the intellectual property when a contractor builds something for an Ontario business? Many businesses assume that paying for work means owning it. Under Canadian law, that assumption is often wrong.
The gap between what a business believes it owns and what it actually owns usually stays hidden until a financing, sale, or dispute forces the question. This article explains the default rule, how contractors differ from employees, where ownership gaps surface, and what a proper IP assignment should include.
Key Takeaways
- Paying a contractor does not, by itself, give a business ownership of the intellectual property they create.
- Under the Copyright Act, the author of a work is generally its first owner, unless ownership is assigned.
- Without an assignment, a business may only have an implied licence to use the work, not ownership of it.
- Employees' work created in the course of employment generally belongs to the employer. Contractors' work does not.
- A copyright assignment must be in writing and signed, and moral rights can only be waived, not assigned.
- IP ownership gaps usually surface during financing, a sale, or a dispute, when they are hardest to fix.
- The safest approach is a written IP assignment and moral rights waiver signed at the start of every engagement.
Who Owns the IP When You Use a Contractor? The Default Rule
Under section 13(1) of the Copyright Act, the author of a work is its first owner. When a contractor creates the work, the contractor is the author.
This applies even if the business commissioned the work and paid for it in full. Commissioning a website, software, a logo, or marketing content feels like it should transfer ownership automatically. Without a written assignment, it generally does not.
Implied Licence vs. Ownership
Without an assignment, a business that paid for work will often have an implied licence to use it for the purpose it was created for. That may be enough to keep using a website or logo day to day.
A licence is not ownership, though. It can be limited to its original purpose, and it may not allow the business to modify the work freely, license it to others, or build a new product on top of it.
That difference rarely matters until the business needs to rely on full ownership. By then, fixing it usually requires the contractor's cooperation.
IP Ownership: Contractors vs. Employees Under the Copyright Act
Section 13(3) of the Copyright Act creates an exception for employees. Where a work is created by an employee in the course of their employment, the employer is generally the first owner of the copyright, unless there is an agreement to the contrary.
This exception does not apply to independent contractors. Contractors work under a contract for services, not a contract of employment, so the general rule applies. Unless the contractor assigns ownership in writing, they keep it, even after the business has paid in full and is actively using the work.
When a Contractor Is Reclassified as an Employee
Working relationships do not always stay the way they were first set up. A contractor may gradually take on fixed hours, exclusive availability, and close supervision, without anyone updating the paperwork.
Whether someone is an employee depends on the substance of the relationship, not the label in the contract. If the person was actually an employee when the work was created, the employer ownership rule may have applied to that work all along.
Relying on that outcome is risky, though. Status is decided case by case, and the result is rarely certain in advance. The CRA's test for contractors in Ontario and our article on contractor vs. employee misclassification in Ontario explain how status is assessed. A written assignment removes the need to rely on that analysis at all.
When IP Ownership Gaps Surface: Financing, Sales, and Disputes
IP ownership problems rarely appear while the work is being done. They surface later, often years after the work was completed.
A product may be built by several contractors over time, and the company assumes it owns everything that resulted. Then a financing round, a sale, or a dispute triggers a review. That review reveals that some assignments were never signed, or never existed.
Buyers and investors check for this. During due diligence in an Ontario business purchase, a buyer's lawyers will look for signed IP assignments from everyone who worked on the product.
Investor due diligence usually covers the same ground. A gap can delay a deal, reduce the price, or become a condition the business has to fix before closing.
Patents and Contractor Inventions
Patents follow a different framework from copyright, but the same practical lesson applies. An invention generally belongs to the inventor unless rights to it are assigned.
A business relying on inventions developed by contractors needs a written assignment covering those inventions, just as it does for copyright in code or creative work.
Ownership of inventions made by employees can depend on the circumstances of the employment, so written terms are the safest approach in either case.
Logos, Trademarks, and Design Work
A logo or brand design created by a contractor raises two separate questions. Copyright in the artwork belongs to the designer unless it is assigned. Trademark rights in the brand arise from its use and registration.
Registering a trademark does not, by itself, transfer copyright in the underlying design. A business that registers a logo it does not own the copyright to has only solved part of the problem.
What a Contractor IP Assignment Should Include
A properly drafted contractor agreement should deal with IP ownership clearly, at the start of the engagement. In most cases, it should include the following.
A Written, Signed Assignment
Under the Copyright Act, an assignment of copyright is only valid if it is in writing and signed by the owner. A verbal understanding, or an invoice describing the work, is not enough.
A Moral Rights Waiver
Authors also have moral rights, including the right to be associated with the work and to prevent changes that harm their reputation.
Under section 14.1 of the Copyright Act, moral rights cannot be assigned. They can only be waived. An agreement that assigns copyright without waiving moral rights leaves a gap.
A Clear Definition of the Work
The agreement should define what is being assigned, such as code, designs, documents, and all versions and drafts. Vague descriptions create room for disagreement later.
A Licence for Pre-Existing Materials
Contractors often reuse their own tools, templates, or code libraries. The agreement should either assign those elements or give the business a clear, ongoing licence to use them as part of the deliverables.
Patent and Invention Rights
Where the work could lead to an invention, the agreement should also assign invention and patent rights, and require the contractor to help with any filings.
Missing IP Clauses Often Signal Other Contract Gaps
A contractor agreement with no IP assignment clause often has other weaknesses too. Agreements drafted quickly, or copied from a generic template, tend to be thin across the board.
If that contractor is later found to be an employee, the agreement will also lack termination language built for employment standards. Our article on termination clauses in Ontario employment contracts explains why that matters.
This is one reason contractor agreements deserve the same structural review as any other agreement in our guide to commercial contracts for Ontario businesses, rather than being treated as a simple statement of work.
When to Involve a Lawyer
The best time to involve a lawyer is before a contractor starts work, when the IP assignment and moral rights waiver can be built into the agreement.
It is also worth getting advice before a financing round or sale, or if you are unsure whether past contractors ever signed assignments. Gaps can sometimes be fixed with confirmatory assignments, but that is much easier while the relationship with the contractor is still good.
The Bottom Line on Who Owns the IP When You Use a Contractor in Ontario
Paying a contractor does not make you the owner of what they create. Unless ownership is assigned in writing, the contractor generally keeps it, and your business may only have a limited right to use the work.
The fix is straightforward if it is done at the start: a written, signed IP assignment, a moral rights waiver, and a clear definition of the work. Discovering the gap during a sale or financing is far more costly.
If contractors have built any part of your product, brand, or software, our team at Levine Law can help. We can review your agreements, confirm what you actually own, and put proper IP assignments in place before a sale or financing tests them.
Frequently Asked Questions
Does paying a contractor give a business ownership of their work?
No. Under section 13(1) of the Copyright Act, the author of a work is generally its first owner, and a contractor who creates the work is its author. Payment alone does not transfer ownership. Without a written assignment, a business may only have an implied licence to use the work for its original purpose, which may not allow it to modify, license, or build on that work freely.
How is IP ownership different for employees and contractors?
Work created by an employee in the course of employment generally belongs to the employer, unless they agree otherwise. That rule does not apply to independent contractors, who keep ownership unless they assign it in writing. If someone treated as a contractor was actually an employee, the employer rule may apply, but that is uncertain. Our article on contractor vs. employee misclassification in Ontario explains how status is assessed.
What are moral rights, and why do they matter in a contractor agreement?
Moral rights protect an author's connection to their work, including the right to be named and to prevent changes that harm their reputation. Under the Copyright Act, moral rights cannot be assigned, only waived. A contractor agreement that assigns copyright but does not include a moral rights waiver leaves a gap. The contractor could still object to certain changes, even though the business owns the copyright.
When do contractor IP ownership gaps usually get discovered?
Usually during a financing round, a sale, or a dispute, rather than during normal operations. Buyers and investors check for signed IP assignments from everyone who worked on the product. A missing assignment can delay a deal, reduce the price, or become a condition to fix before closing. Our article on due diligence in Ontario business purchases explains what buyers typically review.
Can an IP assignment be signed after the work is finished?
Often, yes. A contractor can sign a confirmatory assignment and moral rights waiver after the work is completed. However, it depends on the contractor's cooperation, which is harder to get if the relationship has ended or soured, or if they know a transaction depends on it. The safest approach is to have the assignment signed at the start of every engagement, before any work begins.