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Elon Musk Denies One Twitter Withdrawal Lawsuit — But It’s Not the Last

Increase / The X sign at the company’s headquarters in San Francisco.

Getty Images | Bloomberg

Yesterday, a federal judge granted Elon Musk’s motion to dismiss a class action lawsuit alleging that fired Twitter employees were wrongly denied severance pay to which they were entitled under the Employee Retirement Income Security Act (ERISA).

The employees could have filed another lawsuit against Twitter alleging other severance violations, but their ERISA claim was dismissed by U.S. District Judge Trina Thompson of the Northern District of California.

“Plaintiffs are not without recourse,” Thompson wrote, noting that they could benefit from similar cases pending against Musk’s company. “Indeed, there are other cases against Twitter for failure to pay wages or provide severance benefits to employees during the same or overlapping period during which Plaintiffs allege that Defendants denied them and the putative class sufficient severance benefits under the severance plan at issue here.”

The putative class action lawsuit, which was dismissed yesterday, was filed last year by former Twitter employees Courtney McMillian and Ronald Cooper, who were offered a month of severance pay. They claim that “the severance pay Twitter has offered to date is a fraction of what employees are entitled to as participants in the Plan” and sought to represent a class defined as all severance plan participants who were laid off by Twitter after Musk bought the company in October 2022. They claimed that “laid-off employees are still entitled to no less than $500 million.”

Twitter, now X Corp., alleged that the company failed to maintain an ERISA-regulated severance plan. The plaintiffs alleged that a “formalized policy” existed for several years prior to Musk’s acquisition and pointed to “documents that provide a uniform and detailed policy framework for the numerous post-termination benefits Twitter provided to employees.” The plaintiffs alleged that employees were promised severance payments based on reason for leaving, length of service, job level, department, stock unit issuance, and other factors.

Lack of discretion

To be covered by ERISA, a severance plan must be “an ongoing administrative program for processing claims and paying benefits.” Twitter’s plan does not qualify, Thompson wrote in an order granting Musk’s motion to dismiss.

A severance plan with a lump sum payment may be covered by ERISA under certain conditions, Thompson wrote. Under the precedent cited by the plaintiffs, a severance plan may be covered by ERISA if the lump sum payments are based on a discretionary analysis performed on a case-by-case basis.

“Here, by contrast, Twitter paid and offered to pay severance based on basic employment criteria, which involved a mathematical calculation that did not involve a ‘case-by-case’ analysis or ‘discretionary application’ of Twitter’s severance terms,” Thompson wrote. “Twitter’s payments were ‘fixed, due on known dates, and (not) contingent on circumstances beyond the employee’s control.’”

Thompson concluded that the applicable severance plan is the one that was used after Musk’s acquisition. She wrote that “the factual background in the operational complaint does not demonstrate that there was any discretion required in determining which employees were eligible, because all employees were eligible for the severance plan upon termination due to the acquisition and subsequent merger.”

There was also no discretion in awarding bonuses to terminated employees “because there was a severance formula that employees could apply before the payout.” Thompson dismissed the ERISA claims and said any attempt to change those claims “would be futile.”

Other compensation claims still pending

Plaintiffs can file an amended complaint, but only for non-ERISA claims, such as breach of contract or estoppel. The amended complaint can “state claims alleging inadequate severance benefits offered or provided to terminated employees under the severance plan in effect for the mass layoffs in 2022 and 2023,” Thompson wrote.

If the plaintiff chooses this route, “the Court will consider making an order declaring this case to be related to one of the cases currently pending, such as CornetThompson wrote. If it turns out the case is related to Cornetit could be moved to the District of Delaware, where Cornet is heard.

This Cornet vs Twitter The lawsuit alleges violations of the Worker Adjustment and Retraining Notification Act (WARN). The lawsuit states that Twitter failed to provide all employees with the required 60 days of written notice before layoffs and that Twitter failed to pay in exchange for notice.

Both cases involve allegedly “insufficient severance payments made by Twitter following mass layoffs in November 2022, December 2022, February 2023, and September 2023,” Thompson noted.

In addition to alleged violations of the WARN Act, Cornet The lawsuit claims Twitter broke promises it made in the months leading up to Musk’s acquisition being completed. As Thompson wrote, “Cornet The plaintiffs are bringing the contractual severance pay claims on behalf of a putative class of X Corp employees and former employees from across the country who were promised that “in the event of termination, employees would receive benefits and severance benefits at least as favorable as the benefits and severance benefits Twitter previously provided to its employees.”

In September 2023, Musk’s X Corp. agreed to settlement talks on arbitration claims from about 2,000 employees laid off after the sale. However, the talks failed to reach an agreement, and lawsuits seeking damages are ongoing.