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Key Takeaways

  • Elon Musk acquired Twitter on October 28, 2022.
  • A week later, he cut nearly half of its workforce.
  • Workers in California have sued the company over potential violations of federal and state WARN Acts.

Twitter has had a tumultuous few months. Elon Musk offered to buy the company, reneged on his offer, and was eventually legally compelled to complete the purchase of the not-so-dynamic social platform despite trying to withdraw from the deal.

Now that he has taken control of the company, he has implemented many controversial policies and changes, including charging subscription fees for verification and firing 3,700 employees — nearly half of the company’s workforce. In response, some employees have filed a lawsuit against the company.

What happened?

Twitter was founded in 2006 as a microblogging and social networking service. The company grew over the next decade, especially during the 2016 election cycle and the pandemic during 2020.

The company has dealt with issues from its users including harassment, hate speech, and misinformation, which led it to implement tools to mark certain tweets as misleading or provide links to neutral fact-checking sources. Eventually, the site banned former President Donald Trump for such problems.

In response to Twitter’s ban of Donald Trump and its handling of various forms of rhetoric, competing platforms with a focus on free speech appeared. Around this time, Elon Musk, CEO of SpaceX and Tesla, spoke of his concerns regarding censorship on Twitter and discussed purchasing it.

In January 2022, Musk began investing in Twitter. By March, he held 9.2% of the company’s shares. On April 4, he disclosed his stake in the company, worth $2.89 billion. Shares rose 27% in response to the announcement.

On April 5, Twitter announced that Musk would join its board of directors, but five days later Musk said he would not join the board. On April 14, he made an offer to buy the company at $54.20 per share, a premium of 38% over Twitter’s value prior to April 4.

Twitter attempted to fight the acquisition but by April 25 accepted Musk’s offer to acquire the company at a valuation of $44 billion. Musk later announced plans to sell $8.5 billion of stock in Tesla to pay for the purchase.

Over the first two weeks of May, Musk secured financing for the deal and made pitches regarding his plans for the platform, including plans to quintuple revenue in 6 years and to unban Donald Trump’s account.

On May 13, Musk announced that the deal was on hold due to the prevalence of bots on the platform. Twitter shareholders responded on the 26th by suing Musk for stock manipulation after the stock fell more than 12%.

Over the next months, Musk and Twitter sparred over the deal as Musk tried to cancel the purchase. This culminated on July 12 when Twitter sued Musk to demand he complete the deal. Musk eventually agreed to complete the purchase and closed on the deal on October 28.

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A week later, Twitter began mass layoffs. Elon Musk claimed the move was necessary to cut costs.

Lawsuit

Twitter has offices located around the world, including in California. The federal Worker Adjustment and Retraining Notification Act and the California WARN Act both regulate how companies can handle mass layoffs.

Under federal law, employers with more than 100 employees must provide at least sixty days notice before mass layoffs. California’s act offers similar protections.

Twitter’s employees have sued, alleging that the company violated these acts by failing to provide proper notice of the layoffs. Musk has faced similar suits before when Tesla saw mass layoffs in June of this year.

Twitter informed employees that it would continue to provide pay and benefits even if they were no longer working, which it seems to believe satisfies the requirements under the WARN Act.

Will they win?

Twitter’s employees claim that these layoffs violate both the Federal and California WARN Acts and wish to make their suit a class-action suit against the company. Meanwhile, Musk claimed in a tweet that the company offered “3 months of severance, which is 50% more than legally required.”

Twitter also informed its employees they would continue receiving pay and benefits for more than 60 days, which may satisfy the requirements of the WARN Act. It is likely that the suit will reach court, at which point a judge will decide.

What Investors Should Know

Twitter has had a tumultuous year in the market, falling as low as $33 per share and peaking at $53.70. Once Musk purchased the company, it was delisted, meaning that it is no longer trading on the public stock market.

Given that the company is no longer public, investors don’t have to worry about the performance of the company’s stock or changes in its value. However, it is interesting to watch the company and this court case.

Twitter’s fate could have implications for other social media platforms and tech companies. If Twitter fails, other sites may step in to fill the gap, giving an existing platform a larger share of the market or offering a newcomer the opportunity to see explosive growth.

If Twitter manages to weather this storm, investors might want to watch the company to see if it goes public once again.

Meta, the parent company of Facebook, has also announced layoffs. The social media giant is cutting 11,000 employees, which is 13% of its staff. Meta has offered a large severance package, but it is unclear whether its employees will take up a similar suit against their previous employer. Investors in Meta and other social media platforms may be interested to watch how Twitter’s suit ends.

Finally

Twitter’s tumultuous year has ended with Elon Musk’s acquisition of the company, mass layoffs, and lawsuits from former employees under federal worker protection laws. While it is unclear which side will prevail in the lawsuit, investors will certainly keep a close eye on the case to see if Twitter can survive its switch in ownership and make radical changes to increase profitability.

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