Elon Musk & X Avoid Half A Billion Dollars In Payouts To Former Employees

Twitter (now X) owner Elon Musk won a court battle yesterday with former employees who had sued him for $500 million after he took over the social media company in 2022. Musk’s Twitter takeover not only saw him re brand the company to X, but it also involved the firing of thousands of employees as part of a cost cutting approach. The suit saw the former employees claim severance pay from the company, and a judge in California dismissed the lawsuit by ruling that the former employees were not entitled to benefits under the Employee Retirement Income Security Act.

Elon Musk Scores Legal Win In California After Judge Rules In Favor Of X In Severance Pay Lawsuit

Musk and Twitter were sued in July last year after he fired more than 85% of the firm’s staff after taking over. Back then, the executive had shared that Twitter was unprofitable, and he would have not only to significantly reduce headcount to cut costs but also introduced new features to generate revenue. One such feature came in the form of a subscription model, where users had to pay Twitter (now X) to get a verified account. A verified account would increase a user’s post reach, and subsequent tiers introduced since then also allow users to generate subscription revenue through their accounts and use features such as long form posts.

After the Twitter layoffs, a former manager and the former head of compensation sued Musk and their ex employer for failing to provide severance pay as part of the lay offs. They argued that while workers got severance pay that was equal to one month’s compensation, the Employee Retirement Income Security Act. Subsequently, the suit had argued that if X had followed its compensation plan, the employees would have been cumulatively entitled to $500 million.

While X paid the employees one month of severance pay, the lawsuit had argued that actual payment, according to the Twitter severance plan before Musk took over ranged from anywhere between two months to six months. The minimum severance, according to this plan, was “two months base salary, prorated performance bonuses, cash value of any RSUs vesting within three months of separation, and a cash contribution for continued healthcare coverage.” It added that Musk and the defendants knew that not adhering to the severance plan would lead to mass resignations that could not only jeopardize the multi billion dollar acquisition but also X’s viability.

Additionally, while the suit had claimed that “no point did Twitter, Mr. Musk, the Doe Defendants, or anyone with control or discretion over the Plan inform employees of the anticipated changes to the severance Plan,” and “management communication with Plan participants had largely gone silent since Mr. Musk’s takeover,” US San Francisco District Judge Trina Thompson ruled that the employee claims were not covered by the ERISA as X had told employees after the takeover that those who were fired would only get cash payouts.

The ERISA allows an employer to terminate the plan in several instances. These include situations where a firm is facing bankruptcy liquidation and if the costs of continuing the plan would lead to business failure.