Former Twitter Executives Sue Musk Over Unpaid Severance

Four former top Twitter executives sued Elon Musk, saying he owes them a collective more than $128 million in severance.

Source: WSJ | Published on March 5, 2024

Twitter employee lawsuit

Four former top Twitter executives sued Elon Musk, saying he owes them a collective more than $128 million in severance.

The executives, who led the company during a lengthy and at times hostile takeover process in which they sued the billionaire to follow through with the acquisition after Musk changed his mind, say he fired them citing gross negligence and willful misconduct, which they deny. Musk said at the time they were fired for cause and he didn’t have to pay severance.

The lawsuit, filed Monday in federal court in California, escalates a more than yearlong dispute between the former executives and the billionaire.

The plaintiffs are Parag Agrawal, Twitter’s former chief executive; Ned Segal, its former chief financial officer; Vijaya Gadde, its former chief legal officer; and Sean Edgett, its former general counsel.

“This is the Musk playbook: to keep the money he owes other people, and force them to sue him,” the group alleges. “Even in defeat, Musk can impose delay, hassle, and expense on others less able to afford it.”

Alex Spiro, an attorney who has represented Musk, didn’t respond to a request for comment.

The executives accuse Musk of trying to avoid paying additional expenses after he attempted to abandon the deal to acquire Twitter and failed. Musk “has a special ire” toward the group, they say, because he disagreed with how they ran Twitter and clashed with them over the takeover.

Agrawal is seeking nearly $57.4 million in severance benefits. Segal’s requested amount is about $44.5 million, Gadde’s $20 million and Edgett’s $6.8 million, the lawsuit shows.

Those amounts are based on one year’s salary, stock awards valued at the acquisition price of $54.20 per share and health insurance premiums, the suit says.

Such packages exist for a reason, the executives say in the complaint, and are important for corporate governance because they align the interests of executives and shareholders in the event of an acquisition.

“If executives could not count on getting their contractual severance, they would have no incentive to stay through the acquisition to run the business, oversee the acquisition process, and make sure the shareholders get paid,” they say in the suit.

The defendants include Musk, X Corp. (the new name Musk gave to Twitter) and three other people described as working for Musk-led companies and involved in denying the payments.

“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,” the group says in the complaint.

The executives say they were told multiple reasons for their firings, including one related to Twitter’s payment of so-called success fees to attorneys who worked on the acquisition. Other reasons include alleged corporate waste and the handling of employee retention bonuses and severance plans, according to the lawsuit.

The plaintiffs say those reasons are pretextual and insupportable. They also say the decisions in question were approved by Twitter’s board at the time.

Musk’s company has criticized the law firm fees before. Twitter’s previous management paid $90 million to Wachtell, Lipton, Rosen & Katz, according to a separate lawsuit in which X Corp. alleged the fees were improper.

In the complaint filed Monday, the executives cite a passage from Walter Isaacson’s biography of Musk, which says Musk closed the deal a day early because he thought it would prevent those executives from having their stock options vest when the market opened the next morning.

There was a “two-hundred-million differential in the cookie jar between closing tonight and doing it tomorrow morning,” the book quotes Musk as saying.

The lawsuit adds to a series of cases where the company has been accused of overdue payments since Musk took control and sought to cut costs. Landlords, consultants and ex-employees have been among those who have sued. Some of the cases have since been closed.

Last year, Agrawal, Segal and Gadde sued for reimbursement for legal expenses tied to their Twitter roles. X Corp. paid the remaining fees, the new suit says, after the former executives won a ruling in Delaware Chancery Court.