Assuming the OP is an at-will employee (which is what it sounds like), I don't think the initial agreement matters. The cool thing about being at-will is you can quit whenever you want. Nobody can force you to stay there. The bad thing is they can fire you whenever they want for (almost) any reason.
That said, if you want to know your legal options, you absolutely should talk to a lawyer.
I don't see any reason to get a lawyer involved. They've paid him everything they owed him for the work he's done so far. They've made him a bad offer for the future (crap salary plus crap working conditions) that he would be very unwise to take, but there's nothing illegal about making a bad offer, any more than it would be illegal for him to offer to work for a million dollars an hour. He just needs to make it clear that he's not willing to work for them unless he gets either good pay or good working conditions.
That said, if you want to know your legal options, you absolutely should talk to a lawyer.