Elon Musk must face claims he unlawfully fired former Twitter executives to save himself millions, a federal judge ruled Friday.
SAN FRANCISCO (CN) -- A federal judge ruled Friday that Elon Musk must face claims from four former Twitter executives who say Musk terminated them without cause, because he didn't want to pay the executives their severance packages after he bought the company in October 2022.
In a 10-page order, Senior U.S. District Judge Maxine Chesney, a Bill Clinton appointee, wrote that under the Employee Retirement Income Security Act of 1974 (ERISA), it is unlawful for any person to discharge a participant or beneficiary for the purpose of interfering with the attainment of any right to which such participant may become entitled under ERISA.
The former executives'' contracts stipulated that they could receive severance pay if Twitter, now known as X, was no longer a public company. When Musk bought Twitter in October 2022 and took the company private, the plaintiffs say they were entitled to cash out on the severance payments. According to the complaint, Musk knew in the days leading up to the closing of the deal to buy the social media company that the plaintiffs and several other executives would be entitled to payments totaling around $200 million.
The plaintiffs Parag Agrawal, Twitter's former chief executive officer, Ned Segal, its chief financial officer, Vijaya Gadde, its chief legal officer; and Sean Edgett, its general counsel, claim that Musk told his biographer that he intended to terminate the execs for cause to avoid paying their severance, saving himself the money. The plaintiffs also claim Musk told his biographer he would "hunt" the executives "till the day they die."
The plaintiffs claim Musk worked to accelerate the closing of the company, manufactured fake causes for the executives' terminations, cut off their email access, and sent them termination letters before they could resign and claim their benefits.
The plaintiffs say Musk failed to comply with a fiduciary duty by not making "objective benefits decisions according to a recognized framework."
Musk moved to dismiss the plaintiffs' claim that he and X unlawfully fired them in order to interfere with their ability to attain their benefits under their severance plans. Musk argued he was was acting as an employer rather than a fiduciary when he fired them.
"To the extent defendants argue that, in all instances, a termination by an employer/fiduciary is an action taken as an employer, the Court disagrees," Chesney wrote.
Where an ERISA fiduciary has breached a duty, they can be required to return to the beneficiary any benefit the fiduciary gains by the breach or, alternatively, to pay damages to the beneficiary in the amount necessary to "put the beneficiary in the position he or she would have attained but for the trustee's breach," the judge wrote.
"The factual allegations in the complaint, assumed true, support a finding that Musk fired plaintiffs for reasons related to the plans," the Bill Clinton appointee wrote. "Plaintiffs allege, for example, their respective termination letters stated they were being terminated for 'cause" under subsections 'e' and/or 'g' of the plans and that Musk had the letters sent 'to avoid paying [plaintiffs] benefits they are owed under the plans.'"
The parties' attorneys did not immediately respond to requests for comment.