Wake Forest Law Review
7Mar

Elon Musk Departs Delaware: Catalyst for a Mass Exodus? Unlikely

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Ted Orr

On February 14, 2024, Elon Musk announced via X that his space exploration company, SpaceX, transferred their incorporation from Delaware to Texas.[1]  This move comes on the heels of a decision in the Delaware Court of Chancery that denied Musk’s $56 billion Tesla compensation package.[2]  In the 201 page opinion, Judge Kathaleen McCormick labeled the desired figure an “unfathomable sum,”[3] ultimately ruling that rescission was warranted.[4]  On the same day that the opinion was released, Musk took to X urging his followers to “[n]ever incorporate your company in the state of Delaware,”[5] and recommended “incorporating in Nevada or Texas if you prefer shareholders to decide matters[.]”[6]  In the following weeks, Musk took heed of his own advice, converting the incorporation of SpaceX to Texas[7], and his brain chip company Neuralink to Nevada.[8]

Delaware’s Prowess and Others Challenge

Delaware is regarded as the premier choice for business incorporation.[9]  As of 2022, over 1.9 million legal entities and 68.2 percent of Fortune 500 companies were incorporated in Delaware.[10]  Scholars attribute this dominance to (1) its business friendly laws; (2) a sophisticated judiciary that is well suited to handle complex corporate disputes; and (3) a healthy body of caselaw that garners predictable results.[11] 

Lawyer preference is an additional supporting factor in Delaware’s corporate prowess. A 2012 survey found that lawyers involved with Initial Public Offerings (“IPO”) recommend incorporating in Delaware more than 70 percent of the time.[12]  In reporting these finding, Professor William J. Carney contends that the draw to Delaware is attributable to the lack of expertise and knowledge that attorneys possess in corporate law outside of Delaware and their home state.[13]  This proclivity may lead lawyers to recommend Delaware incorporation, even when there are more favorable laws in other states, simply because Delaware’s corporate law is where the practitioner’s expertise and familiarity lies.[14]

Other states are competing for Delaware’s position by revisiting their corporate laws to attract incorporation.[15]  For example, in the late 1980’s, Texas amended the Texas Business Corporation Act (“TBCA”) with business friendly provisions, such as limiting the liability of directors, updating and clarifying the rights and obligations of shareholders, and simplifying distribution provisions.[16]  In more recent history, Wyoming has tried to secure the incorporation of digital asset companies by enacting favorable legislation and establishing a “blockchain-dedicated” chancery court.[17]  Nevada is one of the most notable contenders, with “shockingly lax corporate law”[18] and protection of directors and officers from liability resulting from breaches of fiduciary duties.[19]  Texas has also signaled their challenge by establishing business courts–set to open in September of 2024–to “hear certain types of complex commercial disputes.”[20]

Challenging states have had limited success in unseating Delaware[21], but Musk’s recent withdrawals have placed the issue on center stage.  Musk’s removal of SpaceX and Neuralink begs the question of whether he will remove his flagship enterprise, Tesla, out of Delaware and trailblaze a mass exodus.

Tesla’s Withdrawal?

One of the biggest hurdles Musk faces in his pursuit of Tesla’s reincorporation is the required shareholder vote.[22]  Comparing Nevada and Texas reincorporation, UVA School of Law Professor Michal Barzuza notes that “[a] move home to Texas would be easier to sell to shareholders than a move to Nevada . . . given that Texas is not as protective to management and directors as Nevada is.”[23]  Musk seemingly recognized this reality. On January 30, the same day that the Delaware Court of Chancery opinion was released,  Musk prompted his 175 million followers to vote on whether Tesla should move its incorporation in Texas, resulting in 87.1 percent voting in the affirmative.[24]

Even if Musk gets the votes and moves Tesla to Texas, others are unlikely to follow his lead.  Professor Barzuza notes that “Delaware offers a balanced law with some protections and some accountability.”[25] These protections benefit shareholders and ensure market integrity.[26]  Lawrence Cunningham, an expert in corporate governance, asserts that “[t]here will be neither a stampede nor a trickle[]” out of Delaware.[27]  Harvard professor John Coates notes that this is not the first time Delaware has received backlash from corporate executives[28], and yet Delaware still remains on top.  While Musk and his supporters are happy to see Delaware in the rearview, its seat at the head of the table is likely not in jeopardy.

Conclusion

It appears that Delaware will remain the nation’s capital of incorporation for the foreseeable future. While Elon Musk’s stature allows him to bring this conversation to the front pages, Delaware’s predictable corporate law, coupled with its wide acceptance among lawyers, will likely dampen any tremors from Musk’s departures.

[1] Elon Musk (@elonmusk), X (Feb. 14, 2024, 7:27 PM), https://twitter.com/elonmusk/status/1757924482885583112?lang=en (posting a photo of SpaceX’s Certificate of Conversion to Texas and stating “[i]f your company is still incorporated in Delaware, I recommend moving to another state as soon as possible.”).

[2] Tom Hals, Judge Voids Elon Musk’s ‘Unfathomable’ $56 Billion Tesla Pay Package, Reuters (Jan. 31, 2024), https://www.reuters.com/legal/judge-rules-favor-plaintiffs-challenging-musks-tesla-pay-package-2024-01-30/.

[3] Tornetta v. Musk, No. 2018–0408-KSJM, at 180 (Del. Ch. Jan. 30, 2024).

[4] See  id. at 196; see also Hals, supra note 2.

[5] Elon Musk (@elonmusk), X (Jan. 30, 2024, 5:14 PM), https://twitter.com/elonmusk/status/1752455348106166598?lang=en.

[6] Elon Musk (@elonmusk), X (Jan. 30, 2024, 7:17 PM), https://twitter.com/elonmusk/status/1752486201083543842?lang=en.

[7]See Musk, supra note 1.

[8] See Akash Sriram, Musk’s Neuralink Switches Location of Incorporation to Nevada, Reuters (Feb. 9, 2024), https://www.reuters.com/business/musks-neuralink-switches-location-incorporation-bloomberg-news-2024-02-09/.

[9] See William J. Carney et al., Lawyers, Ignorance, and the Dominance of Delaware Corporate Law, 2 Harv. Bus. L. Rev. 123, 124 (2012).

[10] Annual Report Statistics, Del. Div. of Corps, https://corp.delaware.gov/stats/ (last visited Mar. 2, 2024).

[11] See Stephanie S. Rojo, Delaware Versus Texas Corporate Law: How does Texas Compare?, 3 Hous. Bus. & Tax. L. J. 290, 291 (2003); Bryan F. Egan, Choice of State of Incorporation–Texas Versus Delaware: Is it Now Time to Rethink Traditional Notions?, 54 SMU L. Rev. 249, 250 (2001).

[12] Carney, supra note 9 at 134.

[13] See id. at 135.

[14] See id. at 136 (noting that “Delaware has only to compete with the Lawyer’s home state, rather than will all fifty jurisdictions.”).

[15] Robert Anderson IV, The Delaware Trap: An Empirical Analysis of Incorporation Decisions, 91 S. Cal. L. Rev. 657, 660 (2018).

[16] Egan, supra note 11 at 251 (listing the changes to the TBCA).

[17] Pierluigi Matera, Delaware’s Dominance, Wyoming’s Dare: New Challenge, Same Outcome?, 27 Fordham J. Corp. & Fin. L. 73, 79 (2022).

[18] Id. at 98 (quoting Michal Barzuzu, Market Segmentation: The Rise of Nevada as a Liability-Free Jurisdiction, 98 Va. L. Rev. 935, 935 (2012).

[19] Id.

[20] Welcome to Texas: Texas Governor Signs Law Creating Specialized Business Courts, Sidley Austin LLP (Jun. 12, 2023), https://www.sidley.com/en/insights/newsupdates/2023/06/welcome-to-texas_texas-governor-signs-law-creaing-specialized-business-courts.

[21] See Matera, supra note 17at 97–98 (noting North Dakota’s abandonment of its attempt, and Connecticut’s conclusion that “Delaware was too hard . . . to dethrone[.]”).

[22] See Melissa Castro Wyatt, Professor Looks at Why Tesla May Settle in Texas, While X found its Spot in Nevada, Univ. of Va. Sch. of L. (Feb. 15, 2024), https://www.law.virginia.edu/news/202402/professor-looks-why-tesla-may-settle-texas-while-x-found-its-spot-nevada.

[23] Id.

[24] Elon Musk (@elonmusk) X (Jan. 30, 2024, 7:40 PM), https://twitter.com/elonmusk/status/1752491924848820595.

[25] See Wyatt, supra note 22.

[26] See id. (noting that Professor Barzuza sees Delaware’s corporate law protections “as a boon to the shareholder and market integrity.”).

[27] Kelsey Vlamis, Elon Musk May be Done with Delaware, But Don’t Expect Other Corporations to Follow his Crusade, Bus. Insider (Feb. 21, 2024 6:06 PM), https://www.businessinsider.in/tech/news/elon-musk-may-be-done-with-delaware-but-dont-expect-other-corporations-to-follow-his-crusade/articleshow/107896153.cms#:~:text=follow%20his%20crusade-,Elon%20Musk%20may%20be%20done%20with%20Delaware%2C%20but%20don%27t,corporations%20to%20follow%20his%20crusade&text=Elon%20Musk%20is%20moving%20SpaceX,Delaware%20because%20of%20Musk%27s%20rhetoric.

[28] Id. (quoting John Coates: “Over the past 100 years, Delaware has periodically irritated one or two executives by enforcing the law, and even led some prominent lawyers to call for companies to move elsewhere from time to time[.]”).

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3Oct

Musk’s Attempt to Undo Twitter’s Payment of Wachtell’s Fee

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J. Stillman Hanson, Jr. 

Last year was dramatic for Elon Musk (“Musk”), even by his standards, largely due to his highly publicized acquisition of Twitter, Inc. (“Twitter”).[1]  In April 2022, Twitter’s board of directors accepted Musk’s offer to buy Twitter at a price of $54.20 per share, and the parties entered into a binding merger agreement.[2]  Musk attempted to back out of the deal which culminated in Twitter suing Musk in July 2022, for material breach of the merger agreement.[3]  Twitter sought to compel Musk to specifically perform his obligations under the merger agreement by closing the deal on its terms.[4]  With a deal volume of $44 billion at stake, Twitter engaged Wachtell, Lipton, Rosen & Katz (“Wachtell”) to enforce its contract with Musk.[5]

Wachtell’s litigation team moved quickly to expedite the trial to October 2022, and performed a considerable amount of legal work for Twitter in a condensed timeline of 3 months.[6]  Engaging Wachtell ultimately paid off for Twitter’s shareholders; in early October 2022, Musk informed the court he would complete the transaction under the merger agreement’s terms.[7]  The $44 billion deal closed on October 27, 2022, the same date Twitter paid Wachtell’s total legal fee of $90 million.[8]  A Bloomberg columnist evaluated Wachtell’s successful result as “worth about $25 billion to Twitter’s shareholders,” and he additionally opined that “[p]aying Wachtell 0.3% of the value recovered as a success fee seems pretty reasonable.”[9]  Musk, however, does not share this opinion, as illustrated by the complaint filed by X Corp., Twitter’s successor-in-interest, against Wachtell on July 5, 2023.[10]

X Corp. alleges that Twitter engaged Wachtell’s representation on a strictly hourly fee arrangement and that at the last minute before the deal closed, Wachtell acted improperly by seeking and receiving the final legal fee approved by Twitter’s board of directors.[11]  X Corp. seeks equitable relief from Wachtell for the claims of restitution, breaches of fiduciary duty, and charging an unconscionable fee in violation of state laws.[12]  X Corp. faces an uphill legal battle against Wachtell which it should ultimately lose.

         I. X Corp. v. Wachtell should be arbitrated.

The initial challenge for X Corp. is that this lawsuit is likely headed for arbitration, where Twitter and Wachtell already agreed that it should go.  Wachtell responded to X Corp.’s complaint by filing a Motion to Compel Arbitration and a supporting memorandum on September 8, 2023.[13]  Wachtell’s memorandum contends that by filing this lawsuit, Musk and X Corp. breached the Arbitration Clause of Twitter’s Master Retention Agreement with Wachtell.[14]  X Corp.’s own complaint affirms that the Master Retention Agreement is a binding contract,[15] so Wachtell reasons that neither its validity nor enforceability are contested.[16]  Instead, Wachtell speculates that X Corp.’s claims for relief are styled as equitable or injunctive to exempt them from the Arbitration Clause.[17]

Wachtell has two strong arguments for compelling arbitration.  First, when the scope of arbitration is disputed, the parties contracted to have the arbitrator decide this threshold issue by both express delegation and incorporated JAMS[18] rules.[19]  Second, X Corp.’s claims seeking restitution of Wachtell’s fee are not automatically considered equitable if there is an adequate remedy at law.[20]  Despite X Corp.’s characterization as restitution in equity, Wachtell solidly argues X Corp. is actually claiming for restitution at law because it seeks money damages: repayment of Wachtell’s purportedly excessive fee.[21]  For these reasons, the judge should stay this proceeding pending arbitration that will resolve the scope issues and potentially the entire case.

         II. Wachtell’s fee was reasonable.

X Corp.’s case against Wachtell is also weak because Wachtell’s legal fee was fair and reasonable.  X Corp. advances that the Master Retention Agreement executed by Wachtell on June 21, 2022, and by Twitter on July 28, 2022, dictated only paying Wachtell by the billable hour, lacked a provision for a potential success fee, and contained a merger clause superseding all prior agreements.[22]  Twitter’s former head of litigation, Karen Colangelo, sent an email prior to the execution of the Master Retention Agreement mentioning a potential success fee, and X Corp. has a valid point that this provision did not make it into the executed Master Retention Agreement.[23]  However, the Master Retention Agreement was not the final understanding of the parties prior to the deal closing.

Wachtell handled the merger litigation under the hourly Master Retention Agreement and billed Twitter for a total of $17,943,567.49 between August and September 2022, and Wachtell estimated an additional accrual of $11 million in October, 2022.[24]  In the complaint, X Corp. posits that Wachtell’s $90 million legal fee is unconscionable because it is well beyond the total amount of Wachtell’s hourly invoices.[25]  Wachtell’s memorandum addresses this allegation by stating its lawyers invested over $40 million into the case in time and expenses, which decreases the gap between the total hourly fees and final legal fee.[26]  Furthermore, Wachtell references multiple news outlets reporting that the $90 million fee was a tiny fraction of the total $44 billion transaction volume, and that Twitter got “its money’s worth” and a “fantastic deal” given that the deal would have collapsed without forcing Musk to comply with the merger agreement.[27]

X Corp. alleges that although Wachtell’s litigation work had successfully concluded, Wachtell pressured Twitter in the two weeks preceding the closing to amend the Master Retention Agreement to pay a success fee.[28]  X Corp. laments that the final legal fee paid to Wachtell “provided no value to Twitter or its shareholders” and “amounted to a huge cash gift.”[29]  X Corp.’s proffered gift violations, under Cal. Rule of Pro. Conduct 1.8.3 and N.Y. Rule of Pro. Conduct 1.8(c), fail to see the value of Wachtell’s hard work.

While X Corp. feels Wachtell and Twitter’s former officers and directors acted improperly, Twitter chose to recognize the $44 billion value Wachtell provided to the company’s shareholders.  In fact, Colangelo’s email[30] indicates Twitter and Wachtell may have had an understanding of the success fee all along, weakening X Corp.’s claim that the success fee was hurriedly paid by Twitter’s board of directors lacking factual information and authority for the decision.

         III. Twitter’s board of directors had authority to pay Wachtell.

Twitter’s board of directors acted independently in good faith to compensate Wachtell for high-quality legal services, a far cry from unlawful business practices under Cal. Bus & Prof. Code § 17200.  Although Cal. Bus & Prof. Code § 6147 gives requirements for contingent fees, as X Corp. repeatedly points out, the details of the success fee were agreed upon after the deal had already become a success; this rendered the fee no longer contingent on anything.  Under Cal. Rule of Pro. Conduct 1.5, Twitter gave informed consent to the fee, and considering the labor required under the time limitations and the results obtained, Wachtell’s fee was fair.  Despite X Corp.’s interpretation that Section 6.1(e) of the merger agreement[31] limited Twitter’s discretion to increase Wachtell’s fee prior to closing,[32] Twitter agreed to pay Wachtell’s legal fee in the ordinary course of business considering Twitter had never faced this extraordinary merger litigation in the past.

Investment banks regularly receive success fees on large transactions,[33] but Wachtell’s fee is not covered by Section 4.21 of the merger agreement[34] limiting investment banking and similar fees because it is a fee for legal rather than brokerage services.  On October 20, 2022, Wachtell disclosed to Twitter similar legal fee arrangements from mergers or acquisitions in the past three years where Wachtell had received fees ranging from 67% to 100% of the investment banking fees on those deals.[35]  Wachtell was transparent about these past arrangements, and Twitter’s board of directors felt comfortable following a similar compensation route.  Just before the closing, Wachtell and Twitter effectively amended their fee arrangement and memorialized their final contract in the Closing Day Letter Agreement approved by Twitter’s independently advised board of directors at the last board meeting.[36]

X Corp. pleads that Twitter’s board of directors were lame ducks when they approved Wachtell’s fee,[37] yet when Twitter authorized the wire to Wachtell at 12:07 p.m. on the closing date, and when the wire processed and posted at 3:50 p.m., 10 minutes before the deal closed,[38] Twitter was still under the full control of its board of directors who had every right to pay Wachtell’s legal fee.[39]  Twitter knew what it was doing: paying a legal fee that it is doubtful Musk ever would have honored considering that under his leadership, X Corp. has followed a consistent pattern of refusing to pay Twitter’s former employees, landlords, and vendors.[40]  Contrary to Musk’s belief, honoring to pay a legal vendor for services rendered does not amount to a breach of fiduciary duty.

Twitter’s board of directors acted with authority in paying Wachtell’s legal fee.  Clients and attorneys regularly agree to fee arrangements.  If the amount of work performed exceeds a previously agreed upon fee, the parties are free to amend the final fee to accurately reflect the value of the services.  Here, Twitter paid Wachtell according to its reasonable appraisal of Wachtell’s legal services, and the court should not question Twitter’s judgment.

 

 

[1] See Isaac Hopkin, How Twitter’s Whistleblower Helps Musk, Wake Forest L. Rev. Current Issues Blog (Oct. 5, 2022), https://www.wakeforestlawreview.com/2022/10/how-twitters-whistleblower-helps-musk%ef%bf%bc/.

[2] Press Release, Twitter, Inc., Elon Musk to Acquire Twitter (Apr. 25, 2022).

[3] See Verified Complaint at 5, Twitter, Inc. v. Musk, C.A. No. 2022-0613-KSJM (Del. Ch. Jul. 12, 2022).

[4] See id.

[5] See Memorandum of Points and Authorities in Support of Defendant Wachtell, Lipton, Rosen & Katz’s Motion to Compel Arbitration and for a Stay of Proceedings Pending Disposition of this Motion and Arbitration at 6, X Corp. v. Wachtell, Case No. CGC-23-607461 (Cal. Super. Ct. Sept. 9, 2023) [hereinafter Wachtell’s Memorandum].

[6] See id. at 8.

[7] See id.

[8] See Complaint for (1) Restitution (Unjust Enrichment) (2) Breach of Fiduciary Duty (3) Aiding and Abetting Breach of Fiduciary Duty (4) Violation of Cal. Bus. & Prof. Code § 17200 at 1, X Corp. v. Wachtell, Case No. CGC-23-607461 (Cal. Super. Ct. Jul. 5, 2023) [hereinafter Complaint].

[9] Wachtell’s Memorandum, supra note 5, at 9 (quoting Matt Levine, Elon Musk Blames the Lawyers, Bloomberg (Jul. 11, 2023), https://www.bloomberg.com/opinion/articles/2023-07-11/matt-levine-s-money-stuff-elon-musk-blames-the-lawyers#xj4y7vzkg).

[10] See Complaint, supra note 8, at 1–2.

[11] See id.

[12] See id. at 24–31.

[13] See Wachtell’s Memorandum, supra note 5, at 5.

[14] See id. at 9.

[15] See Complaint, supra note 8, at 2.

[16] See Wachtell’s Memorandum, supra note 5, at 10.

[17] See id.

[18] See, e.g., The JAMS Name, JAMS, https://www.jamsadr.com/about-the-jams-name/ (last visited Oct. 3, 2023) (stating that JAMS is a leading provider of alternative dispute resolution services, and the name JAMS was previously an acronym for Judicial Arbitration and Mediation Services, Inc.).

[19] See Wachtell’s Memorandum, supra note 5, at 13.

[20] See id. at 17 (citing Martin v. Cnty. of Los Angeles, 51 Cal. App. 4th 688, 695–98 (1996)).

[21] See id. (citing Jogani v. Super. Ct. 165 Cal. App. 4th 901, 910 (2008); Lectrodryer v. Seoulbank 77 Cal. App. 4th 723, 728 (2000)).

[22] See Complaint, supra note 8, at 8–9.

[23] See id.

[24] See id. at 9–10.

[25] See id. at 1–2.

[26] See Wachtell’s Memorandum, supra note 5, at 8.

[27] Id.

[28] See Complaint, supra note 8, at 26–27.

[29] Id. at 27.

[30] See id. at 8.

[31] See Twitter, Inc., Annual Report (Form 8-K) Ex. 2.1 (Apr. 25, 2022).

[32] See Complaint, supra note 8, at 6.

[33] See Success Fee, Corporate Finance Institute, https://corporatefinanceinstitute.com/resources/valuation/success-fee/ (last visited Oct. 3, 2023).

[34] See Annual Report (Form 8-K) Ex. 2.1, supra note 31.

[35] See Complaint, supra note 8, at Ex. 7.

[36] See Wachtell’s Memorandum, supra note 5, at 8–9.

[37] See Complaint, supra note 8, at 4.

[38] See id. at 19.

[39] See Wachtell’s Memorandum, supra note 5, at 8–9.

[40] See id. at 9; see also Jennifer Kay, Musk’s Twitter, Tesla Fights Ramp Up in Delaware: Explained, Bloomberg Law (Sept. 27, 2023), https://news.bloomberglaw.com/litigation/musks-twitter-tesla-fights-ramp-up-in-delaware-explained.

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18Mar

Elon Musk’s Firing Fiasco: Should We Provide Better Protection for Those Affected?

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By Matthew Goldstein

In the five months since Elon Musk purchased a 44 billion dollar 100% ownership stake in Twitter,[1] he has committed a series of firings that have had significant negative impacts on the lives of thousands of people.[2] Specifically, Musk has terminated around 5500 of Twitter’s 7500 employees since he became the owner and CEO of the company.[3] While periodic hirings and firings, or even mass layoffs in response to unexpected or novel market conditions, are an expected part of any corporation, what is particularly problematic about Twitter is how the company has gone about handling its scores of terminations.

For many employees, an expected layoff experience might entail some notice that they were being terminated as well as some time for them to prepare for the end of their job and reentrance into the employee marketplace. In order to ensure these basic expectations for employees, the federal government has enacted the Worker Adjustment and Retraining Notification Act (WARN).[4] The act requires all employers with over 100 employees to give at least 60 days of notice for any mass layoff which it defines as a termination of the smaller of 33% of employees or 50 employees.[5] WARN also requires the notice to be specific and to be given to each individual employee ahead of the 60 day notice window.[6] Additionally, California has its own version of WARN called the California Worker Adjustment and Retraining Notification Act (CalWARN).[7]  In addition to the 60 day notice requirement of WARN, CalWARN also includes provisions giving employers specific civil liability and remedies for failing to give notice including back pay, civil penalties, and attorney’s fees.[8]

Twitter’s approach seems to stray quite far away from these statutory requirements. Twitter employees might hear a vague declaration from Musk that layoffs will happen only to discover that hours later they are completely locked out of all company laptops and email accounts and are then left to conclude that they must have been fired.[9]

Employees who were locked out of their systems and effectively terminated on the spot without any real notice quickly discovered the degree to which Twitter was likely in violation of WARN and CalWARN and decided to file a class action lawsuit citing violations of these statutes as well as breach of contract and other California employment law claims.[10] While these claims may have been merited, a court order in January compelled each of the individuals bringing claims in the suit to arbitration as it was mandated by their contracts.[11] While the court compelled arbitration on these seemingly valid claims, it declined to comment on the validity of the class at issue and chose to table the issue as the case develops.[12] For the time being, it seems like Twitter will be facing relatively minimal consequences for these probable violations.[13]

To protect the rights of employees in the state from similar violations in the future, one California Legislature representative has proposed a bill to amend CalWARN.[14] The bill would employ a number of protections including expanding the definition of employee to include independent contractors, giving similar civil remedies to independent contractors as employees, expanding the notice period to 90 days, and, most importantly, curb the power of employers to easily and quietly settle disputes with employees.[15] Specifically, the bill would seek to ban any general release, waiver of claims, or nondisparagement or nondisclosure agreement either as a condition of employment or as a post-termination form of settlement unless in the form of extra consideration on top of the remedies guaranteed by the bill.[16] While the bill likely would not have prevented the terminated Twitter employees from being compelled to arbitration, it would give them a significant bargaining advantage during that arbitration process and compel companies like Twitter to pursue more equitable outcomes.

Furthermore, the most recent development in Musk’s erratic termination behavior demonstrates the pressing need for this kind of behavior to be curbed to protect both employees and investors. On March 6, 2023, a Twitter employee named Halli Thorleifsson reached out to Musk on Twitter claiming that he and 200 other Twitter employees were locked out of their systems and could not confirm with human resources whether or not they had been fired.[17] After tweets back and forth between Halli and Musk in which Musk publicly disclosed and mocked Halli’s disability and work ethic in front of Musk’s massive Twitter following, Halli eventually received notice that he had been terminated and asked Musk if he would pay him what he was owed.[18] Halli was referring to the fact that his employment at Twitter resulted from the sale of his own technology company to Twitter and his subsequent election to be paid with a salary rather than a lump sum for his company in order to pay more taxes to his home country of Iceland.[19] If Twitter were to fire him, they would owe him the full lump sum of the value of his company which could have put Twitter on the hook for a hefty and unnecessary bill.[20]

Beyond the likely WARN and CalWARN violations and other various possible legal and ethical violations towards employees that this kind of action provides, there is also the consideration of how Musk’s actions negatively financially impact others. For example, most CEOs are constrained by a fiduciary duty of care to their shareholders to “discharge their duties with the care that a person in a like position would reasonably believe appropriate under similar circumstances.”[21] However, Musk has no such duty to the shareholders of Twitter because he fully owns the company and therefore does not face the same limitations that many other CEOs do.

Even though there are no shareholders to hold him accountable for responsibly managing Twitter, that doesn’t stop his actions from potentially harming his employees, business partners, and other businesses. For example, the stock price of Tesla, another corporation of which Musk is the CEO, has decreased about 20% in the months since Musk’s Twitter acquisition.[22] While this decrease certainly cannot be solely blamed on Musk’s actions, the spontaneous and widely criticized actions of Tesla’s publicly notorious CEO certainly did not increase investors’ confidence.

Ultimately, it seems that the current state of the law is unable to reasonably constrain the behavior of Musk. In times where a single individual fully wields the power of a 44-billion-dollar corporation at a whim and can significantly impact the lives of thousands if not millions of people, the legal landscape must be updated to ensure those people reasonable protections. While propositions to amend California’s labor code to better protect the state’s employees is a good start, more must be done at both the state and federal level to ensure reasonable protections for the employment and financial interests of all who could be affected.

[1] Kate Conger & Lauren Hirsch, Elon Musk Completes $44 Billion Deal to Own Twitter, N.Y. Times (Oct. 27, 2022), https://www.nytimes.com/2022/10/27/technology/elon-musk-twitter-deal-complete.html.

[2] Kate Conger et al., In Latest Round of Job Cuts, Twitter Is Said to Lay Off at Least 200 Employees, N.Y. Times (Feb. 26, 2023), https://www.nytimes.com/2023/02/26/technology/twitter-layoffs.html.

[3] Id.

[4] 20 C.F.R. § 639 (1989).

[5] 20 C.F.R. § 639.3 (1989).

[6] 20 C.F.R. § 639.7 (1989).

[7] Cal. Lab. Code § 1402 (2003).

[8] Id.

[9] Charissa Cheong, A Twitter employee has been flooded with support after saying he was locked out of his emails and laptop at 3am: ‘This isn’t looking promising’, Insider (Nov. 4, 2022), https://www.insider.com/twitter-employee-chris-younie-locked-out-emails-laptop-3am-2022-11.

[10] Cornet v. Twitter, Inc., No. 3:22-cv-06857-JD, 2022 WL 18396334, at *1 (N.D. Cal. Dec. 14, 2022).

[11] Cornet v. Twitter, Inc., No. 3:22-cv-06857-JD, 2022 WL 187498, at *3 (N.D. Cal. Jan 13, 2023).

[12] Id.

[13] Id.

[14] A.B. 1356, 2023-2024 Leg., Reg. Sess. (Cal. 2023).

[15] Id.

[16] Id.

[17] Anisha Kohli, Why Elon Musk’s Very Public Dismissal of a Disabled Employee Could Be Costly, Time (Mar. 8, 2023), https://time.com/6261117/musk-twitter-halli-layoff-payout.

[18] Id.

[19] Id.

[20] Id.

[21] Model Bus. Code § 8.30(b) (A.B.A. 2016).

[22] Yahoo Finance, Tesla, Inc., https://finance.yahoo.com/quote/TSLA/ (Last visited Mar. 14, 2023).

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