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Thursday, July 11, 2024

Elon Musk wins dismissal of $500 million severance lawsuit from former Twitter employees

Judge Thompson dismissed the claims under the federal Employee Retirement Income Security Act (ERISA), which governs benefit plans.

Billionaire Elon Musk has secured a significant legal victory with the dismissal of a lawsuit brought by former employees of Twitter, now rebranded as X. The plaintiffs were seeking $500 million in severance payments that Musk allegedly refused to pay following his acquisition of the social media company. The ruling, issued by U.S. District Judge Trina Thompson, highlights key legal interpretations and sets the stage for ongoing legal battles involving Musk and his controversial management decisions.

Lawsuit and Allegations

The lawsuit, filed in July 2023 by Courtney McMillian, former head of Twitter’s compensation and benefits department, and operations manager Ronald Cooper, claimed that Twitter had violated its severance plan. According to the plaintiffs, employees who stayed on after Musk’s acquisition were promised two or six months of pay, plus an additional week for every year of employment, if they were laid off. Instead, the company allegedly provided just one month of pay with no benefits, sparking the legal challenge.

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Judge’s Ruling: ERISA Not Applicable

Judge Thompson dismissed the claims under the federal Employee Retirement Income Security Act (ERISA), which governs benefit plans. The judge ruled that Twitter’s severance plan did not involve an “ongoing administrative scheme,” such as continued health insurance or outplacement services, which would bring it under ERISA’s jurisdiction. Instead, Thompson noted that the plan only promised cash payments, making ERISA inapplicable in this context.

Opportunities for Plaintiffs to Amend Claims

While the dismissal under ERISA is a setback for the former employees, Judge Thompson indicated that they could amend their lawsuit to pursue claims not covered by ERISA. This opens the door for the plaintiffs to potentially seek recourse through other legal avenues. “The Court lacks jurisdiction. However, plaintiffs are not without recourse,” Thompson wrote, suggesting that there are other ongoing cases against Twitter for failure to pay wages or provide severance benefits.

Musk’s Defense and Business Rationale

Musk has defended the mass layoffs and reduced severance packages as necessary measures to prevent Twitter from going bankrupt. At the time of the acquisition, Musk claimed the company was losing approximately $4 million per day. Despite the cost-cutting measures, Musk and Twitter, now X, continue to face numerous lawsuits from former employees and vendors, alleging broken promises and unpaid bills.

Other Legal Battles

The dismissal of this particular lawsuit is just one chapter in the ongoing legal saga surrounding Musk’s acquisition of Twitter. Other prominent lawsuits include a case brought by former CEO Parag Agrawal and several top executives, seeking $128 million in severance they claim Musk refused to pay. These executives argue that their termination “for cause” was a tactic to deny them their contractual severance packages.

Additionally, Musk is contending with a lawsuit from shareholders who allege that he and his wealth manager failed to comply with a Securities and Exchange Commission rule requiring disclosure of acquisitions exceeding 5% of a company’s stock. Musk has attributed the delayed disclosure to a misunderstanding of the rule, rather than an attempt to defraud shareholders.

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The ramifications of Musk’s acquisition and subsequent layoffs extend beyond the U.S. In February 2024, former Twitter employees in Ghana reached a settlement with X after alleging they received no notice period or severance pay. These employees had relocated from neighboring countries, highlighting the global impact of Musk’s management decisions.