Lawyers ponder basis for Musk denying golden parachutes to Twitter executives

Can Elon Musk avoid paying golden parachutes to four Twitter executives he fired for cause?

That’s the question lawyers pondered Monday after it was reported that Musk had fired the four executives in a manner designed to avoid paying them lucrative severance packages.

Adding to the speculation, Musk tweeted Monday morning: “Wachtell & Twitter board deliberately hid this evidence from the court. Stay tuned, more to come …” referring to New York law firm Wachtell, Lipton, Rosen & Katz. Musk attached a screenshot of what appears to be a digital conversation between executives.

Musk also hired consulting firm Cyabra to conduct an investigation on the matter of bots on the platform, and the results published on Oct. 9 claim there are more fake users than in competing platforms. This was the same issue Musk used to try to at first renege on his pledge to buy the social media platform.

One thing is almost certain: the severance pay issue will wind up in court.

“The executives can argue this was done in bad faith or that the accusations are baseless. Musk will have to prove that he had reason. The interesting part is that now he gets to completely scour past internal activity and say what he found,” Ron L. Zambrano, employment litigation chair at West Coast Trial Lawyers, said.

“This is going to cost Musk just a fraction of the percent he’s worth to litigate. Compared to what he paid, this money is insignificant. He will drag this out, and people will compromise just to get some money. Strategically it’s a hawkish move, very cold and calculated. But, for all we know, he found something,” Zambrano said.

The executives — former chief executive officer Parag Agrawal, policy executive Vijaya Gadde, former chief financial officer Ned Segal and general counsel Sean Edgett — have not said anything publicly about their firings. They were in line for severance packages that could go as high as $122 million, with Agrawal alone was set to get $38.7 million.

“In this sort of situation, the specific employment agreements are going to dictate whether Musk can fire anyone,” said employment specialist George S. Azadian, founder of Azadian Law Group PC. “Contracts lay out very specific clauses, and normally these agreements provide notice and an opportunity to cure … to fix … the reason.”

“I would be curious about what these agreements say. Musk will have to be very careful because it’s very remarkable and suspicious that he would do this in such a short period of time. Generally when you take over a company you don’t know anything except what is in the public domain. Maybe he could argue that these people are badmouthing Twitter,” Azadian said.

When Musk announced his intent to acquire Twitter in April for $44 billion, the board of investors unanimously adopted a limited duration shareholder rights plan referred to as a “poison pill.” Under it, if any person or group acquired ownership of at least 15% of outstanding common stock without the board’s approval, other shareholders were able to purchase additional shares at a discount.

Despite this, Musk closed the acquisition on Friday and on Monday took the company private, becoming sole director.

“Apparently the merger agreement provided the installation of a new board, so him getting rid of the old board is not surprising,” said Glenn A. Danas, partner at The Clarkson Law Firm PC. “It’s common when there’s a takeover and a company goes private. A new board will be installed in upcoming weeks.”

“There’s a material change in direction in the way of the company. It’s going to go from an old bias to a new one, more democratized and less partisan. This caused trouble with previous management. A new board will have to maintain proper distance required to keep good governance. If they’re all cronies of him, it will be a signal, but if a diverse board is put in place that does the best for the company, we’ll see,” Danas concluded.

Some news reports have said Musk is gearing up to fire at least half of Twitter’s workforce and perhaps as much as three-fourths. The New York Times reported that he was timing the staff layoffs to avoid a Nov. 1 deadline that would give employees stock grants.

“This is false,” Musk responded over Twitter on Monday.

David A. Lowe, managing partner at Rudy, Exelrod, Zieff & Lowe LLP, said, “It is hard to comment on executive firings without all of the information, we just know what they said publicly, what Elon Musk told the press.”

“It’s very hard to see what the basis for cause would be. The company would have to say that the executives are being actively dishonest, or something along these lines,” Lowe said. “ What has been said, to me, did not seem evidence of dishonesty. So from a legal perspective, the question will be: Is there actual evidence that Elon Musk could rely on to claim cause, or is he just trying to avoid the severance packages? Is he trying to get them to compromise?’”

“The legal system exists to provide accountability, and to make sure people can’t take arbitrary decisions on a contract. It really should require more than that,” he concluded.