Executive summary: key legal and evidentiary issues

• Julia McElgunn was terminated without cause or reasonable notice after nine years as a Senior Geological Advisor at Vermilion Energy Inc., entitling her to a 10-month notice period.

• Central to the appeal was whether the 2020 Early Termination Provision of the Vermilion Incentive Plan unambiguously disentitled Ms. McElgunn from receiving a grant of 7,053 shares vesting within her notice period.

• Application of the two-part Matthews v Ocean Nutrition Limited test governed the analysis, requiring exclusion clauses to be "absolutely clear and unambiguous" to strip an employee's common law entitlements.

• The Arbitrator's reliance on the Board Amendment Provision — not expressly pleaded by Vermilion — raised procedural fairness concerns, though the Court found no breach occurred.

• Ambiguity in the defined term "Date of Termination" and the "for clarity" clause of the 2020 VIP introduced multiple plausible interpretations, undermining Vermilion's position.

• On appeal, the Court varied the arbitration award, ruling in favour of Ms. McElgunn and directing Vermilion to pay damages for the April 2023 Share Award she did not receive.

Background and employment relationship

Julia McElgunn worked as a Senior Geological Advisor at Vermilion Energy Inc. for approximately nine years before the company terminated her employment without cause and without reasonable notice on August 24, 2022. Ms. McElgunn sued Vermilion for damages arising from the wrongful dismissal. The parties agreed to resolve the dispute through arbitration under the Arbitration Act, RSA 2000, c. A-43, and appointed Jim McCartney as their arbitrator. On July 31, 2024, the Arbitrator issued a partial award finding that Ms. McElgunn was entitled to 10 months' notice, establishing a reasonable notice period running from August 24, 2022 to June 24, 2023.

The Vermilion Incentive Plan and share award at issue

Vermilion maintained an incentive program known as the Vermilion Incentive Plan (VIP), which granted employees shares in the company as a form of bonus compensation. Under the VIP, Ms. McElgunn had received a grant of 7,053 Vermilion shares scheduled to vest on April 1, 2023, pursuant to a Share Award Agreement dated July 23, 2020 (the 2020 SAA). Because the April 1, 2023 vesting date fell squarely within her 10-month reasonable notice period, the Arbitrator was required to determine whether she was entitled to receive this share award, or damages in lieu thereof. The Arbitrator applied the test from Matthews v Ocean Nutrition Limited, 2020 SCC 26, a two-step framework established by the Supreme Court of Canada. Under the first step, both parties agreed that, but for the termination, Ms. McElgunn would have been entitled to the April 2023 Share Award. Under the second step, the Arbitrator found that the 2020 Early Termination Provision of the VIP had the effect of disentitling her from receiving those shares, a conclusion Ms. McElgunn challenged on appeal.

The contractual framework: from the 2012 VIP to the 2020 VIP

When Ms. McElgunn joined Vermilion and entered into her Employment Contract in 2012, she was provided with a copy of the VIP then in effect (the 2012 VIP). That plan included a Board Amendment Provision granting Vermilion's board of directors authority to amend the VIP, including its early termination provisions. Each year, to obtain a share award, Ms. McElgunn had to positively agree to the terms of a new Share Award Agreement by clicking an "accept and acknowledge" button on Vermilion's Shareworks website. In 2020, the VIP was amended (the 2020 VIP), and when Ms. McElgunn accepted the 2020 SAA on July 23, 2020, she acknowledged receipt of the 2020 VIP and agreed that her share award was subject to its terms. The 2020 VIP introduced a new early termination provision stipulating that, for employees terminated other than for cause, all outstanding and unvested share awards would be terminated effective on the date that is 90 days after the "Date of Termination," with the employee forfeiting all rights to receive payment or compensation in lieu thereof. The "Date of Termination" was defined as "the actual date the Service Provider ceases to provide services to the Corporation, regardless of the reason for the cessation of services."

The procedural fairness issue

On appeal, Ms. McElgunn argued that the Arbitrator breached procedural fairness by relying on the Board Amendment Provision to bind her to the 2020 VIP, despite Vermilion not having expressly relied on that provision during the arbitration. She contended that if she had known the Arbitrator would be relying on the Board Amendment Provision, she might have made additional, or different, submissions. Justice Simard of the Court of King's Bench of Alberta rejected this argument. The Court found that the issue of Vermilion's authority to make the 2020 Early Termination Provision binding on Ms. McElgunn was "front and center" in the parties' pleadings and in the materials they submitted in the arbitration. Both parties had placed all relevant contract and VIP documents before the Arbitrator, and the Arbitrator was entitled to review and interpret the entire contractual record. Moreover, Ms. McElgunn herself had relied on documents that referenced and in turn contained the Amendment Provision, and her Employment Contract expressly stated that her Share Awards would be subject to the terms of the VIP. Even if there had been a procedural error, the Court found it could not have prejudiced the Appellant, since the conclusion that the 2020 VIP bound Ms. McElgunn was "incontestably correct" — she had positively accepted the 2020 SAA and its incorporation of the 2020 VIP. The first ground of appeal was accordingly dismissed.

The Matthews test and the Arbitrator's error of law

The second and decisive issue on appeal was whether the Arbitrator erred in applying part two of the Matthews test. The Matthews framework requires that exclusion provisions in an employment agreement or bonus plan must "clearly cover the exact circumstances which have arisen" and be "absolutely clear and unambiguous" to remove an employee's common law right to damages during the reasonable notice period. Importantly, where the relevant plan is a unilateral contract that the parties did not negotiate, the principle of strict construction applies "with particular force." Justice Simard found that the 2020 Early Termination Provision failed to meet this very stringent standard. The defined term "Date of Termination" — referring to "the actual date the Service Provider ceases to provide services" — was not clear in the context of a wrongful termination, because it could refer either to August 24, 2022, the day on which she was wrongfully terminated, or to the end of the period during which her Employment Contract effectively "remained alive" under Matthews for purposes of determining her compensation entitlements. The Court noted that Vermilion, as a sophisticated party, was capable of using far more precise words if it wished to clearly ensure that the provision removed an employee's rights to Share Awards that would vest during the common law reasonable notice period after a wrongful without-cause termination.

Ambiguity in the "for clarity" clause

The Court's conclusion was strongly reinforced by a "for clarity" clause at the end of the Early Termination Provision, which stated that during "the 90 day period following the Date of Termination and any notice period thereafter (whether actual or compensated in lieu thereof)" the employee would not be entitled to pro-rated vesting of any Share Awards or any other payment or compensation in lieu thereof. Justice Simard found this clause was open to at least two interpretations regarding the sequencing of time periods, and that contrary to its opening words, it did not add clarity but rather introduced "substantial confusion." The words "and" and "thereafter" strongly suggested that the 90-day period and the reasonable notice period ran consecutively, not concurrently, which undermined Vermilion's argument that all share award rights ended 90 days after the date notice of termination was given. Cases cited by Vermilion where courts found exclusion clauses met the Matthews standard, including Kosteckyj v Paramount Resources Ltd, 2021 ABQB 225 and Hunsley v Canadian Energy Services LP, 2020 ABQB 724, were found to be factually distinguishable because they contained much clearer language that very specifically disentitled wrongfully terminated employees.

Ruling and outcome

The Court allowed the appeal on the second ground, finding that the Arbitrator erred on the correctness standard in his application of part two of the Matthews test. Justice Simard varied the arbitration award pursuant to section 44(5) of the Arbitration Act to include a direction that Vermilion must pay damages to Ms. McElgunn to compensate her for the April 2023 Share Award — consisting of 7,053 Vermilion shares — that she did not receive. The Court agreed with Ms. McElgunn that this matter should not be remitted back to the Arbitrator to quantify her additional damages, as only questions of law were appealed and the Arbitrator's findings of fact were not challenged. The parties were directed to attempt to agree on the costs of the appeal and the quantum of the additional damages within 30 days, failing which they could contact the Court to arrange the necessary next steps for resolution of those two issues. The exact monetary amount of the damages was not determined at the time of this decision, as it remained subject to agreement between the parties.