Dallas Business Litigation Attorney Shain Khoshbin Reports On Shifting Law Of “Unilateral Contracts” And “At-Will Employees” In Texas
“A promise made is a promise kept.” Companies in Texas need to take heed of this adage given the recent opinion by the Texas Supreme Court in Ed Vanegas, et al. v. American Energy Services, et al., Tex. Sup. Ct. J. 204 (Tex. December 18, 2009).
In Vanegas, the Texas Supreme Court gave more teeth to the concept of “unilateral contracts” in the employment context under Texas law. In other words, it gave more direction on when a company needs to make good on a promise to an “at-will” employee.
According to the Court’s opinion, a vice-president of the employer/company promised some employees that they would be paid five percent (5%) of the value of any sale or merger – – if they stayed with the company until such sale of merger. Apparently, the vice-president made this promise after the employees questioned the company’s viability, and complained about working long hours with antiquated equipment.
When the company was sold, some of these remaining employees demanded their share of the proceeds. When the company refused, those employees sued.
The company argued that any such promise to pay those employees a percentage of the value of any sale or merger was “illusory” and unenforceable because the employees were “at-will.” Therefore, it argued the employer could have side-stepped the promise by firing the employees at any time. The employees argued that the promise was a “unilateral contract” that became a binding on the employer once they performed (i.e., stayed with the company until its sale or merger).
The Court of Appeals agreed with the company. The Texas Supreme Court did not.
The Texas Supreme Court held that the facts of the case created a “unilateral contract” binding on the company/employer. The Vanegas opinion stated:
“In this case, we are asked to decide the enforceability of an employer’s alleged promise to pay five percent of the proceeds of a sale or merger of the company to employees who are still employed at the time of the sale or merger. The employer, American Energy Services (AES), argues that because these were at-will employees, any promise was illusory and therefore not enforceable—the company could have avoided the promise by firing the employees at any time. The employees respond that the promise represented a unilateral contract, and by staying on with the company until AES Acquisition, Inc. acquired AES several years later, they performed on the contract, making it enforceable. We agree with the employees; continuing their employment with the company until it was sold would constitute performance under such a unilateral contract, making the promise enforceable, regardless of whether that promise may have been considered illusory at the time it was made.”
The Texas Supreme Court reasoned that whether the initial promise was illusory is irrelevant – – what matters is whether the promise became enforceable by the time of the alleged breach. Justice Green, who wrote the opinion, explained:
“Almost all unilateral contracts begin as illusory promises. Take, for instance, the classic textbook example of a unilateral contract: ‘I will pay you $50 if you paint my house.’ The offer to pay the individual to paint the house can be withdrawn at any point prior to performance. But once the individual accepts the offer by performing, the promise to pay the $50 becomes binding. The employees allege that AES made an offer to split five percent of the proceeds of the sale or merger of the company among any remaining original employees. Assuming that allegation is true, the seven remaining employees accepted this offer by remaining employed for the requested period of time.”
Shain Khoshbin (www.cdklawyers.com/shain.php) is a partner at Clouse Dunn Khoshbin LLP, a Dallas-based law firm dedicated to zealous representation, outstanding results and attentive client service. As a boutique devoted to business and employment litigation, the CDK prides itself on adroit reaction to its clients’ needs, innovation, and cost-effective dispute resolution.
Press Release Contact Information:
SHAIN A. KHOSHBIN
Clouse Dunn Khoshbin LLP