Executive Summary: Key Legal and Evidentiary Issues

• Vermilion Energy Inc. terminated Julia McElgunn without cause or reasonable notice on August 24, 2022, after nearly nine years of employment.
   
• An arbitrator found McElgunn was entitled to 10 months' notice but denied her damages for the April 2023 Share Award under Vermilion's Incentive Plan (VIP).
   
• McElgunn appealed that portion of the award, and leave to appeal was granted on two questions of law: procedural fairness and misapplication of the Matthews test.
   
• Justice Simard rejected the procedural fairness argument, finding the Board Amendment Provision was properly before the arbitrator.
   
• The Matthews test's second branch was misapplied, since the 2020 Early Termination Provision did not clearly and unambiguously remove McElgunn's entitlement to the share award.
   
• Quantification of damages hinged on share valuation, and the court ultimately awarded $184,389.57 plus pre-judgment interest based on the share price on the vesting date.
   

Facts of the case

Vermilion Energy Inc. terminated Julia McElgunn's employment without cause or reasonable notice on August 24, 2022. At the time, McElgunn was a Senior Geological Advisor who had worked at Vermilion for approximately nine years. McElgunn sued for damages, and the parties agreed to arbitrate the dispute under an arbitration agreement, appointing Jim McCartney as arbitrator. On July 31, 2024, the arbitrator issued a partial award finding that McElgunn was entitled to 10 months' notice, running from her August 24, 2022 termination date to June 24, 2023, but that she was not entitled to damages in lieu of receiving her April 2023 Share Award of 7,053 Vermilion shares [per 2026 ABKB 188, para 6; the later quantification decision, 2026 ABKB 531 para 22, instead uses a base figure of 7,171.9 shares in its damages calculation] under the company's Vermilion Incentive Plan (VIP). McElgunn appealed that portion of the award. Under section 44(2) of the Arbitration Act, RSA 2000, c A-43, an appeal could proceed only on a question of law and with leave of the court. On July 3, 2025, Justice Magnan granted leave on two issues: whether the arbitrator breached procedural fairness by relying on a Board Amendment Provision not expressly pleaded by Vermilion, and whether the arbitrator erred in applying the second part of the test from Matthews v Ocean Nutrition Canada Ltd, 2020 SCC 26. The appeal was heard on January 23, 2026, and Justice Simard's decision on these issues was released on March 12, 2026 (2026 ABKB 188). Simard J. allowed the appeal on the Matthews issue and directed that Vermilion pay damages for the April 2023 Share Award, and undertook to quantify those damages herself given the existing arbitration record. The parties could not agree on quantification and provided written submissions on May 8 and 14, 2026. Simard J. issued a further decision resolving quantification on July 24, 2026 (2026 ABKB 531).

Policy and legislative provisions at issue

Under the 2012 version of Vermilion's VIP, in effect when McElgunn was hired, the company's Board of Directors held the power to amend the VIP, including its early termination provisions (the Board Amendment Provision). The VIP was subsequently changed in 2020. The 2020 Early Termination Provision stated that if a grantee ceased to be a service provider other than for cause, then "effective on the date that is 90 days after the Date of Termination... all unvested Share Awards... shall be terminated and all rights to receive a payment from the Corporation thereunder... shall be forfeited," and further specified that "during the 90 day period following the Date of Termination and any notice period thereafter (whether actual or compensated in lieu thereof) the Grantee shall not be entitled to pro-rated vesting of any Share Awards." The 2020 VIP 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." Each year, to receive a Share Award, McElgunn was required to accept a new Share Award Agreement (SAA); on July 23, 2020, she accepted the 2020 SAA, which incorporated the 2020 VIP by reference. Also relevant was the Judgment Interest Act, RSA 2000, c J-1, section 2(1), governing the pre-judgment interest calculation.

Reasoning and analysis

On the procedural fairness issue, Justice Simard held that McElgunn's right to a fair hearing was not breached, because the parties had placed the full contractual record — including the 2012 VIP and the Board Amendment Provision — before the arbitrator, and McElgunn herself relied on documents referencing that provision. Even if a procedural error had occurred, the court found it could not have prejudiced McElgunn, since the underlying conclusion that the 2020 VIP bound her was, in the court's view, correct and unappealable. Turning to the Matthews test, the parties agreed the arbitrator correctly found that, but for her wrongful termination, McElgunn would have been entitled to the April 2023 Share Award during her reasonable notice period. The dispute centered on the second branch of the test: whether the 2020 Early Termination Provision unambiguously removed that entitlement. Applying the principle that exclusion clauses in unilateral contracts must be construed strictly and must "clearly cover the exact circumstances" with "absolutely clear and unambiguous" language, Simard J. found the definition of "Date of Termination" ambiguous as to whether it meant the actual termination date or the end of the notional notice period. The court further found that the clause's reference to a 90-day period "and any notice period thereafter" was open to at least two conflicting interpretations regarding whether these periods ran consecutively or concurrently, undermining Vermilion's position that the language clearly disentitled McElgunn. Distinguishing Kosteckyj v Paramount Resources Ltd, 2021 ABQB 225 and Hunsley v Canadian Energy Services LP, 2020 ABQB 724, where similar provisions used clearer disentitling language, the court concluded the 2020 Early Termination Provision did not meet the stringent Matthews standard. On quantification, in the follow-up decision, the parties agreed McElgunn would have received 10,757.85 shares (after a performance-based gross-up) vesting April 1, 2023, when Vermilion's share price was $17.14. McElgunn argued for valuation at the highest trading price after vesting — $21.60, dated September 14, 2023 in the decision's summary of undisputed evidence but attributed to September 11, 2023 in the decision's account of her argument [these two dates for the same $21.60 price appear inconsistently at paras 8 and 11 of 2026 ABKB 531] — under the approach in Mothersele v Gulf Canada Resources Limited, 2003 ABQB 2, while Vermilion argued for the $17.14 vesting-date price. Simard J. preferred the reasoning in Hibberd v Hurricane Hydrocarbons, 2006 ABQB 707, which held that the Mothersele approach applies only where it is impossible to determine what the plaintiff would have done; here, McElgunn bore the onus of leading evidence about how she would have held or sold the shares and had not done so, leaving her preferred valuation speculative.

Ruling and overall outcome

The court allowed McElgunn's appeal on the Matthews test issue while dismissing her procedural fairness ground, and varied the arbitration award to direct Vermilion to pay damages for the April 2023 Share Award. In the subsequent quantification decision, Justice Simard found that McElgunn had proven only the loss of the shares' value on the April 1, 2023 vesting date, and awarded her damages of $184,389.57 (calculated in the decision as 7,171.9 shares [see share-count discrepancy noted above] multiplied by a 1.5 performance factor and the $17.14 per-share price), together with pre-judgment interest calculated from April 1, 2023 under the Judgment Interest Act. The parties were directed to prepare a draft judgment, and the matter of costs for both the appeal and the quantification dispute remained outstanding, to be resolved by agreement within 30 days or by written submissions if the parties could not agree.