Major relief for Musk: Elon won't have to pay $500 million as severance to former Twitter staff

Elon Musk has been relieved of the obligation to pay $500 million in severance to former Twitter employees, following a court ruling. US District Judge Trina Thompson in San Francisco dismissed a lawsuit that claimed Musk refused to pay the severance after conducting mass layoffs at Twitter, now called X, following his acquisition of the company.

The lawsuit argued that Musk was required to provide severance pay under the federal Employee Retirement Income Security Act (ERISA).

However, Judge Thompson ruled that ERISA did not apply to the former employees’ claims, thus she lacked the jurisdiction to adjudicate the case.

This case is among several alleging that Musk failed to honour commitments to former Twitter employees and vendors after purchasing the social media company for $44 billion in October 2022.

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According to the complaint, Twitter’s 2019 severance plan stipulated that employees who remained after the buyout would receive between two to six months of pay, plus an additional week of pay for each year of service if laid off.

The class-action lawsuit, filed by former Twitter employee Courtney McMillian, claimed that the severance plan required under ERISA owed laid-off workers three months of pay. However, the employees received less than this amount, prompting the demand for $500 million in unpaid severance.

On Tuesday, Judge Thompson sided with Musk, ruling that the severance plan did not qualify under ERISA due to a separate payout scheme being communicated before the layoffs. She dismissed the case, stating that the severance program implemented after Musk’s takeover was the relevant one, not the 2019 plan cited by the plaintiffs.

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Plaintiffs Courtney McMillian, who managed Twitter’s compensation and benefits, and Ronald Cooper, an operations manager, asserted that Twitter offered only one month of pay as severance, without any benefits. Despite the dismissal, Judge Thompson allowed the plaintiffs to amend their complaint for claims not governed by ERISA.

This decision represents a setback for the thousands of former Twitter employees affected by the layoffs, though there remain opportunities for them to pursue larger payments. The ruling indicated that the plaintiffs could amend their complaint for non-ERISA claims.

If they proceed, Judge Thompson mentioned that she might consider consolidating this case with other ongoing lawsuits against X Corp/Twitter. There are still ongoing lawsuits from former top executives at Twitter, including one seeking $128 million in unpaid severance and another aiming to recover about $1 million in unpaid legal fees.

This ruling marks a significant moment in the ongoing legal battles following Musk’s acquisition of Twitter, as former employees continue to seek compensation through various legal avenues.