In McElgunn v Vermilion Energy Inc., 2026 ABKB 188 (Simard, J), the Alberta Court of King’s Bench overturned an arbitration decision and awarded a disputed bonus payment as part of the employee’s severance.
This case is important because it clearly sets out the key principles used to calculate severance entitlements, spelled out in Matthews v Ocean Nutrition Limited, 2020 SCC 26, and applies them to a bonus plan.
Facts
The following were some of the pertinent facts summarized the ABKB:
- Julia McElgunn was employed as a Senior Geological Advisor for the employer, Vermilion Energy Inc. for 9 years
- After termination of employment, the employee and employer agreed to go to arbitration regarding her severance
- The VIP plan contained an early termination provision, which had the following language in it
If a Grantee cases to be a Service Provider as a result of being terminated other than a termination for cause … all outstanding Award Agreements and all unvested Share Awards … credited to a Grantee’s Share Award Account shall be terminated and all rights to receive a payment from the Corporation thereunder … shall be forfeited by the Grantee, and the Grantee shall not be entitled to receive any payment … or any other compensation in lieu thereof …
- The VIP plan also defined “Date of Termination” as “the actual date the Service Provider ceases to provide services to the Corporation, regardless of the reason for the cessation of services”
- The arbitrator issued an award for 10 months’ severance (the “Arbitration Award”). However, the Arbitration Award did not include damages for shares in Vermilion’s VIP bonus program. The employee would have received this money if her employment with Vermilion had continued for the 10 months after she was notified of termination
- McElgunn applied under Section 44(2) of the Arbitration Act for leave to appeal the Arbitration Award, and leave was granted for her to appeal on 2 questions: (a) did the arbitrator breach procedural fairness by relying on a contractual term that was not expressly pleaded or referred to by the employer, and (b) did the Arbitrator err in law in applying part two of the test from Matthews v Ocean Nutrition (SCC)?
Analysis / Conclusion
Justice Simard dismissed the first ground of appeal relating to procedural fairness.
The Court then considered whether the arbitrator had correctly applied step two of the severance entitlement test from Matthews.
At the outset the Court helpfully laid out the principles regarding reasonable notice entitlements that were directed by the Supreme Court of Canada in Matthews, including the two-step approach analysis, as follows:
[29] […]
- employers have a common law right to terminate employment contracts without cause, subject to an implied term in the contract to provide reasonable notice of the termination;
- when an employer terminates without providing reasonable notice, they breach this implied term of the employment contract;
- if that happens, the employee is entitled to an award of damages based on the period of notice which should have been given, with the damages representing what the employee would have earned during the notice period. Another way of saying this is that when employees sue for damages for wrongful dismissal, they are claiming damages as compensation for the income, benefits, and bonuses they would have received had the employer not breached the implied term to provide reasonable notice of termination, and had they continued working during that notice period;
- thus, the employment contract effectively “remains alive” for the purposes of assessing the employee’s damages, in order to determine what compensation the employee would have been entitled to, but for the dismissal; [underline added]
- to determine whether the compensation that the employee would have earned during the notice period includes particular bonuses or benefits, courts should employ a two-step approach, asking:
- but for the termination, would the employee have been entitled to the bonus or benefit as part of their compensation during the reasonable notice period; and
- if so, do the terms of the employment contract or bonus plan unambiguously take away or limit that common law right? [underline added]
- if the relevant contract or bonus plan is a “unilateral contract,” in the sense that the parties did not negotiate its terms, the principle of contractual interpretation requiring clauses excluding or limiting liability to be strictly construed “applies with particular force”; and
- the exclusion provisions in the agreement or plan must “clearly cover the exact circumstances which have arisen” and must be “absolutely clear and unambiguous”.
The Court found that the arbitrator erred in interpreting the VIP’s early termination decision, because it did not “clearly cover” the employee’s “exact circumstances” and did not “absolutely clearly and unambiguously disentitle her to the VIP award that would have vested in her reasonable notice period. The Court provided the following reasoning and direction:
[41] The “actual date [Ms. McElgunn] ceased to provide services” to Vermilion (the phrase that is used in the defined term “Date of Termination) is not clear. It could refer to August 24, 2022, the day on which she was wrongfully terminated. However, it could also refer to June 22, 2023, because as stated by Matthews, her Employment Contract effectively remained alive until June 24, 2023, for purposes of determining her compensation entitlements. The words “actual” and “ceased to provide services …. regardless of the reason for the cessation of services” do not indicate “absolutely clearly and unambiguously” which of the two dates is intended.
[42] Vermilion is a sophisticated party, and if it wished to clearly ensure that the 2020 Early Termination Provision removed someone like Ms. McElgunn’s rights to Share Awards that would vest during her common law reasonable notice period after a wrongful without-cause termination, it was capable of using far more precise words. It could have specifically referred to events like “the date on which an employee is given notice of termination without cause, and before the expiry of any required reasonable notice period but which was not provided to the employee.”
In the result, the Court ordered Vermilion to pay damages to Ms. McElgunn to compensate her for the VIP bonus that would have vested in her reasonable notice period, had her employment not been wrongfully terminated.
My Take
There is some contradictory caselaw in Alberta post-Matthews which is difficult to reconcile with the two-step test and other direction in Matthews.
I would respectfully suggest that the McElgunn case is precisely in line with the mandatory direction in Matthews.
Several cases in Alberta (and elsewhere) seem to still interpret bonus plans after wrongful dismissal as if the question were, “does the bonus plan give the employee this bonus during the notice period?”. Starting with that question leads adjudicators to engage in a balance of probabilities interpretation analysis about whether the plan seems to say the employee gets the bonus. Respectfully, Matthews is quite clear that this is incorrect.
Respectfully, the right question starts with the principle that the employment contract remains alive during the reasonable notice period. Matthews and McElgunn are clear on this. From that starting point, it is all-but-presumed the employee will receive whatever compensation they normally received while employed. Therefore, usually Matthews Step 1 will be satisfied.
At that point, the only question remaining is Step 2, which is whether the contract is absolutely clear and unambiguous that the employee will not receive the bonus after the date they receive notice of termination.
Often, plans are not clear enough for that.
Its not impossible to avoid paying incentives after termination of employment, but its difficult for a reason.
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