Hacker News Reader

Comment by DancerOfFaran | Hacker News Reader

This is a strange lawsuit.

It seems like a gap in the law/regulation if a former owner (in this case, the pre-Elon Twitter management) can make verbal pronouncements that the new owner is beholden to, without a paper trail. With that said, the complaint does state that promises were made post-acquisition, although this is only mentioned once.

It seems even more puzzling to enforce this on non-profitable private companies. The precedent that would be set here would severely undermine the ability of a private company to operate if it came in far under revenue targets, and was beholden to pay out bonuses to employees.

It's EVEN more puzzling that Twitter, a Delaware corp owned by X, a Nevada corp, is being sued by an employee based in Texas, under California law.

View on HN

> It seems like a gap in the law/regulation if a former owner (in this case, the pre-Elon Twitter management) can make verbal pronouncements that the new owner is beholden to, without a paper trail. With that said, the complaint does state that promises were made post-acquisition, although this is only mentioned once.

Ownership doesn't change contracts. Verbal agreements are also agreements, just harder to prove.

What matters is who had the power to make such agreements at the time. Management made a contract on behalf of Twitter at the time. Promises after firing management would have little meaning.

> It seems even more puzzling to enforce this on non-profitable private companies. The precedent that would be set here would severely undermine the ability of a private company to operate if it came in far under revenue targets, and was beholden to pay out bonuses to employees.

All depends on the conditions for the bonus. A promise is a promise. If you buy a car, but then have a large medical bill and can't pay for it, you'll still need to pay for the car.

> It's EVEN more puzzling that Twitter, a Delaware corp owned by X, a Nevada corp, is being sued by an employee based in Texas, under California law.

Why is that puzzling? Twitter has its HQ in California.

Likely puzzling to some because of personal feelings towards Elon Musk. He has a cult like following.

I think you mean oral contracts. Verbal contracts are contracts that use words, either written or oral.

TIL.. yes oral..

You should tell businessinsider and the lawyers too.

Makes me think, what about non-verbal contracts?

You ask: "Hey manager, will we get a bonus this year?" The manager smiles at you and says nothing. Can you sue the company if you don't get the bonus?

I don't think this is a gap. The pronouncement was made on behalf of Twitter, through its agents.

I.e. if an exec promises me a bonus, I'm presuming that it's not a personal promise they're paying out of their own funds. They're making a promise on behalf of the company to pay me with company funds.

That it's not in writing is odd, but I'm guessing both sides of the conversation are willing to testify.

Then they shouldn't have made that promise. In reality, it was going to cost them either way though. They either promise a minimum bonus and pay that, or more engineers quit and they spend the money replacing those engineers.

It's also worth noting that at the time the promise was made, Twitter would have still been profitable after paying the bonuses. Musk failing to maintain that profitability does not free him from contractual obligations to employees anymore than it frees him from contractual obligations to other companies.

Verbal contracts are still contracts. The previous management was acting on behalf of a company, so they created the liability for the company. When you acquire a company you acquire all the liabilities and assets of that company, you don't get to pick and choose. Similarly, companies cannot pick and choose which liabilities they have to pay even if they are losing money. If a company genuinely cannot pay a liability they can declare bankruptcy and let the courts sort it out.

Not only are verbal agreements enforceable, in many states non-payment of compensation comes under laws especially favorable to workers. Not being dischargeable in bankruptcy and piercing the corporate veil come to mind. In general don't mess around with not paying people for work.

The employees made decisions about their employment based on promises made by the company, in the form of statements by their managers. It’s not their fault the company was then sold to a colossal prick with a penchant for not paying people contractually owed. They deserve to be compensated.

But in that case, the former managers should carry some responsibility too, at least that is what would feel right to me.

It doesn't seem like there is any relevant "former management" though?

The guy who is spearheading the case worked there during the time the promise was made and then for sometime after. So he either didn't mention it to the new owners on purpose (unlikely), or more likely, he has evidence the deal was acknowledged or at least known about by new management and still was not paid.

The lawsuit was filed in June by Mark Schobinger, the company's former head of compensation, on behalf of himself and thousands of other current and former employees.

He left in May, the promises were made sometime before he left and the case was established in June.

Sounds like the information was available but someone didn't do their due diligence and ask enough about the compensation structure before finalizing the acquisition ?

Sure it's not their fault. It's not the current management's fault either, that's the problem.

They were promised that someone else would reward them. That someone else disagrees. That looks like a problem coming from the first employer.

Assuming this is all true, of course.

The current management waived all rights to due diligence in the deal. They can’t complain now to learn facts they refused to engage with earlier.

> That looks like a problem coming from the first employer.

It's the same employer, just the ownership that changed hands.

There seems to be some fundamental failure to grasp this. The employer hasn’t changed. Its ownership has, but that’s irrelevant. If changed ownership was a get-out-of-jail-free for liabilities, no public company would ever owe anything.

> Sure it's not their fault. It's not the current management's fault either, that's the problem.

It is the current managements "fault". They bought the company, all it's assets, all it's liabilities. They don't get to conveniently decide they get the company, but none of it's debts.

> They were promised that someone else would reward them.

They were promised Twitter would reward them, by people with the authority to make binding promises on behalf of Twitter.

> That looks like a problem coming from the first employer.

There is no first/second employer here. They were employed by Twitter before the acquisition, they were still employed by Twitter afterwards.

> It's not the current management's fault either, that's the problem.

Of course it is! Elon bought Twitter and all that came with it, including all the contracts set up by the previous management.

You could have an argument that if Twitter intentionally nuked their entire company between signing the deal and the acquisition date, the old management probably committed some kind of fraud, but that's not the case here; these bonuses seem pretty reasonable for a company like Twitter before Elon took over, to ensure the transition goes well.

If we lived in this world, companies could just change hands whenever they wish to disgorge their debts. “We’re owned by a different shell holding company now, it’s not our problem.”

See the issue?

Here’s another way of framing this point: when selling a company, which liabilities do you feel should follow through to new ownership and which shouldn’t? Tax obligations? Real estate mortgages? Employee compensation?

Selling a company shouldn’t be a one-way risk valve. You punch the ticket, you take the ride.

The lawsuit claims that management at Twitter promised employees they would be paid 50% of their 2022 annual bonus if they stayed with the company during Musk's takeover, which was finalized in October 2022.

The new owner isn't beholden to promises made by the prior management, the company is. Just because ownership of a company changes hands doesn't mean that prior obligations of the company are voided.

Now, if, during the course of the sale, the management didn't communicate to the new owners what promises had been made, maybe the company could sue the old management, but the company is still liable for its contracts.

New owners are still subject to existing contracts. This isn’t strange.

Reply on news.ycombinator.com