Elon Musk’s social media company, X Corp, has reached a tentative settlement in a lawsuit filed by former employees who claimed they were owed $500 million in severance pay.
The lawsuit, filed as a proposed class action in the U.S. District Court for the Northern District of California (Case No. 23-03461, McMillian et al. v. Musk et al.), was initiated in July 2023 by former Twitter employees Courtney McMillian (former head of total rewards, overseeing employee benefits) and Ronald Cooper (former operations manager).
They alleged that Twitter’s 2019 severance plan, established under the company’s previous ownership, entitled laid-off employees to substantial payouts: two months of base pay plus one week for each year of service for most workers, and up to six months for senior employees like McMillian.
Following Elon Musk’s $44 billion acquisition of Twitter in October 2022 and the subsequent rebranding to X, approximately 6,000 employees were terminated as part of cost-cutting measures. The plaintiffs claimed that X Corp. violated this plan by offering at most one month of severance pay, with many receiving nothing, resulting in an estimated $500 million in owed benefits.
On July 9, 2024, U.S. District Judge Trina L. Thompson dismissed the case without prejudice. The core of her ruling centered on the inapplicability of the federal Employee Retirement Income Security Act (ERISA), which governs employee benefit plans and provides federal jurisdiction for such disputes. Judge Thompson determined that Twitter’s severance arrangement did not qualify as an ERISA-governed plan because it lacked an “ongoing administrative scheme.
However, Judge Thompson allowed the plaintiffs the opportunity to amend their complaint to pursue alternative claims not reliant on ERISA, such as potential state law breach-of-contract allegations.
The plaintiffs appealed the dismissal to the U.S. Court of Appeals for the Ninth Circuit (Case No. 24-5045, McMillian v. Musk) shortly after the district court’s decision. In their appeal, the former employees argued that Twitter’s severance policy did indeed qualify as an ERISA plan because it involved ongoing benefit payments, even if administered without individualized discretion. They received support from the U.S. Department of Labor, which filed an amicus brief endorsing this view, emphasizing that ERISA coverage applies to plans paying benefits on a continuing basis regardless of administrative complexity.
In response, Musk and X Corp. filed a brief on January 9, 2025, urging the Ninth Circuit to affirm the dismissal. Their key arguments included:
– – No formal ERISA plan existed, as the employees failed to produce official plan documents (e.g., summary plan descriptions) or evidence of widespread communications to workers about the severance terms prior to Musk’s acquisition.
– – References to a “severance matrix” (a confidential document allegedly taken by McMillian) and general corporate statements at most indicated offers of simple lump-sum payments, which do not constitute an ERISA-governed scheme requiring ongoing administration.
– – This lack of a qualifying plan was “fatal” to the class action, as it undermined the basis for federal jurisdiction.
Oral arguments were scheduled for September 17, 2025, in San Francisco.
However, as of August 21, 2025, the parties reached a tentative settlement agreement, the financial terms of which were not disclosed. In a joint court filing, both sides requested a postponement of the hearing to finalize the deal, which would resolve the class action and compensate the affected former employees. The Ninth Circuit granted the delay on August 22, 2025, effectively pausing the appeal process. This settlement does not impact other ongoing related lawsuits, such as those in Delaware and California courts involving different claims or plaintiffs.
In summary, the appeal remains unresolved on the merits due to the impending settlement, marking a potential end to this specific dispute without a full appellate ruling on the ERISA question.
Other related lawsuits, including one by former executives like ex-CEO Parag Agrawal, remain pending. This settlement aims to resolve the dispute over severance pay for the affected former employees.