The Texas Supreme Court has ruled that an offer to pay
employees a bonus if they were still working for the employer when the company
was sold is binding on the employer. It does not matter that when such a
unilateral offer was made that either party could have terminated the
relationship at any time before the sale.
What happened. Less
than a year after American Energy Services (AES) was formed in 1996, the eight
original employees expressed their concern about the future of the company to
the owner. To allay their fears and to keep them working for AES, the owner
promised that if the company was ever sold, 5 percent of the proceeds of the
sale would be paid to any of the original employees still working for AES at the
time of the sale.
The company was sold in 2001 with seven of the original eight
still employed by AES. They demanded their pro-ceeds, and when the company
refused to pay, they sued, claiming AES breached the oral agreement. The trial
and appeals courts held that the agreement was not enforceable because at the
time the offer was made, there was only an “illusory” promise because as
at-will employees, the seven never had an obligation to continue working for
AES, and AES could have terminated them at any time.
What the court said. AES argued that it did not have to pay based on the earlier Texas Supreme Court
ruling that consideration for a promise, by either the employee or the employer
in an at-will employment, cannot be dependent on a period of continued employment
(Light v. Centel Cellular Co. of Texas, 1994). Such a promise
would be illusory because it fails to bind the promisor, who always retains the
option of discontinuing employment in lieu of performance. When illusory
promises are all that support a purported bilateral contract, there is no
The Supreme Court, however, determined that that precedent
was not applicable to the situation of the AES employees. When the AES owner
made the 5 percent offer there was actually no contract or agreement. The
employees made no return promise either real or illusory. What did happen was that AES made a unilateral offer that it
could have withdrawn at any time. The offer was never withdrawn. The contract
was formed when the company was sold, with the seven employees performing their
side because they were still on the AES payroll. The court ruled that AES was
then bound to perform its side of the contract by paying the employees the
promised amount. Vargas v. American Energy Services, No. 07-0520 (12/18/2009).
Point to remember: If
AES wanted to get out of its offer, it could have done so at any time by
withdrawing it or terminating the employees before selling the company.