Elon Musk’s social media company X Corp., formerly known as Twitter, has moved a step closer to resolving one of its most significant legal disputes. On Wednesday, August 21, 2025, lawyers for Musk’s company and attorneys representing thousands of laid-off Twitter employees informed the U.S. Court of Appeals for the Ninth Circuit in San Francisco that they had reached a settlement agreement in principle.
The case involves a massive $500 million severance lawsuit brought by former employees who were dismissed in the wave of cost-cutting layoffs following Musk’s acquisition of Twitter in late 2022. Both sides have now asked the court to postpone an upcoming hearing scheduled for September 17, 2025, so that they can finalize the legal paperwork and present the detailed terms of the agreement for judicial approval.
According to the joint filing, the settlement still needs to be transformed into a long-form settlement agreement before being reviewed and signed by the court. Until then, the specifics of how much compensation former employees may receive remain confidential.
The Lawsuit: What Was at Stake
The lawsuit was initiated by Courtney McMillian, who served as Twitter’s head of employee benefits, and Ronald Cooper, a former operations manager. Together, they represented a class of nearly 6,000 employees who were dismissed in late 2022 and early 2023.
The complaint alleged that X Corp. violated federal labor laws and its own severance plan by denying workers the compensation that had been contractually promised under Twitter’s 2019 Severance Plan.
- For most employees, the plan guaranteed:
- Two months of base salary
- Plus one additional week of pay for each year of service
- For senior employees and managers, the plan promised:
- Up to six months of base pay
- Additional benefits such as health coverage continuation
Instead, many laid-off employees claimed they received no more than one month’s salary, while some said they received nothing at all. This shortfall formed the basis of the $500 million damages claim.
The Mass Layoffs Under Musk
The controversy stems from Musk’s dramatic restructuring of Twitter after his $44 billion takeover in October 2022. Within weeks, Musk began aggressively slashing costs, which included laying off more than half of the workforce worldwide.
- Estimates suggest that around 6,000 employees, out of Twitter’s pre-acquisition workforce of approximately 12,000, were cut.
- Entire teams—such as trust and safety, human rights, public policy, and media communications—were dismantled.
- The layoffs were not limited to the U.S.; global offices in Europe, Asia, and Latin America also saw mass dismissals.
This move was among the earliest and most dramatic rounds of layoffs in the tech industry at the time. Other companies, including Meta (Facebook), Google, Amazon, and Microsoft, would later follow suit, eliminating tens of thousands of jobs as the industry corrected after pandemic-era over-hiring.
How the Case Progressed
The severance lawsuit has had a complex legal journey.
- Initial Dismissal (2024): In July 2024, a federal judge in San Francisco dismissed the lawsuit, ruling that the case did not meet certain procedural requirements.
- Appeal Filed (Late 2024): Plaintiffs McMillian and Cooper filed an appeal to the Ninth Circuit Court of Appeals, arguing that the dismissal was improper and that their claims deserved a full hearing.
- Arbitration Cases: In parallel, several individual ex-employees pursued arbitration cases against X Corp. Some won partial victories, with arbitrators awarding severance in line with the company’s older plans. These smaller legal wins may have put pressure on X Corp. to negotiate a broader settlement.
- Settlement Talks (2025): After months of negotiations, both sides informed the court in August 2025 that they had reached a tentative settlement agreement, avoiding the uncertainty of a court battle.
Wider Legal Battles Facing Musk and X
This settlement only resolves one of several ongoing legal challenges against Musk’s X Corp.:
- Delaware Cases: Former executives, including Parag Agrawal (ex-CEO) and other top leaders, have filed lawsuits claiming millions in unpaid severance and benefits.
- California Cases: Additional groups of former employees have active lawsuits over alleged labor law violations, discrimination, and abrupt termination without proper notice.
- Arbitration Costs: Musk’s company has been accused of delaying arbitration processes by failing to pay required arbitration fees on time, creating further disputes.
The $500 million settlement, if finalized, would be among the largest employee-related payouts in the history of the U.S. tech industry.
Broader Context: Tech Layoffs and Employee Rights
The Twitter layoffs under Musk have become a symbol of the new labor dynamics in Silicon Valley.
- During the COVID-19 pandemic, tech companies expanded aggressively, hiring thousands as demand for digital services surged.
- By 2022–2023, as growth slowed and interest rates rose, companies began reversing course with mass layoffs.
- According to industry trackers, more than 400,000 tech workers have been laid off worldwide since 2022.
The dispute at X has drawn attention because it not only involves contractual severance rights but also highlights questions of corporate accountability when leadership changes abruptly.
Legal experts note that if the X settlement is approved, it could set a precedent for how severance disputes are handled in other major companies.
What Happens Next
- Court Review:The Ninth Circuit will formally review the settlement filing once the long-form document is completed. The court’s approval is required for the deal to take effect.
- Distribution of Benefits: If approved, compensation will be allocated to eligible former employees based on the terms of the final agreement. It is not yet known whether workers will receive the full severance promised under the 2019 plan or a reduced payout.
- Ongoing Cases: Separate lawsuits involving former executives and different categories of employees will continue in other courts. This settlement does not resolve all pending litigation against X Corp.
Why It Matters
- For Employees: It offers long-awaited compensation to thousands who lost jobs and benefits abruptly.
- For Musk and X Corp.: It provides relief from one of the most high-profile lawsuits since Musk’s takeover, though it does not eliminate all legal risks.
- For the Tech Industry: It signals that companies can be held accountable for severance commitments, even amid large-scale restructuring.
Elon Musk’s X Corp. appears close to resolving a $500 million severance dispute that began shortly after the Twitter takeover. While the settlement is not yet final, its approval could mark a major milestone in one of the most contentious labor cases in recent tech history.
It also sends a message to other firms: cost-cutting through mass layoffs may reduce expenses in the short term, but failing to honor contractual employee benefits can trigger years of costly litigation and reputational damage.
The Information is Collected from ABC News and CNN.
