Upon Twitter’s new era of ownership that began Thursday, Musk fired Twitter Chief Executive Parag Agrawal, Chief Financial Officer Ned Segal, and Vijaya Gadde, the company’s legal affairs and policy chief. MarketWatch reported that Musk has to pay the executive trio over $204 million, according to Twitter’s filing with the Securities and Exchange Commission.
A “Golden Parachute Compensation” clause approved by Twitter shareholders would also automatically vest stock worth $119.6 million as severance if terminated. Agrawal would receive the biggest payout at $56 million.
That does not include an employee compensation program that will vest on Tuesday. The New York Times reported that the company’s approximate 7,500 employees could be due total payouts of $100 million. If Musk decides to lay off employees before Tuesday, it’s unclear if they’ll receive the money, potentially leading to a long and contentious legal battle.
“The bottom line here is that these employee rights are really going to turn on the exact terms of the contract that defines the employee compensation program,” Jennifer Shinall, a law professor at Vanderbilt University, told Newsweek.
Shinall said that courts typically uphold contracts by their original terms and that it’s not uncommon for new owners to “clean house with top executives.”
That is what makes this a unique case not analogous to most others, she said, as “odd and really bad timing” led to Musk purchasing Twitter days before the compensation package was scheduled to vest.
“I think [Musk’s legal representation has] a real opportunity to say it’s not bad faith; it’s just bad timing and we just acquired this company. It’s a really tough case because courts really prefer to respect contractual terms as they are written, especially when it’s two sophisticated parties negotiating the terms of the contract,” Shinell said.
Eric Talley, a professor at Columbia Law School, agreed with Shinall and told Newsweek that should Musk terminate employees on the eve of the vesting of an employee payoff, they may have legal recourse.
“Employees could conceivably allege that Twitter violated a duty of ‘good faith’ by terminating them principally to avoid having to pay them for services they’ve already rendered,” Talley said.
He said California courts are “a bit mixed on this.” Since the 1980s, they have held that “at will” employees, or those without a term employment contract, can be terminated at the employer’s volition.
However, there are some cases suggesting that the reason for the termination “can’t be substantially about avoiding having to pay a bonus due.”
Musk’s financial decisions go above employee compensation, he added, saying that cash flow problems must be solved “quickly” based on last year’s earnings.
Bloomberg reported Monday that banks were providing $13 billion in debt to close the deal.
“The company will be hard pressed to generate enough net revenues to service the interest on the new debt (about $1 billion),” Talley added. “So I wouldn’t be surprised if this isn’t a conversation on the table. On the other hand, employee morale is a serious issue for the company, and stiffing a bunch of employees (as you hand them their pink slips) seems unlikely to leave behind a bunch of happy campers.”
Newsweek reached out to Twitter and Elon Musk’s legal team for comment.