McElgunn v Vermilion Energy Inc, 2026 ABKB 188 is an important Alberta decision confirming that the Supreme Court of Canada’s framework in Matthews governs claims for bonuses and long-term incentive awards during the common law reasonable notice period.
The Court overturned the arbitrator’s conclusion that the employee’s vested share award was excluded by Vermilion’s incentive plan. The Court held that the plan’s termination language was not sufficiently clear and unambiguous to remove the employee’s common law entitlement to damages representing the share award that would have vested during the notice period.
Facts
The employee:
- worked for Vermilion for approximately nine years;
- was dismissed without cause in August 2022;
- was ultimately awarded 10 months’ reasonable notice;
- participated in Vermilion’s Variable Incentive Plan (VIP), under which 7,053 share awards were scheduled to vest on April 1, 2023, well within the reasonable notice period.
The parties agreed that Step 1 of the Matthews test was satisfied—the employee would have received the shares had reasonable notice been given. The dispute centred entirely on Step 2: whether the plan clearly excluded that entitlement.
The Matthews Two-Step Test
The Court applied the Supreme Court’s framework from Matthews.
Step One
Would the employee have received the compensation had employment continued through the reasonable notice period?
The answer was yes.
Because the vesting date occurred during the ten-month notice period, the employee would have received the share award had Vermilion provided proper notice.
This step was not disputed.
Step Two
Does the contract clearly and unambiguously remove that common law entitlement?
This became the decisive issue.
The Court reiterated several principles from Matthews:
- damages are assessed as though the employment contract remained alive during the notice period;
- the issue is not whether the employee remained actively employed;
- the issue is whether the employer has drafted language that clearly removes the employee’s common law entitlement to damages;
- exclusion clauses must clearly address the exact circumstances that occurred.
The Court emphasized that unilateral incentive plans are interpreted strictly against the employer where they purport to limit employee rights.
Why Vermilion’s Exclusion Clause Failed
The incentive plan attempted to terminate all unvested awards upon the employee’s “Date of Termination.”
The plan defined that date as “the actual date the Service Provider ceases to provide services…”
It also stated that forfeiture applied notwithstanding any entitlement to notice or severance.
Vermilion argued this language plainly referred to the employee’s last working day.
The Court disagreed.
The Court found that the phrase “actual date the Service Provider ceases to provide services” was ambiguous because, after Matthews, an employee’s employment contract is treated as continuing throughout the reasonable notice period for purposes of calculating damages.
Accordingly, the phrase could reasonably refer either to the last day physically worked or the end of the common law notice period.
Since both interpretations were plausible, the clause failed the Matthews requirement that exclusion language be absolutely clear and unambiguous.
The Importance of the “Exact Circumstances” Requirement
The Court relied heavily upon one of the key teachings from Matthews: An exclusion clause must clearly cover the exact circumstances that occurred.
Those circumstances were:
- wrongful dismissal;
- without cause;
- no working notice;
- bonus/share award vesting during the common law notice period.
The Court observed that Vermilion could easily have drafted language expressly stating that awards are forfeited after the employee receives notice of termination, even if they would otherwise vest during any statutory or common law notice period. It did not do so.
Instead, the plan relied upon general language about the “actual date” employment ended. That wording was insufficient.
Unilateral Contracts Receive Strict Interpretation
Another significant feature of the decision is the Court’s emphasis that incentive plans are generally unilateral contracts.
The Court reaffirmed Matthews that exclusion clauses in unilateral agreements receive especially strict scrutiny.
Where an employer drafts the language without negotiation, any ambiguity is interpreted against the employer. Accordingly, precision matters, ambiguity benefits the employee, and broad or general wording will often be insufficient.
Practical Drafting Lessons
The Court effectively confirmed that merely stating:
- employment must be active;
- employment has ended;
- awards terminate upon cessation of services; and
- awards are forfeited notwithstanding severance;
may not defeat a claim for damages if the language does not specifically address the employee’s entitlement during the common law notice period.
Employers wishing to exclude bonus or LTIP damages should expressly state that:
- entitlement ends on the date notice of termination is provided (or another clearly defined contractual date);
- no damages, compensation, or payment will accrue during any statutory or common law notice period; and
- the exclusion applies following wrongful dismissal and regardless of any entitlement to damages in lieu of notice.
Even then, such language remains subject to scrutiny and must comply with applicable employment standards legislation.
Significance for Alberta Employment Law
McElgunn is one of Alberta’s strongest post-Matthews authorities reinforcing that courts will not infer the loss of bonus or incentive compensation during the reasonable notice period. Instead, Alberta employers bear a heavy drafting burden.
Unless a bonus or incentive plan clearly and unequivocally removes the employee’s common law entitlement to damages, compensation that would have vested during the notice period will generally remain recoverable.
Key Takeaways
- The Court strictly applied the two-step Matthews analysis.
- Step 1 was satisfied because the share award would have vested during the reasonable notice period.
- The employer failed at Step 2 because its exclusion language was not “absolutely clear and unambiguous.”
- References to an employee’s “actual” termination date or cessation of services were insufficient to clearly exclude damages for awards vesting during the notice period.
- Ambiguities in unilateral incentive plans are interpreted against the employer.
- The decision reinforces that employers must draft exclusion clauses with precision if they intend to displace common law bonus or LTIP entitlements following wrongful dismissal.
Always seek legal advice. The above is for information purposes only.
Stephen Dugandzic received his Juris Doctor degree from the University of Alberta in 2013 and is Calgary-based. He previously practised with Bennett Jones LLP and Taylor Janis LLP before founding YYC Employment Law Group in 2018 and Evolution Legal in 2026.
FAQs
What is McElgunn about?
McElgunn is an Alberta Court of King’s Bench decision that considered whether a terminated employee was entitled to receive the value of unvested share awards that would have vested during the common law reasonable notice period. The Court applied the Supreme Court of Canada’s decision in Matthews v Ocean Nutrition Canada Ltd, 2020 SCC 26, and concluded that the employer’s incentive plan did not clearly exclude the employee’s entitlement to damages for the lost awards.
What is the two-step Matthews test?
The Supreme Court of Canada established a two-step analysis for bonus and incentive compensation claims:
- Would the employee have received the bonus or incentive had they worked through the reasonable notice period?
- If so, does the employment agreement or incentive plan clearly and unambiguously remove that entitlement?
In McElgunn, the first step was satisfied, so the case turned entirely on whether the incentive plan clearly excluded the employee’s entitlement.
Why did the employer lose the case?
The employer lost because the incentive plan did not clearly exclude the employee’s common law entitlement to damages. Although the plan stated that awards would be forfeited when the employee ceased providing services, the Court held that this language did not clearly address what happens during the common law reasonable notice period or expressly eliminate the employee’s right to damages.
Why wasn’t the phrase “actual date the employee ceases providing services” enough?
The Court found that the phrase was ambiguous after Matthews. At common law, damages are assessed as though the employment contract continued throughout the reasonable notice period. As a result, simply referring to the employee’s last working day or cessation of services did not clearly answer whether incentive compensation was payable as damages during the notice period.
Does an employee have to be actively employed to receive bonus damages?
Not necessarily. Following Matthews, the relevant question is not whether the employee remained actively employed. Instead, the question is whether the employer has clearly contracted out of the employee’s entitlement to damages for bonuses or incentives that would have been earned during the reasonable notice period.
What type of language should employers use to exclude bonus entitlements?
The decision suggests that employers should use clear and unambiguous language that expressly states:
- active employment ends on a specified contractual date;
- the employee has no entitlement to bonus compensation during any statutory or common law notice period; and
- the employee has no right to damages or compensation in lieu of the bonus following termination, whether wrongful or not.
General references to termination or cessation of employment may not be enough.
Does McElgunn mean every bonus is payable after termination?
No. The decision does not guarantee employees a bonus after termination. Instead, it confirms that unless the employer has clearly and unambiguously excluded bonus entitlements, an employee may recover damages for bonuses or incentive awards that would have been earned during the reasonable notice period.
Why are incentive plans interpreted strictly against employers?
Many bonus and incentive plans are unilateral contracts drafted solely by the employer. Because the employer chooses the wording, courts generally interpret ambiguities against the employer, particularly where the plan attempts to limit common law rights.
How does McElgunn affect Alberta employers?
The decision reinforces that Alberta employers must carefully draft bonus and long-term incentive plans. Clauses that merely require employees to be “actively employed” or state that awards terminate upon cessation of employment may not be sufficient to exclude damages unless they specifically address common law notice and the employee’s entitlement to damages.
What is the key lesson from McElgunn?
The key lesson is that precision matters. Following Matthews, employers seeking to exclude bonus or long-term incentive compensation during the reasonable notice period must draft language that clearly addresses the exact circumstances of a wrongful dismissal. If the language is ambiguous or fails to expressly remove the employee’s right to damages, Alberta courts may award compensation that would have vested during the notice period.