X’s $500 million unpaid severance case dismissed, but it may not be over

X (formerly Twitter) and its owner Elon Musk have escaped a $500 million unpaid severance lawsuit, successfully petitioning a California court to dismiss the case. Even so, this doesn’t mean the matter is over.

A district court judge dismissed the class action suit on Tuesday, accepting the defendants’ argument that X’s severance plan was not governed by the Employee Retirement Income Security Act (ERISA). As the plaintiffs had accused X and Musk of violating ERISA, this finding that it doesn’t even apply brought their case to a grinding halt.

However, the court made no ruling concerning the facts of the case. In fact, the judge explicitly stated that the plaintiffs can amend and refile their complaint with other claims such as breach of contract or promissory estoppel.

Initially filed in July last year, the lawsuit accused X and Musk of failing to fulfil severance obligations owed to approximately 6,000 former employees. Musk famously began conducting mass layoffs mere days after acquiring Twitter in October 2022, cutting its workforce by at least 70 percent.

The complaint alleged that laid off employees were only offered a single month of severance pay, which fell short of the benefits detailed in the company’s severance plan. Said plan had been in place since at least 2019, with Musk’s merger agreement having stated that employees would be given severance and benefits “no less favorable than” those offered immediately prior to his takeover. 

As such, the plaintiffs accused X and Musk of violating the ERISA through denial of benefits, breach of fiduciary duty, and failure to provide complete and accurate information about the severance plan.

X and Musk didn’t specifically refute the allegations that it had withheld employees’ entitlements. Instead, the defendants successfully targeted matters of jurisdiction. 

For a severance plan to fall under ERISA, it must involve an “ongoing administrative program” under which severance claims and benefits are determined. The court found that X’s plan involved no such program because it determined severance by applying set formulas and mathematical calculations rather than requiring discretionary analysis on a case-by-case basis. Thus, the ERISA does not apply.

Basically, the dismissal of this case doesn’t necessarily mean that X has paid all severance it legally owes to the plaintiffs. It merely means that they may have to come at X with claims such as breach of contract instead of for violating federal labour laws. The plaintiffs have three weeks to file an amended complaint detailing any claims they may have which are unrelated to the ERISA. 

Regardless of whether the plaintiffs do refile their complaint, X’s legal woes surrounding its Musk-ordered layoffs are far from over. A group of former Twitter executives previously filed a $128 million severance suit in March, another brought a $19.3 million one in April, and last September Musk agreed to settlement regarding claims of unpaid severance by almost 2,000 former employees. Tuesday’s order noted that at least six lawsuits have been brought against X regarding severance, as well as five relating to wages and discrimination.