Tuesday, November 1, 2022

Pretext for termination ≠ cause for termination

Shortly after Elon Musk closed his $44 billion acquisition of Twitter, he cleaned out its C-suite. He fired CEO Parag Agrawal, CFO Ned Segal, CLO Vijaya Gadde, and general counsel Sean Edgett. 

This is not all that unusual. A new owner of a company should feel 100 percent comfortable with his executive team, and if Musk wasn't totally comfortable with that quartet running Twitter, then it's his prerogative to replace them. 

Employees who hold positions of authority such as CEO and CFO usually have employment agreements, and those agreements typically contain severance payouts if the agreements are terminated "without cause" prior to their natural expiration. This group of Twitter execs appear to be no different, and reports suggest that their agreements called for severance payouts totaling $122 million.

The largess of those severance packages likely explains why Musk has stated that he has terminated Agrawal, et al., for "cause," which would entitle them to zero dollars in severance payouts. According to Musk, the quartet misled him and Twitter over the number of fake accounts on the platform. 

Color me skeptical. These employees' agreements will define the "cause" necessary to terminate without making the required buyout payments. Typically, "cause" for termination of employment involves a degree of misconduct, usually serious, by the employee. To me, Musk's explanation sure sounds like pretext — a purpose or motive alleged to hide the real intention — to avoid paying out nine figures of severance. Time and litigation will tell.

"Honesty is the best policy" may sound trite, but it's also legit. My best guess is that Musk and, by extension, his newly acquired company, will find this out the expensive way.