The Effect of Wrongful Termination on Share Award Agreements: The Importance of Clarity
When an employer makes a decision to terminate one of their employees without cause, that employee is entitled to a period of notice commensurate with the time they worked for the employer. If the employer does not provide prior notice of termination, the employee is entitled to damages for the notice period. When there is a bonus of shares that would have vested in the employee during the notice period, the employee is entitled to the benefit unless their contract contains a clear and unambiguous limitation of their right to the benefit. Such disputes often go to arbitration rather than to court, but what happens when the arbitrator makes an error?
Background
The terminated employee in McElgunn v Vermilion Energy Inc, 2026 ABCA 259 faced such a scenario. She was terminated without cause or notice after working for the employer, Vermilion Energy Inc, for about nine years. The employer had a program that provided employees with bonuses in the form of company shares. The employee and employer entered into a Share Award Agreement on July 23, 2020, with the shares to vest in the employee on April 1, 2023, but the employee was terminated on August 24, 2022, before the shares could vest.
The parties agreed to arbitrate their dispute, and the arbitrator found that the employee was entitled to ten months’ notice, and damages in lieu of notice over the ten months from August 24, 2022 to June 24, 2023. Although the arbitrator found that the employee would have been entitled to the shares if reasonable notice of ten months had been given, the arbitrator granted no damages in respect of the shares because he found that the terms of the Share Award Agreement unambiguously limited the employee’s right to damages.
Appeals Of The Arbitrator’s Findings
The employee appealed to the Alberta Court of King’s Bench. The chambers justice applied the correctness standard, finding that the arbitrator had made an error of law by misapplying the second prong of the test set out by the Supreme Court of Canada in Matthews v Ocean Nutrition Canada Ltd, 2020 SCC 26 [Matthews]. The Matthews test has two questions that must be answered to determine whether an employee is entitled to damages in lieu of notice with respect to the share bonus. The first question is whether the employee would have been entitled to the bonus during the reasonable notice period, which the arbitrator answered in the affirmative; the first prong was not at issue on the appeal. The second question is whether the terms of the employment contract or Share Award Agreement unambiguously remove or limit the common law right to the share benefit during the reasonable notice period. The arbitrator ruled that the employer’s Share Award Agreement disentitled the employee to damages and did not award her compensation for the shares.
The chambers justice emphasized that the second prong of the Matthews test required a clear limitation of the right to damages that contemplated the exact circumstances of the case, but the early termination clause in the employer’s Share Award Agreement did not clearly remove the employee’s right to damages upon wrongful termination. Accordingly, the chambers justice varied the arbitration award, directing the employer to pay the employee damages in compensation for the shares she would have received but for her wrongful termination.
The employer sought leave to appeal to the Court of Appeal of Alberta, arguing that the chambers judge had erred by applying the correctness standard rather than the reasonableness standard and improperly applied the second part of the Matthews test. However, the Alberta Court of Appeals denied the employer leave to appeal, finding that even if the reasonableness standard had been applied instead of the correctness standard, the chambers justice’s decision would not have been different, and the chambers justice was correct in his decision.
What This Means for You
The Alberta Court of Appeals emphasized that contractual language that limits an employee’s right to damages after termination must clearly limit the right in question and clearly apply to the specific circumstances of the employee’s termination. The reasonable notice requirement is an important common-law protection for employees; employers, as entities with more sophistication than individual employees, must ensure their contracts are precisely drafted in order to later claim those contracts have limited or taken away the rights of their employees. Employees should be assured that their right to damages on wrongful termination without reasonable notice cannot be limited in the absence of clear and unambiguous waiver of that right.
How We Can Help
At The Calgary Legal Team, we can assist you with all your employment litigation needs, whether it is a review of a termination or a Court challenge.
The Calgary Legal Team is here to help!
Comments