A judge has decided that X, formerly Twitter, must go to court for not paying bonuses it had promised to its employees. The judge did not agree with X’s request to drop the case last Friday.
The company is accused of not giving out yearly bonuses to its staff after Elon Musk bought it in October 2022. Executives had told employees they would get these bonuses, but the lawsuit, filed in June 2023, says this didn’t happen.
Last week, Judge Vince Chhabria ruled that California law, not Texas law as Twitter claimed, should be used to decide if the company’s verbal promise about bonuses can be legally enforced. The judge noted that California law examines whether the promise to pay a bonus, based on Twitter’s 2022 Performance Bonus Plan, creates a binding contract when the employee fulfills certain conditions. The former employee who filed the complaint states he met all requirements but did not receive the bonus, and the judge concurs this could establish a legal contract.
Twitter’s arguments against this were dismissed. The company said the bonus plan wasn’t a formal contract because it was discretionary. However, the judge pointed out that the plaintiff is suing over Twitter’s later spoken promise to pay the bonuses, not the original bonus plan.
Twitter’s opposing claims do not hold up. Twitter contends that the Performance Bonus Plan is not a binding contract since it only offers a discretionary bonus. However, Schobinger is not trying to enforce Twitter’s discretionary bonus plan. He is seeking to enforce Twitter’s supposed later verbal promise that employees would actually get a percentage of the annual bonus outlined in the plan if they remained with the company.
The judge did agree to dismiss, with the possibility to amend, the part of the lawsuit about promissory estoppel – the claim based on a broken promise. The judge noted that the plaintiff needs to show why this promise might not be legally enforceable. The judge indicated this could be easily corrected in the lawsuit.
Finally, the judge stated that any changes to the lawsuit must be made within 21 days, and Twitter must respond within 14 days after that. The case on the breach of contract claim can go ahead now, and if the lawsuit is updated with a stronger claim about the broken promise, that part can also proceed.
Legal Challenge Against X Threatens X’s Bottom Line
The lawsuit is led by Mark Schobinger, a former senior director at X, representing himself and others who didn’t receive their 2022 bonuses. It accuses X of not distributing yearly bonuses despite having a bonus plan and funding in place to pay at least half of the promised amount. Employees had been reassured about receiving these bonuses both before and after Musk’s takeover.
The suit may cause irreparable damage to X’s bottom line and its reputation as the company is already struggling in both regards.
The two main legal arguments in Schobinger’s lawsuit are breach of contract and a broken promise claim. He argues that Twitter, now a part of X Corp., failed to honor its commitment to pay bonuses, causing financial harm to the employees. The lawsuit, seeking a jury trial and class action status, represents all X employees eligible for the 2022 bonuses but who did not receive them.
Employees had expressed concerns about their pay and annual bonuses following the announcement of Musk’s acquisition. Executives of the company had continuously assured the staff about receiving half of their expected bonuses. However, despite these promises and preparations, the lawsuit states that X did not pay these bonuses, leading Schobinger to leave the company in May, in part due to this non-payment.