Dive Brief:
- Former executives for social media site Twitter, now X, sued site owner Elon Musk in an effort to recover more than $128 million in severance benefits they allege have been left unpaid, according to a complaint filed Monday in federal court.
- The suit was filed in the Northern District of California court on behalf of former X executives including previous CEO Parag Agrawal, ex-CFO Ned Segal, former Chief Legal Officer Vijaya Gadde and ex-General Counsel Sean Edgett — all of whom were fired from their positions shortly after Musk assumed control of X following his $44 billion acquisition of the company in 2022. Musk terminated the executives in an attempt to skirt paying severance as detailed under the site’s established policies, the suit alleges.
- “Because Musk decided he didn’t want to pay Plaintiffs’ severance benefits, he simply fired them without reason, then made up fake cause and appointed employees of his various companies to uphold his decision,” according to the complaint filed by David Anderson of Sidley Austin LLP on behalf of the plaintiffs.
Dive Insight:
Under Twitter’s severance policy for senior executives, Agrawal, Segal, Gadde and Edgett are entitled to compensation equal to one year’s salary as well as unvested stock awards, according to the complaint. Musk refused to pay these benefits — which total about $128 million collectively — and holds “a special ire” for the four executives following their conduct in the months leading up to his takeover of X.
Musk repeatedly tussled with the company’s leadership before assuming control of the company; Twitter sued the South African billionaire to complete the acquisition after repeated attempts by Musk to back out of the deal. Agrawal, Segal and the other executives participating in the suit “appropriately and vigorously represented the interests of Twitter’s public shareholders throughout Musk’s wrongful attempt to renege on the deal,” the complaint said. “For their efforts, Musk vowed a lifetime of revenge.”
Agrawal is entitled to severance pay of over $57 million, comprised of one year’s salary of $1 million plus restricted stock units, performance share units and granted special performance-based value creation awards, the complaint argues. Segal is entitled to about $44 million, comprised of one year’s salary of $600,000 plus assorted stock and awards, while Gadde is entitled to $20 million and Edgett to $6.7 million, according to the complaint.
Agrawal, an 11-year alum of Twitter, assumed the company’s CEO seat in November 2021 after serving for four years as its chief technology officer, according to his LinkedIn profile. Segal took the CFO role in August 2017 after serving past roles including SVP of finance, small business group for Intuit and finance chief for RPX Corporation. He currently serves on the boards of several companies including Beyond Meat, RingCentral and BostonGene, according to his LinkedIn page.
“Severance plans are an important feature of modern corporate governance, aligning the economic interests of executives and shareholders in the face of a corporate takeover, especially one as contentious as Musk’s acquisition of Twitter,” the Monday complaint argues.
The definition of “cause” when it comes to termination was also “limited to extremely narrow circumstances,” the complaint said, including felony convictions, committing gross negligence, or willful misconduct. It is not “’Board-approved business decisions that Musk dislikes,” according to the complaint.
Both Agrawal and Segal were let go on the first day Musk finally assumed control of the company in October 2022 alongside both Gadde and Edgett, prompting speculation that just such a severance battle was brewing.
A fight over severance could turn ugly for both Musk and the executives, Industry Dive sister publication Legal Dive reported at the time, as Musk now has access to sensitive internal communications that could be brought up during the suit — such as the real number of “bot” accounts on the platform, a critical point of contention during X’s bid to force Musk to complete his acquisition.
The suit on behalf of the site’s former top leadership is the latest challenge to land on Musk’s doorstep; the billionaire also refused to settle a class action lawsuit by former X employees who say they are owed more than $500 million in unpaid severance themselves, according to a report by Reuters in late February.
Musk, who also serves as CEO of electric vehicle company Tesla, is also facing compensation troubles of his own following several lukewarm quarters for the EV manufacturers, with a court rejecting a proposed $56 million pay package from Tesla to the billionaire in January.
In the course of what is shaping up to be tempestuous time at X’s helm, Musk has also repeatedly alienated vendors and advertisers from participating on X, cursing at advertisers boycotting the site during a DealBook conference in November. The boycott itself arose after Musk endorsed anti-Semitic comments on the site, according to a report by the Verge.
“Under Musk’s control, Twitter has become a scofflaw, stiffing employees, landlords, vendors, and others,” the Monday complaint reads. “Musk doesn’t pay his bills, believes the rules don’t apply to him, and uses his wealth and power to run roughshod over anyone who disagrees with him.”
X is on track to bring in $2.5 billion in ad revenue for 2023, missing its internal goals and representing a significant slump from prior years, Bloomberg reported in December. X generated approximately $600 million in advertising revenue for the first three quarters of last year, compared to about $1 billion per quarter in 2022, per Bloomberg. X has also continued to hemorrhage daily active users since Musk’s takeover, according to reports; and Fidelity's valuation of the site has plummeted by 72% since he assumed leadership.
X has not commented on the suit. While Musk has not responded directly to the suit, he has posted emojis in response to comments by X users about the severance suit by the four executives.
Sidley Austin did not immediately respond to requests for comment.
