Elon Musk

Emptying the Nest: Recent Events at Twitter Prompt Class-Action Litigation, Among Other Things

November 19, 2022
Class Action, Corporate Ethics, Employment Law, Internet, Social Media

Ted Mathiowetz, MJLST Staffer

You’d be forgiven if you thought the circumstances that led to Elon Musk ultimately acquiring Twitter would be the end of the drama for the social media company. In the past seven months, Musk went from becoming the largest shareholder of the company, to publicly feuding with then-CEO, Parag Agrawal, to making an offer to take the company private for $44 billion, to deciding he didn’t want to purchase the company, to being sued by Twitter to force him to complete the deal. Eventually, two weeks before trial was scheduled, Musk purchased the company for the original, agreed upon price.[1] However, within the first two-and-a-half weeks that Musk took Twitter private, the drama has continued, if not ramped-up, with one lawsuit already filed and the specter of additional litigation looming.[2]

There’s been the highly controversial rollout and almost immediate suspension of Twitter Blue—Musk’s idea of increasing the reliability of information on Twitter and simultaneously helping ameliorate Twitter’s financial woes.[3]Essentially, users were able to pay $8 a month for verification, albeit without actually verifying their identity. Instead, their username would remain frozen at the time they paid for the service.[4] Users quickly created fake “verified” accounts for real companies and spread misinformation while armed with the “verified” check mark, duping both the public and investors. For example, a newly created account with the handle “@EliLillyandCo” paid for Twitter Blue and tweeted “We are excited to announce insulin is free now.”[5] Eli Lilly’s actual Twitter account, “@LillyPad” had to tweet a message apologizing to those “who have been served a misleading message” from the fake account, after the pharmaceutical company’s shares dipped around 5% after the tweet.[6] In addition to Eli Lilly, several other companies, like Lockheed Martin, faced similar identity theft.[7] Twitter Blue was quickly suspended in the wake of these viral impersonations and advertisers have continued to flee the company, affecting its revenue.[8]

Musk also pulled over 50 engineers from Tesla, the vehicle manufacturing company of which he is CEO, to help him in his reimagining of Twitter.[9] Among those 50 engineers are the director of software development and the senior director of software engineering.[10] Pulling engineers from his publicly traded company to work on his separately owned private company almost assuredly raises questions of a violation of his fiduciary duty to Tesla’s shareholders, especially with Tesla’s share price falling 13% over the last week (as of November 9, 2022).[11]

The bulk of Twitter’s current legal issues reside in Musk’s decision to engage in mass-layoffs of employees at Twitter.[12] After his first week in charge, he sent out notices to around half of Twitter’s 7500 employees that they would be laid off, reasoning that cutbacks were necessary because Twitter was losing over $4 million per day.[13] Soon after the layoffs, a group of employees filed suit alleging that Twitter violated the Worker Adjustment and Retraining Act (WARN) by failing to give adequate notice.[14]

The WARN Act, passed in 1988, applies to employers with 100 or more employees[15] and mandates that an “employer shall not order a [mass layoff]” until it gives sixty-days’ notice to the state and affected employees.[16]Compliance can also be reached if, in lieu of giving notice, the employee is paid for the sixty-day notice period. In Twitter’s case, some employees were offered pay to comply with the sixty-day period after the initial lawsuit was filed,[17] though the lead plaintiff in the class action suit was allegedly laid off on November 1st with no notice or offer of severance pay.[18] Additionally, it appears as though Twitter is now offering severance to employees in return for a signature releasing them from liability in a WARN action.[19]

With regard to those who have not yet signed releases and were not given notice of a layoff, there is a question of what the penalties may be to Twitter and what potential defenses they may have. Each employee is entitled to “back pay for each day of violation” as well as benefits under their respective plan.[20] Furthermore, the employer is subject to a civil penalty of “not more than $500 for each day of violation” unless they pay their liability to each employee within three weeks of the layoff.[21] One possible defense that Twitter may assert in response to this suit is that of “unforeseeable business circumstances.”[22] Considering Musk’s recent comments that there is the potential that Twitter is headed for bankruptcy as well as the saddling of the company with debt to purchase it (reportedly $13 billion, with $1 billion per year in interest payments),[23] it seems there is a chance this defense could suffice. However, an unforeseen circumstance is strongly indicated when the circumstance is “outside the employer’s” control[24], something that’s arguable given the company’s recent conduct.[25] Additionally, Twitter would have to show that it has been exercising “commercially reasonable business judgment as would a similarly situated employer” in their conduct, another burden that may be hard to overcome. In sum, it’s quite clear why Twitter is trying to keep this lawsuit from gaining traction by securing release waivers. It’s also clear that Twitter has learned its lesson in not offering severance but they may be wading into other areas of employment law with recent conduct.[26]

Notes

[1] Timeline of Billionaire Elon Musk’s to Control Twitter, Associated Press (Oct. 28, 2022), https://apnews.com/article/twitter-elon-musk-timeline-c6b09620ee0905e59df9325ed042a609.

[2] Annie Palmer, Twitter Sued by Employees After Mass Layoffs Begin, CNBC (Nov. 4, 2022), https://www.cnbc.com/2022/11/04/twitter-sued-by-employees-after-mass-layoffs-begin.html.

[3] Siladitya Ray, Twitter Blue: Signups for Paid Verification Appear Suspended After Impersonator Chaos, Forbes (Nov. 11, 2022), https://www.forbes.com/sites/siladityaray/2022/11/11/twitter-blue-new-signups-for-paid-verification-appear-suspended-after-impersonator-chaos/?sh=14faf76c385c; see also Elon Musk (@elonmusk), Twitter (Nov. 6, 2022, 5:43 PM), https://twitter.com/elonmusk/status/1589403131770974208?s=20&t=bkkh_m5EgMreMCU-GWxXrQ.

[4] Elon Musk (@elonmusk), Twitter (Nov. 6, 2022, 5:35 PM), https://twitter.com/elonmusk/status/1589401231545741312?s=20&t=bkkh_m5EgMreMCU-GWxXrQ.

[5] Steve Mollman, No, Insulin is not Free: Eli Lilly is the Latest High-Profile Casualty of Elon Musk’s Twitter Verification Mess, Fortune(Nov. 11, 2022), https://fortune.com/2022/11/11/no-free-insulin-eli-lilly-casualty-of-elon-musk-twitter-blue-verification-mess/.

[6] Id. Eli Lilly and Company (@LillyPad), Twitter (Nov. 10, 2022, 3:09 PM), https://twitter.com/LillyPad/status/1590813806275469333?s=20&t=4XvAAidJmNLYwSCcWtd4VQ.

[7] Mollman, supra note 5 (showing Lockheed Martin’s stock dipped around 5% as well following a tweet from a “verified” account saying arms sales were being suspended to various countries went viral).

[8] Herb Scribner, Twitter Suffers “Massive Drop in Revenue,” Musk Says, Axios (Nov. 4, 2022), https://www.axios.com/2022/11/04/elon-musk-twitter-revenue-drop-advertisers.

[9] Lora Kolodny, Elon Musk has Pulled More Than 50 Tesla Employees into his Twitter Takeover, CNBC (Oct. 31, 2022), https://www.cnbc.com/2022/10/31/elon-musk-has-pulled-more-than-50-tesla-engineers-into-twitter.html.

[10] Id.

[11] Trefis Team, Tesla Stock Falls Post Elon Musk’s Twitter Purchase. What’s Next?, NASDAQ (Nov. 9, 2022), https://www.nasdaq.com/articles/tesla-stock-falls-post-elon-musks-twitter-purchase.-whats-next.

[12] Dominic Rushe, et al., Twitter Slashes Nearly Half its Workforce as Musk Admits ‘Massive Drop’ in Revenue, The Guardian (Nov. 4, 2022), https://www.theguardian.com/technology/2022/nov/04/twitter-layoffs-elon-musk-revenue-drop.

[13] Id.

[14] Phil Helsel, Twitter Sued Over Short-Notice Layoffs as Elon Musk’s Takeover Rocks Company, NBC News (Nov. 4, 2022), https://www.nbcnews.com/business/business-news/twitter-sued-layoffs-days-elon-musk-purchase-rcna55619.

[15] 29 USC § 2101(a)(1).

[16] 29 USC § 2102(a).

[17] On Point, Boston Labor Lawyer Discusses her Class Action Lawsuit Against Twitter, WBUR Radio Boston (Nov. 10, 2022), https://www.wbur.org/radioboston/2022/11/10/shannon-liss-riordan-musk-class-action-twitter-suit (discussing recent developments in the case with attorney Shannon Liss-Riordan).

[18] Complaint at 5, Cornet et al. v. Twitter, Inc., Docket No. 3:22-cv-06857 (N.D. Cal. 2022).

[19] Id. at 6 (outlining previous attempts by another Musk company, Tesla, to get around WARN Act violations by tying severance agreements to waiver of litigation rights); see also On Point, supra note 17.

[20] 29 USC § 2104.

[21] Id.

[22] 20 CFR § 639.9 (2012).

[23] Hannah Murphy, Musk Warns Twitter Bankruptcy is Possible as Executives Exit, Financial Times (Nov. 10, 2022), https://www.ft.com/content/85eaf14b-7892-4d42-80a9-099c0925def0.

[24] Id.

[25] See e.g., Murphy supra note 22.

[26] See Pete Syme, Elon Musk Sent a Midnight Email Telling Twitter Staff to Commit to an ‘Extremely Hardcore’ Work Schedule – or Get Laid off with Three Months’ Severance, Business Insider (Nov. 16, 2022), https://www.businessinsider.com/elon-musk-twitter-staff-commit-extremely-hardcore-work-laid-off-2022-11; see also Jaclyn Diaz, Fired by Tweet: Elon Musk’s Latest Actions are Jeopardizing Twitter, Experts Say. NPR (Nov. 17, 2022), https://www.npr.org/2022/11/17/1137265843/elon-musk-fires-employee-by-tweet (discussing firing of an employee for correcting Musk on Twitter and potential liability for a retaliation claim under California law).

 

Twitter Troubles: The Upheaval of a Platform and Lessons for Social Media Governance

November 17, 2022
Agencies, Corporate Ethics, FTC, Internet, Regulatory, Social Media

Gordon Unzen, MJLST Staffer

Elon Musk’s Tumultuous Start

On October 27, 2022, Elon Musk officially completed his $44 billion deal to purchase the social media platform, Twitter.[1] When Musk’s bid to buy Twitter was initially accepted in April 2022, proponents spoke of a grand ideological vision for the platform under Musk. Musk himself emphasized the importance of free speech to democracy and called Twitter “the digital town square where matters vital to the future of humanity are debated.”[2] Twitter co-founder Jack Dorsey called Twitter the “closest thing we have to a global consciousness,” and expressed his support of Musk: “I trust his mission to extend the light of consciousness.”[3]

Yet only two weeks into Musk’s rule, the tone has quickly shifted towards doom, with advertisers fleeing the platform, talk of bankruptcy, and the Federal Trade Commission (“FTC”) expressing “deep concern.” What happened?

Free Speech or a Free for All?

Critics were quick to read Musk’s pre-purchase remarks about improving ‘free speech’ on Twitter to mean he would change how the platform would regulate hate speech and misinformation.[4] This fear was corroborated by the stream of racist slurs and memes from anonymous trolls ‘celebrating’ Musk’s purchase of Twitter.[5] However, Musk’s first major change to the platform came in the form of a new verification service called ‘Twitter Blue.’

Musk took control of Twitter during a substantial pullback in advertisement spending in the tech industry, a problem that has impacted other tech giants like Meta, Spotify, and Google.[6] His solution was to seek revenue directly from consumers through Twitter Blue, a program where users could pay $8 a month for verification with the ‘blue check’ that previously served to tell users whether an account of public interest was authentic.[7] Musk claimed this new system would give ‘power to the people,’ which proved correct in an ironic and unintended fashion.

Twitter Blue allowed users to pay $8 for a blue check and impersonate politicians, celebrities, and company media accounts—which is exactly what happened. Musk, Rudy Giuliani, O.J. Simpson, LeBron James, and even the Pope were among the many impersonated by Twitter users.[8] Companies received the same treatment, with an impersonation Eli Lilly and Company account writing “We are excited to announce insulin is free now,” causing its stock to drop 2.2%.[9]This has led advertising firms like Omnicom and IPG’s Mediabrands to conclude that brand safety measures are currently impeded on Twitter and advertisers have subsequently begun to announce pauses on ad spending.[10] Musk responded by suspending Twitter Blue only 48 hours after it launched, but the damage may already be done for Twitter, a company whose revenue was 90% ad sales in the second quarter of this year.[11] During his first mass call with employees, Musk said he could not rule out bankruptcy in Twitter’s future.[12]

It also remains to be seen whether the Twitter impersonators will escape civil liability under theories of defamation[13] or misappropriation of name or likeness,[14] or criminal liability under state identity theft[15] or false representation of a public employee statutes,[16] which have been legal avenues used to punish instances of social media impersonation in the past.

FTC and Twitter’s Consent Decree

On the first day of Musk’s takeover of Twitter, he immediately fired the CEO, CFO, head of legal policy, trust and safety, and general counsel.[17] By the following week, mass layoffs were in full swing with 3,700 Twitter jobs, or 50% of its total workforce, to be eliminated.[18] This move has already landed Twitter in legal trouble for potentially violating the California WARN Act, which requires 60 days advance notice of mass layoffs.[19] More ominously, however, these layoffs, as well as the departure of the company’s head of trust and safety, chief information security officer, chief compliance officer and chief privacy officer, have attracted the attention of the FTC.[20]

In 2011, Twitter entered a consent decree with the FTC in response to data security lapses requiring the company to establish and maintain a program that ensured its new features do not misrepresent “the extent to which it maintains and protects the security, privacy, confidentiality, or integrity of nonpublic consumer information.”[21] Twitter also agreed to implement two-factor authentication without collecting personal data, limit employee access to information, provide training for employees working on user data, designate executives to be responsible for decision-making regarding sensitive user data, and undergo a third-party audit every six months.[22] Twitter was most recently fined $150 million back in May for violating the consent decree.[23]

With many of Twitter’s former executives gone, the company may be at an increased risk for violating regulatory orders and may find itself lacking the necessary infrastructure to comply with the consent decree. Musk also reportedly urged software engineers to “self-certify” legal compliance for the products and features they deployed, which may already violate the court-ordered agreement.[24] In response to these developments, Douglas Farrar, the FTC’s director of public affairs, said the commission is watching “Twitter with deep concern” and added that “No chief executive or company is above the law.”[25] He also noted that the FTC had “new tools to ensure compliance, and we are prepared to use them.”[26] Whether and how the FTC will employ regulatory measures against Twitter remains uncertain.

Conclusions

The fate of Twitter is by no means set in stone—in two weeks the platform has lost advertisers, key employees, and some degree of public legitimacy. However, at the speed Musk has moved so far, in two more weeks the company could likely be in a very different position. Beyond the immediate consequences to the company, Musk’s leadership of Twitter illuminates some important lessons about social media governance, both internal and external to a platform.

First, social media is foremost a business and not the ‘digital town square’ Musk imagines. Twitter’s regulation of hate speech and verification of public accounts served an important role in maintaining community standards, promoting brand safety for advertisers, and protecting users. Loosening regulatory control runs a great risk of delegitimizing a platform that corporations and politicians alike took seriously as a tool for public communication.

Second, social media stability is important to government regulators and further oversight may not be far off on the horizon. Musk is setting a precedent and bringing the spotlight on the dangers of a destabilized social media platform and the risks this may pose to data privacy, efforts to curb misinformation, and even the stock market. In addition to the FTC, Senate Majority Whip, and chair of the Senate Judiciary Committee, Dick Durbin, has already commented negatively on the Twitter situation.[27] Musk may have given powerful regulators, and even legislators, the opportunity they were looking for to impose greater control over social media. For better or worse, Twitter’s present troubles could lead to a new era of government involvement in digital social spaces.

Notes

[1] Adam Bankhurst, Elon Musk’s Twitter Takeover and the Chaos that Followed: The Complete Timeline, IGN (Nov. 11, 2022), https://www.ign.com/articles/elon-musks-twitter-takeover-and-the-chaos-that-followed-the-complete-timeline.

[2] Monica Potts & Jean Yi, Why Twitter is Unlikely to Become the ‘Digital Town Square’ Elon Musk Envisions, FiveThirtyEight (Apr. 29, 2022), https://fivethirtyeight.com/features/why-twitter-is-unlikely-to-become-the-digital-town-square-elon-musk-envisions/.

[3] Bankhurst, supra note 1.

[4] Potts & Yi, supra note 2.

[5] Drew Harwell et al., Racist Tweets Quickly Surface After Musk Closes Twitter Deal, Washington Post (Oct. 28, 2022), https://www.washingtonpost.com/technology/2022/10/28/musk-twitter-racist-posts/.

[6] Bobby Allyn, Elon Musk Says Twitter Bankruptcy is Possible, But is That Likely?, NPR (Nov. 12, 2022), https://www.wglt.org/2022-11-12/elon-musk-says-twitter-bankruptcy-is-possible-but-is-that-likely.

[7] Id.

[8] Keegan Kelly, We Will Never Forget These Hilarious Twitter Impersonations, Cracked (Nov. 12, 2022), https://www.cracked.com/article_35965_we-will-never-forget-these-hilarious-twitter-impersonations.html; Shirin Ali, The Parody Gold Created by Elon Musk’s Twitter Blue, Slate (Nov. 11, 2022), https://slate.com/technology/2022/11/parody-accounts-of-twitter-blue.html.

[9] Ali, supra note 8.

[10] Mehnaz Yasmin & Kenneth Li, Major Ad Firm Omnicom Recommends Clients Pause Twitter Ad Spend – Memo, Reuters (Nov. 11, 2022), https://www.reuters.com/technology/major-ad-firm-omnicom-recommends-clients-pause-twitter-ad-spend-verge-2022-11-11/; Rebecca Kern, Top Firm Advises Pausing Twitter Ads After Musk Takeover, Politico (Nov. 1, 2022), https://www.politico.com/news/2022/11/01/top-marketing-firm-recommends-suspending-twitter-ads-with-musk-takeover-00064464.

[11] Yasmin & Li, supra note 10.

[12] Katie Paul & Paresh Dave, Musk Warns of Twitter Bankruptcy as More Senior Executives Quit, Reuters (Nov. 10, 2022), https://www.reuters.com/technology/twitter-information-security-chief-kissner-decides-leave-2022-11-10/.

[13] Dorrian Horsey, How to Deal With Defamation on Twitter, Minc, https://www.minclaw.com/how-to-report-slander-on-twitter/ (last visited Nov. 12, 2022).

[14] Maksim Reznik, Identity Theft on Social Networking Sites: Developing Issues of Internet Impersonation, 29 Touro L. Rev. 455, 456 n.12 (2013), https://digitalcommons.tourolaw.edu/cgi/viewcontent.cgi?article=1472&context=lawreview.

[15] Id. at 455.

[16] Brett Snider, Can a Fake Twitter Account Get You Arrested?, FindLaw Blog (April 22, 2014), https://www.findlaw.com/legalblogs/criminal-defense/can-a-fake-twitter-account-get-you-arrested/.

[17] Bankhurst, supra note 1.

[18] Sarah Perez & Ivan Mehta, Twitter Sued in Class Action Lawsuit Over Mass Layoffs Without Proper Legal Notice, Techcrunch (Nov. 4, 2022), https://techcrunch.com/2022/11/04/twitter-faces-a-class-action-lawsuit-over-mass-employee-layoffs-with-proper-legal-notice/.

[19] Id.

[20] Natasha Lomas & Darrell Etherington, Musk’s Lawyer Tells Twitter Staff They Won’t be Liable if Company Violates FTC Consent Decree (Nov. 11, 2022), https://techcrunch.com/2022/11/11/musks-lawyer-tells-twitter-staff-they-wont-be-liable-if-company-violates-ftc-consent-decree/.

[21] Id.

[22] Scott Nover, Elon Musk Might Have Already Broken Twitter’s Agreement With the FTC, Quartz (Nov. 11, 2022), https://qz.com/elon-musk-might-have-already-broken-twitter-s-agreement-1849771518.

[23] Tom Espiner, Twitter Boss Elon Musk ‘Not Above the Law’, Warns US Regulator, BBC (Nov. 11, 2022), https://www.bbc.com/news/business-63593242.

[24] Nover, supra note 22.

[25] Espiner, supra note 23.

[26] Id.

[27] Kern, supra note 10.

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