Texas Employment Law Update : Texas Employment Lawyer & Attorney : Russell D. Cawyer : Kelly Hart & Hallman Law Firm : Dallas TX Labor Updates

The Fourteenth Court of Appeals in Houston recently held that it is the date the employee is provided notice of termination, and not the termination date itself, that commences the statute of limitations in a breach of contract case.  You can read the Memorandum Opinion in Malallah v. Noble Logistic Services, Inc. here.

Bader Malallah entered a three year employment contract with Noble Logistic Services, Inc. (“Noble”) that could be terminated earlier, without notice, for certain enumerated acts or omissions. Prior to the end of the three year term, Noble terminated Malallah’s employment. Four years and seven days after Malallah was first advised that his employment was terminated, but less than four years after his termination was memorialized in writing, Malallah sued for breach of contract.

Noble defended the suit on the grounds that the claims was not filed within the four year statute of limitations that applies to breach of contract claims because it was filed more than four years after Malallah was first given notice of his termination. At trial, the jury found that Malallah was terminated without good cause but also found that his termination occurred on March 2, 2001 (the date he was first given any notice of termination) rather than on March 16, 2001 (the date his termination was memorialized in writing). Therefore, despite the jury's finding that Malallah was terminated without good cause, the the trial court found that the claim was barred by the statute of limitations based on the jury's answer as to the date of termination and entered judgment for Noble. The Houston Court of Appeals [14^th Dist.] affirmed that judgment.

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The Texas Supreme Court held that unilateral contracts can be formed with at-will employees when employers make promises to employees and those employees perform based on that promise.  In Vanegas v. American Energy Services, Inc. the Supreme Court was 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 were still employed at the time of the merger.  The alleged promise arose in the context of a period when the company was performing poorly and the employees were complaining about working long hours with antiquated equipment. 

According to the Court's opinion, a vice-president of the company, in an effort to encourage employees to stay with the company, promised those original employees (of whom there were eight) that if they stayed with the company, they would be paid five percent of the value of any sale or merger.  When the company was sold, the seven remaining employees demanded their share of the proceeds.  The company refused and the employees sued.

The company argued that because the employees were at-will, any promise to pay those proceeds to the employees was illusory and unenforceable because the employer could have avoided the promise by firing the employees at any time.  The employees argued that the promise represented a unilateral contract that, once performed, became a binding enforceable obligation on the part of the employer.

The Court agreed with the employees and held that where an employer makes a unilateral promise to an at-will employee and the employee performs, a binding contract is formed upon that performance.  

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