When Does a Contract Renewal Become Constructive Dismissal? New Brunswick Court Addresses Fixed-Term Contracts

Dan Wilband

A recent New Brunswick decision has created uncertainty for employers who rely on fixed-term employment contracts. It raises important questions about when contract expiry protects employers from constructive dismissal claims.

In Comeau v. Valcom Consulting Ltd, 2025 NBKB 253, Chief Justice DeWare awarded an employee ten months’ salary for constructive dismissal. Interestingly, the contract in question had already expired.

The Facts: Fifteen Years of Fixed-Term Contracts

The employee had worked for Valcom Consulting as a senior project manager since 2009. For the first seven years, he provided services through his own corporation. In 2016, he transitioned to employee status and began signing a series of fixed-term employment contracts, typically lasting one to three years.

This pattern continued until March 2024, when his latest contract came to an end. The employer presented him with a new agreement. This time, it proposed an indefinite term contract with a 3% salary increase.

On its face, this looked like good news. But buried in the new agreement were significant changes: new layoff provisions, suspension clauses, and critically, termination language that limited the employee to statutory minimums under the Employment Standards Act rather than reasonable notice at common law.

The employer never highlighted these changes. Never walked through what they meant. Never opened a conversation about the implications.

The employee refused to sign, initially focused on his disagreement over the salary increase. (He had expected 5% based on conversations with his supervisor.) When he later reviewed the contract with his lawyer, the broader picture emerged.

The Court’s Decision: Constructive Dismissal Despite Contract Expiry

Chief Justice DeWare found that the employer had constructively dismissed the employee and awarded him ten months’ notice pay.

This outcome is striking because the old contract had expired. The employer was not unilaterally changing the terms of an existing employment relationship. It was offering new terms for a new contract. Under traditional principles, that should eliminate constructive dismissal risk entirely.

After all, when a fixed-term contract reaches its end date, the employment relationship simply terminates. The New Brunswick Court of Appeal confirmed this principle in Burns v. University of New Brunswick, stating plainly that: “an employee whose contract is not renewed at the conclusion of a fixed term contract is not entitled to reasonable notice.”

So how did the court find constructive dismissal here?

The Issue Left Unaddressed

Here is what makes this decision both significant and uncertain: Chief Justice DeWare does not directly address why the fixed-term structure should not matter.

The decision notes that the employee “worked continuously and uniquely for the Defendant as a Senior Project Manager from 2009 until March 2024.” It treats the relationship as ongoing despite the fixed-term structure. But it does not wrestle with the core legal question of how constructive dismissal principles apply when a contract expires and new terms are proposed.

The court does not cite Burns v. UNB. It does not distinguish that case or explain why a different result is warranted here.

Were these contracts truly fixed-term in the legal sense, or something else? In Ontario, courts have recognized that, sometimes, contracts that appear to be successive fixed-term agreements are actually ongoing employment relationships (Ceccol v. Ontario Gymnastic Federation).

Here, the employee had fifteen years of continuous service, under successive contracts tied to the employer’s own contract renewals with the Department of National Defence, and no real breaks in service. This suggests a similar dynamic may have been at play. Without explicit reasoning on this point, we are left to infer.

What the Court Did Focus On: Silence and Lack of Transparency

What is abundantly clear from the decision is that silence was costly.

The employer presented a contract with substantial changes to core terms and never flagged them. The termination provisions shifted from an implied right to reasonable notice to a clause limiting the employee to statutory minimums. Layoff and suspension provisions appeared for the first time.

Yet the employer never highlighted these changes. Never explained their purpose or implications. Never gave the employee a meaningful opportunity to understand what he was being asked to accept.

Both parties went quiet. The employer never followed up after presenting the contract. The employee stopped coming to work after March 27, removed his belongings, and the next communication was a lawyer’s letter in April alleging constructive dismissal.

Chief Justice DeWare was clearly troubled by this dynamic. While both parties played a role in the breakdown, the court found the employer bore responsibility for the constructive dismissal. The unilateral introduction of restrictive termination provisions, without consultation or even disclosure or follow-up, violated the employment relationship.

Practical Implications for Employers

For employers in Atlantic Canada this decision carries important lessons, particularly those using fixed-term contracts tied to project cycles or funding arrangements:

·       Do not assume contract expiry gives you a clean slate. If you have a long-term employee working under successive fixed-term contracts, courts may look past the formal structure to the substance of the relationship. The longer the relationship, the more cautious you need to be.

·       Transparency is essential when introducing new restrictive terms. If you are adding layoff provisions, suspension clauses, or limitations on termination entitlements, you cannot simply slip them into a contract renewal. Highlight the changes. Explain their purpose. Give employees time to review them and seek independent legal advice if needed.

·       Consider what fresh consideration you are providing. The law is clear that employers cannot unilaterally impose new restrictive terms on existing employees without providing something of value in return. In Holland v. Hostopia.com Inc., the Ontario Court of Appeal emphasized that fresh consideration is “especially important in the employment context where, generally, there is inequality in bargaining power between employees and employers.” If you are introducing terms that limit an employee’s common law rights, think carefully about what you are offering in exchange.

·       Document your rationale and process. If you are making changes to employment terms, create a clear record of why the changes are necessary, what you communicated to employees, and when.

The Unanswered Questions

This decision leaves significant questions unresolved. Can an employer propose new restrictive terms when a fixed-term contract expires? What weight should courts give to formal contract structure versus the practical reality of long-term relationships? When does a series of fixed-term contracts cross the line into an indefinite relationship requiring reasonable notice?

These questions matter because employers across Atlantic Canada use fixed-term contracts for legitimate business reasons: project-based work, grant-funded positions, seasonal operations. This decision suggests that pattern alone may create constructive dismissal risk when contracts are renewed with different terms, but the boundaries remain unclear.

Conclusion

Comeau v. Valcom Consulting Ltd demonstrates how silence and lack of transparency can transform a routine contract renewal into a costly constructive dismissal claim.

The employer introduced significant restrictive changes without explanation. Neither party communicated with the other. That breakdown cost ten months’ salary, even though the underlying contract had expired.

The decision leaves important legal questions open about how fixed-term contracts interact with constructive dismissal principles. But it’s clear courts will look beyond contract formalities to the substance of long-term employment relationships.

The ground beneath fixed-term contracts may be softer than many employers assume. And in any context, if you are changing fundamental employment terms, transparency is not optional. Explain the changes, provide proper notice, and give employees time to seek advice.