Business Law and the Regulation of Business 11th Edition by Richard Mann, Barry Roberts

تمرين 16

FACTS American Energy Services (AES or employer) was formed in the summer of 1996. AES hired the employees in this case that same year. The employees allege that in an operational meeting in June 1997, they voiced concerns to John Carnett, a vice president of AES, about the continued viability of the company. The employees allege that, in an effort to provide an incentive for them to stay with the company, Carnett promised the employees, who were at-will employees and therefore free to leave the company at any time, that ''in the event of sale or merger of AES, the original [eight] employees remaining with AES at that time would get 5 percent of the value of any sale or merger of AES.'' AES Acquisition, Inc. acquired AES in 2001. Seven of the eight original employees were still with AES at the time of the acquisition. These remaining employees demanded their proceeds, and when the company refused to pay, the employees sued, claiming AES had breached the oral agreement.
AES moved for summary judgment on the ground that the agreement was illusory. The employees argued that the promise represented a unilateral contract, and by remaining employed for the stated period, the employees performed, thereby making the promise enforceable. The trial court granted AES's motion for summary judgment, and the employees appealed. The court of appeals affirmed, holding that the alleged unilateral contract failed because it was not supported by at least one nonillusory promise.
DECISION Judgment of the court of appeals reversed, and case remanded.
OPINION Green, J. AES argues, and the court of appeals held, that our holdings in Light dictate the result in this case. [Citation.] In Light, we stated:
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. 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 contract.
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Light involved an employee's challenge to a covenant not to compete. [Citation.] ***
We revisited the issue of illusory promises in covenants not to compete in Sheshunoff. *** We reaffirmed our previous holding in Light that covenants not to compete in bilateral contracts must be supported by ''mutual nonillusory promises.'' [Citation.]
Citing our holdings in Light and Sheshunoff, the court of appeals [in this case] stated that ''[a] unilateral contract may be formed when one of the parties makes only an illusory promise but the other party makes a non-illusory promise. The non-illusory promise can serve as the offer for a unilateral contract, which the promisor who made the illusory promise can accept by performance.'' [Citation.] We agree with that statement, but the court of appeals erroneously applied those holdings to the current case.
The issue turns on the distinction between bilateral and unilateral contracts. ''A bilateral contract is one in which there are mutual promises between two parties to the contract, each party being both a promisor and a promisee.'' [Citations.] A unilateral contract, on the other hand, is ''created by the promisor promising a benefit if the promisee performs. The contract becomes enforceable when the promisee performs.'' [Citation.] Both Sheshunoff and Light concerned bilateral contracts in which employers made promises in exchange for employees' promises not to compete with their companies after termination. [Citations.] The court of appeals' explanation of these cases- describing an exchange of promises where one party makes an illusory promise and the other a non-illusory promise-describes the attempted formation of a bilateral contract, not a unilateral contract. [Citation.] ***
The court of appeals held that even if AES promised to pay the employees the five percent, that promise was illusory at the time it was made because the employees were at-will, and AES could have fired all of them prior to the acquisition. [Citation.] But whether the promise was illusory at the time it was made is irrelevant; what matters is whether the promise became enforceable by the time of the breach. [Citations.] 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. [Citation.] At that point, AES's promise became binding. AES then breached its agreement with the employees when it refused to pay the employees their five percent share.
Furthermore, the court of appeals' holding would potentially jeopardize all pension plans, vacation leave, and other forms of compensation made to at-will employees that are based on a particular term of service. ***
The fact that the employees were at-will and were already being compensated in the form of their salaries in exchange for remaining employed also does not make the promise to pay the bonus any less enforceable.
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AES allegedly promised to pay any remaining original employees five percent of the proceeds when AES was sold. Assuming AES did make such an offer, the seven remaining employees accepted the offer by staying with AES until the sale. Regardless of whether the promise was illusory at the time it was made, the promise became enforceable upon the employees' performance. The court of appeals erred in holding otherwise. ***
INTERPRETATION An illusory promise is a statement that is in the form of a promise but imposes no obligation upon the maker of the statement.
ETHICAL QUESTION Did AES act ethically by inducing the employees to continue working in return for a promise that AES considered to be not binding? Explain.
CRITICAL THINKING QUESTION Do you agree with this decision? Explain.