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.