Former Twitter Employee Sues X for Breach of Contract in Compensation Dispute

Twitter’s termination of software engineer Ethan Sutin was part of a “recent effort to cut costs by any means necessary,” alleges Sutin’s Friday breach of contract complaint against X, formerly Twitter, (docket 23-608806) in California Superior Court in San Francisco.

Sutin, co-founder of Squad, a video chat app, agreed with co-founder Esther Crawford to sell Squad to Twitter for $36 million in cash and Twitter stock in a deal that was completed March 15, alleged the complaint. As consideration for the acquisition, Twitter was to pay Sutin $1.4 million in cash compensation and 44,769 shares of Twitter common stock in equity compensation, the complaint said. "Unfortunately, as part of a widespread pattern of avoiding its financial obligations, Twitter conspired to deprive Mr. Sutin of a substantial part of this consideration," it said. As part of the acquisition agreement, Sutin agreed to employment with Twitter and was granted an additional 30,943 units of Twitter restricted stock Jan. 17, 2021, and 5,346 RSUs on March 27, 2022, it said.

Twitter terminated Sutin May 16, 2022, alleging the termination was “for cause” for violating the company’s respectful workplace policy, said the complaint. Because the termination was for cause, Twitter refused to pay Sutin a “significant portion" of the equity compensation, it said. Sutin claims he lost two-thirds of the equity compensation he was to have received in consideration for his app. Twitter’s labeling of Sutin’s termination as for cause is inconsistent with the definition of “cause” contained in the restriction agreement, the complaint said.

Sutin is “informed and believes” his “pretextual termination by Twitter is part of a recent effort to cut costs by any means necessary,” it said. His work was “integral in the completion and release of several critical Twitter features, including features that had been stalled for several years under prior leadership,” he asserted. Sutin's work on cryptocurrency and nonfungible tokens generated media attention for its innovation, and the NFT feature he led “became the biggest driver for Twitter Blue subscriptions, one of the only sources of Twitter’s revenue not from advertising,” said the complaint.

Before Sutin’s termination, Twitter let go multiple executives, discussed mass layoffs and instituted freezes on hiring, contractors and travel, said the complaint. The company “inaccurately labeled" Sutin’s termination as for cause to “unfairly interfere” with his right to receive the compensation benefits he was due, it said. Twitter also refused to pay arbitration fees for the matter, requiring Sutin to resort to litigation to recover the equity compensation that was “wrongfully withheld.”

Sutin and Twitter entered into a dispute resolution agreement in December 2020 and agreed to bring any claim in arbitration before Judicial Arbitration and Mediation Services (JAMS), pursuant to the then-current JAMS rules, said the complaint. Sutin filed an arbitration demand with JAMS in July 2022, but Twitter “failed to pay the retainer required by JAMS,” it said. As a result, JAMS closed the case due to nonpayment of fees, it said.

Twitter breached its contract with Sutin by failing to release his unvested shares of Twitter common stock as required by the restriction agreement between the parties, Sutin alleges. In addition to breach of contract, he claims breach of the covenant of good faith and fair dealing. He seeks an award that compensates him for the benefits in the cited agreements; actual and compensatory damages, plus general, special and incidental damages; an injunction ordering X to characterize his termination as “without cause”; statutory penalties; pre- and post-judgment interest; and attorneys’ fees and costs. X didn't comment.