Twitter Inc has begun laying off employees under its new owner, Elon Musk. The San Francisco-based social media giant is expected to terminate up to 3,700 people - half of its workforce - on Friday, according to internal plans reviewed by Reuters this week. Twitter is already facing a proposed class action claiming the layoffs are imminent and will violate U.S. and California laws if employees are not given advance notice or severance pay.
WHAT DOES U.S. LAW REQUIRE?
The federal Worker Adjustment and Retraining Notification (WARN) Act requires businesses with 100 or more employees to provide 60 days' notice before engaging in mass layoffs. The law defines mass layoffs as those affecting at least 500 employees during a 30-day period, or at least 50 employees if layoffs impact at least one-third of a company's workforce. Employers can provide workers with 60 days of severance pay in lieu of giving notice.
WHAT ARE THE PENALTIES FOR VIOLATING THE WARN ACT?
An employer found to have violated the WARN Act can be ordered to give laid-off workers 60 days of back pay. The law also imposes penalties of $500 per violation per day. Comparable laws in California and other states impose similar penalties.
WHAT HAS TWITTER BEEN ACCUSED OF?
The lawsuit filed in San Francisco federal court late on Thursday claims Twitter locked employees out of their accounts on Thursday, signaling that they will soon lose their jobs. One of the five named plaintiffs, who is based in California, says he was terminated on Nov. 1 without notice or severance pay.
Twitter did not immediately respond to a request for comment.
Shannon Liss-Riordan, a lawyer for the plaintiffs, said on Friday that it appeared Twitter was making an effort to comply with the WARN Act by offering to pay some employees through Jan. 4. She said employees were told they would be presented with severance agreements next week requiring them to waive their ability to sue Twitter in exchange for a payout.
Liss-Riordan said she is also investigating "how Twitter chose employees for layoff and whether any discrimination or retaliation was involved."
HAVE OTHER MUSK-RUN COMPANIES BEEN SUED UNDER THE WARN ACT?
Tesla Inc (TSLA.O) was sued in Texas federal court in June for allegedly violating the WARN Act through an abrupt nationwide purge of its workforce, including 500 layoffs at a factory in Sparks, Nevada. Liss-Riordan also represents the workers in the Tesla case. Tesla has said it was merely "right-sizing" by firing poorly performing workers and not engaging in layoffs that required advance notice.
Last month, a federal judge said Tesla workers must pursue their claims in private arbitration rather than court. The same issue could arise in the lawsuit against Twitter, as more than half of private-sector U.S. workers have signed agreements to arbitrate employment-related legal disputes.
HAS THERE BEEN AN INCREASE IN WARN ACT LITIGATION?
Employers faced a spike in lawsuits brought under the WARN Act and state laws during the COVID-19 pandemic, as many businesses abruptly shuttered or terminated many of their employees. Enterprise Rent-A-Car, Hertz Corp (HERTZ.UL), restaurant chain Hooters and Florida hotel operator Rosen Hotels and Resorts Inc all settled WARN Act lawsuits over pandemic-related layoffs. Rosen settled claims by 3,600 workers for $2.3 million and Enterprise agreed to pay $175,000 to nearly 1,000 workers. Hertz and Hooters paid undisclosed sums.
Twitter began laying off thousands of its employees on Friday, Nov. 4—possibly half of the 7,500-person staff—just one week after being bought by billionaire Elon Musk.
The layoffs are an emergency cost-cutting measure for Musk, by some estimates the world’s richest man, after executing a leveraged buyout of the social media company with $12.5 billion in bank loans. Paying off that debt will cost Musk about $1 billion annually, according to Bloomberg.
The layoffs are the byproduct of a lopsided deal. Musk first proposed, and eventually did end up, buying Twitter for $54.20 per share. At the time, the price was seen as high (38% above the stock price when Musk started buying up shares) but not outrageous. The only truly outrageous aspect of the price was that Musk chose to make a weed joke with the bid (420 is slang for marijuana.).
On this day of mass layoffs at Twitter, let’s calculate just how much that joke cost.
Musk weed joke cost at least $150 million
Let’s assume that, if had been otherwise uninterested in making a dumb weed joke, Musk would have bid a flat $54 per share to acquire Twitter. (Valuations in M&A often seem arbitrary, so perhaps $53, or even $50, would have been enough to succeed without the dumb weed joke, but we’re being generous). That pegs the cost of the dumb weed joke at $0.20 per share, to get from $54 to the $54.20 that Musk ultimately paid, dumb weed joke and all.
Twitter had just over 765 million outstanding shares. Multiplying the total share count by $.20 per share gives us $153 million. That’s the minimum number Musk spent on the dumb weed joke.
But Musk’s debt payments are not a laughing matter. He owes $1 billion in interest each year and just laid off half of the company to try to cut costs. If he didn’t round up to $54.20, it’s likely he could have saved hundreds of people’s jobs.
How many jobs could Musk have saved?
It’s difficult to divine the average salary of a Twitter employee. But since we’re already using back-of-the-napkin estimates, let’s not be deterred.
We do have data about salaries for H-1B visa applicants, which might reasonably represent a sample of Twitter’s total staff. Taking the average salaries for each listed position, according to the aggregator H1B Grader, and averaging those, we get a mean salary of about $185,000. Dividing the $153 million by the estimated average Twitter salary gives us 827 jobs.
Yes, what was once a $0.20 rounding error to make people laugh at his offer could have cost 827 people their jobs at Twitter.
About one week after Tesla billionaire Elon Musk's Twitter takeover, the company laid off half its workforce, leaving axed employees sharing stories of confusion and chaos over how it all went down.
Top executives were fired last week immediately after Musk took control, but the company's sweeping layoffs started Friday after a company-wide email sent on Thursday informed staff that some would abruptly lose their jobs the following day. Some employees learned they were fired not through a manager, but because they were kicked off Twitter's internal systems or locked out of their work laptops without any notice or explanation.
At least one Twitter employee was booted from the company's system in the middle of a call about Twitter Blue, three sources familiar with the meeting told The New York Times. The group, led by project manager Esther Crawford, was discussing updates to the subscription product and issues when one person just dropped off the call, the sources said.
Musk has been criticized over how the layoffs were handled. Several former Twitter employees filed a lawsuit on Thursday in California accusing Twitter of violating the WARN Act, a federal law that mandates businesses with 100 employees or more to give 60 days' notice of mass layoffs.
"This is a master class in how not to do it," Sandra Sucher, a Harvard University professor who studies layoffs, told the Times, noting it was uncommon to see layoffs of this scale done so rapidly without a clear explanation. "If you were going to rank order ways to upset people, telling them you're going to do it in advance, without rationale, that is a particularly inhumane way to treat them."
Rachel Bonn, a former Twitter employee who is eight months pregnant, said she lost access to her work laptop Thursday night hours after Musk said layoffs were coming. Another former Twitter employee, Chris Younie, said he was also abruptly unable to turn on his work laptop or log into his emails at around 3 a.m. on Friday.
In a tweet, Musk said of the layoffs that the company had "no choice" because it was losing more than $4 million per day. He also said that everyone was offered three months of severance pay.