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).