Judge rules that Twitter violated contract when it withheld millions of dollars in bonuses

SAN FRANCISCO (CN) — A federal judge ruled late Friday afternoon that Twitter, now known as X, violated a contract when it failed to pay what amounts to tens of millions of dollars in bonuses that the company had orally promised its employees.

Mark Schobinger, the former senior director of compensation for Twitter, filed suit against the social media company on behalf of himself and other current and former Twitter employees in June. 

Schobinger, who is based in Texas, claims that employees were not paid a portion of their 2022 bonuses when they were due in the first quarter of 2023, despite repeated promises from senior executives at the company, including Ned Segal, the former chief financial officer of the company. This bonus was to be paid to employees who stayed with the company until the first quarter of 2023.

According to Schobinger, these promises were made both before and after Elon Musk acquired the social media platform in October 2022. Schobinger also said employees took these promises into consideration when deciding whether or not they wanted to leave their jobs with the social media company and that he turned down opportunities from other companies at the time because of the promised bonus.

Twitter’s lawyers argued that the promise was only an oral promise and was not a contract, and that Texas law should govern under section 1646 of the California Civil Code, which states that a contract is to be interpreted according to the law and usage of the place where it is to be performed.

U.S. District Judge Vincent Chhabria, in a brisk three-page opinion, wrote that California law governs the case because the choice-of-law provision in the California Civil Code “applies only to matters of contract interpretation, not to matters of contract validity or enforceability. Because Twitter doesn’t even try to argue that Texas law should apply under the governmental interest approach, California law governs by default.”

Chhabria said that Schobinger plausibly stated a breach of contract claim under California law, and that Schobinger was covered by the bonus plan and followed all of Twitter’s directions.

“Once Schobinger did what Twitter asked, Twitter’s offer to pay him a bonus in return became a binding contract under California law. And by allegedly refusing to pay Schobinger his promised bonus, Twitter violated that contract,” Chhabria wrote.

Shannon Liss-Riordan, counsel for Schobinger, said in a statement to Courthouse News that “We are very pleased with this decision.  This is a very important decision, which is relevant to claims we have filed on behalf of nearly two thousand Twitter employees.  The court agreed with our argument that later promises — even oral promises — can be binding, even if the original written agreement is not enforceable.  In this case, we alleged that promises were made to ongoing Twitter employees who stayed with the company through Elon Musk’s tumultuous acquisition that they would receive a bonus for 2022.”  

Chhabria wrote that Twitter’s contrary arguments “all fail.” Twitter argued that the performance bonus plan was not an enforceable contract because it provided only for a discretionary bonus.

“But Schobinger is not suing to enforce Twitter’s discretionary bonus plan. He is suing to enforce Twitter’s alleged subsequent oral promise that employees would in fact receive a percentage of the annual bonus contemplated by the plan if they stayed with the company,” Chhabria wrote.

The social media platform also insisted that the oral statements were not enforceable because they contradict the terms of the performance bonus plan and do not satisfy California’s “special rules for oral modification of written contracts.”

“But those rules come into play only when a valid, enforceable written contract already exists. And as Twitter itself argues, its discretionary bonus plan was never a valid, enforceable contract to begin with,” Chhabria wrote.

Schobinger’s primary estoppel claim, however, was “reluctantly dismissed” with leave to amend because “the plaintiff still needs to take the (seemingly pointless) extra step of pleading that the alleged contract may be invalid or unenforceable,” Chhabria wrote.

Schobinger can file an amended complaint within 21 days to address his primary estoppel claim.

Lawyers for Twitter did not immediately respond to request for comments.

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