X Corp and Musk Face New ERISA Lawsuit Over Twitter Severance Promises

SAN FRANCISCO, CA – January 30, 2026 – The legal saga over severance pay for thousands of former Twitter employees has been reignited, as law firm Sanford Heisler Sharp McKnight filed an amended complaint today against Elon Musk and X Corp. in federal court. The lawsuit, filed on behalf of a class of terminated workers, alleges the company and its owner violated federal law by failing to pay the severance benefits promised to employees following Musk's turbulent takeover in October 2022.

This new filing marks a determined continuation of a legal fight that has spanned several years, directly challenging the conduct of one of the world's most high-profile billionaires. The complaint centers on the Employee Retirement Income Security Act (ERISA), a robust federal statute designed to protect employee benefits, and seeks to hold Musk and his company accountable for promises made during the mass layoffs that gutted the social media giant's workforce.

A Renewed Legal Assault on Severance Promises

The case, Ye et al. v. Musk et al., filed in the U.S. District Court for the Northern California, is not entirely new. It represents a strategic continuation of claims from a previous lawsuit, McMillian et al. v. Musk et al., which was dismissed in mid-2024. In that earlier case, a federal judge ruled that Twitter's severance plan did not constitute an ERISA-governed plan because it lacked an "ongoing administrative scheme."

However, the plaintiffs' counsel is now returning to court with a refined argument and a new plaintiff. The amended complaint re-alleges that Twitter's severance plan was indeed a “welfare benefit plan” and therefore falls squarely under the jurisdiction and protections of ERISA. This legal maneuver aims to overcome the previous dismissal and force the court to address the core allegations of broken promises.

The dispute stems from the chaotic aftermath of Musk's $44 billion acquisition. After taking control, Musk initiated mass layoffs that saw the company's headcount of roughly 7,500 employees slashed by over 80%. While Musk publicly posted on his X account that terminated employees were receiving “50% more [severance] than legally required,” the lawsuit paints a starkly different picture. It alleges that the company offered only a fraction of what was owed under Twitter’s pre-existing severance plan, which reportedly promised most workers two months of base pay plus one week of pay for each year of service.

The Heart of the Dispute: ERISA and Musk's Promises

At the core of the lawsuit is the argument that X Corp. and Musk violated their fiduciary duties under ERISA. This federal law requires employers who administer benefit plans to act in the best interest of the plan's participants and to provide them with complete and accurate information about their benefits.

By allegedly misrepresenting the severance offered and failing to honor the established plan, the defendants broke the law, according to the plaintiffs. The lawsuit contends that Musk's public assurances were a smokescreen for a deliberate effort to shortchange thousands of employees who had been promised a safety net during the acquisition.

“Twitter and Musk promised employees that their severance benefits would remain the same through the acquisition, then suddenly offered them a fraction of what they were owed and told them it was more than they deserved,” said Kate Mueting, a Partner at Sanford Heisler Sharp McKnight and counsel for the plaintiffs. “ERISA does not allow this kind of behavior. It provides a pathway for people like our clients to seek justice and hold companies accountable.”

The firm's Co-Vice Chairman, Charles Field, reinforced this commitment to holding the powerful to account. “We remain absolutely committed to representing people who were terminated and given far less severance than they were owed by these Defendants,” Field stated. “It doesn’t matter how rich or powerful you are, the law still applies to you.”

A Shifting Legal Landscape: The Schuman v. Microchip Precedent

Bolstering the plaintiffs' renewed legal effort is a recent and highly relevant decision from the Ninth Circuit Court of Appeals. The 2025 ruling in Schuman v. Microchip has significantly altered the landscape for ERISA-related disputes, particularly concerning severance agreements.

In that case, the Ninth Circuit held that releases of ERISA claims signed by employees in exchange for benefits are subject to “heightened scrutiny.” The court determined that when evaluating whether a release was signed knowingly and voluntarily, courts must give “serious consideration” to any alleged breach of fiduciary duty by the employer. This means that if a company is found to have acted improperly to get an employee to sign away their rights, the release itself may be invalidated.

This precedent is crucial for the former Twitter employees. The amended complaint argues that X Corp.’s alleged violations of ERISA—specifically, misleading employees about the severance they were owed—invalidated any releases that may have been signed by terminated workers who accepted the reduced severance packages. The Schuman decision provides a powerful legal tool for the plaintiffs to argue that they cannot be bound by agreements they signed under duress or based on false information provided by their employer.

High Stakes for X Corp and the Tech Industry

The financial and reputational stakes for X Corp. are substantial. The original lawsuit sought at least $500 million in severance payments, a figure that aligns with a tentative settlement reportedly reached in the McMillian case in 2025, though that settlement apparently failed to resolve the matter fully. With thousands of former employees potentially in the class, a successful lawsuit could result in a massive financial liability for the company.

Beyond the monetary cost, the lawsuit strikes at the heart of corporate accountability in an industry known for both its immense wealth and its recent waves of mass layoffs. The outcome could set a significant precedent for how employee benefits are handled during mergers and acquisitions. If the court agrees that Twitter’s severance plan falls under ERISA, it could force other tech companies to be far more cautious and transparent with their own severance policies, potentially formalizing them under ERISA to mitigate legal risk.

This case is being closely watched across Silicon Valley and beyond. It serves as a high-profile test of whether federal employee protection laws can effectively shield workers from the abrupt and often brutal realities of corporate takeovers. As the legal battle unfolds, the outcome is poised to send a powerful message about corporate responsibility and the enduring power of employee protections in an era of rapid technological and corporate change.