X (formerly Twitter) and its owner Elon Musk have successfully petitioned a California court to dismiss a $500 million unpaid severance lawsuit. However, this dismissal does not mean that the matter is completely resolved. The district court judge dismissed the class action suit on the grounds that X’s severance plan was not governed by the Employee Retirement Income Security Act (ERISA), which the plaintiffs had accused X and Musk of violating. Although the court made no ruling on the facts of the case, the judge explicitly stated that the plaintiffs can amend and refile their complaint with other claims such as breach of contract or promissory estoppel.
The lawsuit, initially filed in July last year, alleged that X and Musk failed to fulfill severance obligations owed to approximately 6,000 former employees. Shortly after acquiring Twitter in October 2022, Musk conducted mass layoffs, reducing the workforce by at least 70 percent. The complaint claimed that laid-off employees were only offered one month of severance pay, which did not align with the benefits outlined in the company’s severance plan. The plan had been in place since 2019, and Musk’s merger agreement stated that employees would receive severance and benefits “no less favorable than” those offered prior to his takeover.
The plaintiffs accused X and Musk of violating ERISA through denial of benefits, breach of fiduciary duty, and failure to provide complete and accurate information about the severance plan. Rather than refuting these specific allegations, the defendants successfully argued matters of jurisdiction. To fall under ERISA, a severance plan must involve an “ongoing administrative program” for determining severance claims and benefits. The court found that X’s plan did not meet this requirement since it determined severance using set formulas and mathematical calculations rather than discretionary analysis on a case-by-case basis.
While the dismissal of the case does not mean that X has paid all the severance it legally owes to the plaintiffs, it does indicate that the plaintiffs may need to pursue claims such as breach of contract instead of federal labor law violations. The plaintiffs have three weeks to file an amended complaint detailing any unrelated claims they may have. However, this does not mark the end of X’s legal troubles surrounding the Musk-ordered layoffs. Several other severance suits have been filed against X by former Twitter executives, and Musk has already settled claims of unpaid severance by nearly 2,000 former employees. Additionally, there are ongoing lawsuits relating to severance, wages, and discrimination against X.
In conclusion, while X and Elon Musk have successfully had the $500 million unpaid severance lawsuit dismissed, the case is not entirely closed. The plaintiffs have the opportunity to amend and refile their complaint with alternative claims. X still faces legal challenges related to severance from other former employees. The outcome of these cases will determine whether X has fulfilled its severance obligations and whether further legal action will be taken.
