SpaceX Faces Second Lawsuit Over Pay and Working Conditions

SpacX Founder Elon Musk
SpacX Founder Elon Musk

UPDATE: This is a class-action lawsuit from one ex-employee alleging labor law violations. If he wins, it would affect former and present employees.

SpaceX is facing a second lawsuit from employees, this time from both past and present. Law360.com reports:

For the second time in a week, former and current employees of Space Exploration Technologies Corp. hit the rocket manufacturer with a putative class action in California court, accusing it on Friday of failing to provide rest breaks or pay full wages.

The lawsuit, filed in Los Angeles Superior Court, alleges that SpaceX supervisors impose schedules on their employees that make it impossible for them to take statutorily required rest periods every four hours or first or second meal breaks as required by California law.

SpaceX is well known to have a culture in which many employees routinely work 60 to 80 hour weeks. It’s easy to imagine that such schedules require careful attention to rest and meal breaks and accounting for hours worked.

This lawsuit adds to SpaceX’s legal woes. Two employees who were fired in July as part of a mass firing have filed a lawsuit alleging that SpaceX failed to following the Cal WARN Act, which requires 60 days notice of any large layoffs of 50 people or more for companies of SpaceX’s size. The class-action suit seeks back pay and benefits.

The key issue in the lawsuit appears to be whether the employees were fired for poor performance, or because of a lack of work. SpaceX has said the firings were of low-performing employees and were done after the company’s annual review process. The company says it expects a 20 percent net in its employee headcount this year. SpaceX also has hundreds of jobs listed on its website.

It could be that SpaceX has adopted the practice of laying off a certain percent of its low-performing employees each year. That’s not unheard of among big companies, although I’m told that Musk has not used that method in the past.

Let me suggest another possible scenario. I have heard speculation about a cash crunch within SpaceX as being one of the reasons for the firings. That wouldn’t be overly surprising, given the large ramp up in the number of employees, the company’s relatively slow launch rate (which has begun to improve), and the number of programs that SpaceX is pursuing simultaneously (Falcon 9, Falcon 9R, Falcon Heavy, commercial crew, etc.). SpaceX only gets paid for the commercial crew program after they complete milestones, and that schedule has slipped significantly.

So, it’s not inconceivable that SpaceX found the need to trim expenses for a period of time by firing people. The fact that there are 300 jobs being advertised on the SpaceX website doesn’t necessarily mean they’re hiring at the moment. And the expected net increase in employee headcount for the year could come from the ramp up that took place prior to the firings, plus any additional hires SpaceX expects to make later in 2014 when the company’s cash flow is better.

None of this is unusual in big companies. From my experience at Yahoo!, I recall periodic company-wide hiring freezes when managers couldn’t fill positions despite hundreds of jobs being listed publicly. There were small layoffs of employees and contractors when things got tight that didn’t trigger the WARN Act. In one case, full-time employees I knew showed up for work one day like normal, and were duly informed to pack up their things and leave.

Yahoo! also made a series of highly-publicized layoffs that did trigger the WARN Act, including the one where they fired me and 1,500 other employees two weeks before Christmas. It was expensive for the company in terms of costs because they had to pay everyone for two months of wages and benefits. The timing was critized, and the staff cuts made the company look like it wasn’t doing well.

A big, established company like Yahoo! can absorb that sort of bad press. But, a company like SpaceX — which still seems to be in start-up mode over decade after it was founded — would have a harder time. Triggering the WARN Act brings instant publicity, which would have raise all sorts of questions about the company’s stability and its “cash flow positive” status (however that is actually defined).

And look at the timing. SpaceX suddenly fires hundreds of people (estimates range from 200 to 400) about a month before NASA is to decide on the next round of commercial crew funding. That’s a huge contract for SpaceX, which is in tight competition with Boeing and Sierra Nevada Corporation. NASA could end up down selecting to only one partner.

SpaceX also recently sued the U.S. Air Force to allow it to bid on more launch contracts. What would it have been like for SpaceX to have to trigger the WARN Act while arguing that it has the capability to add even more launches to its already crowded manifest?

SpaceX clearly didn’t want any publicity on the firings, which were done quietly. But, even after work leaked out and stories were published, it still took days for the company to issue a statement. That came late on a Friday evening, which is a time when few people are paying attention to the news.

The employees who are suing are taking quite a risk. It’s a brave thing to do going up against Elon Musk; he’s not shy about hiring the best lawyers and doing battle in court. He sued a safety expert who raised questions about the Falcon 9, he’s taken the U.S. Air Force to court. The fired employees are risking future job prospects with future employers, while any current ones that are involved risk their careers at SpaceX.

But, they clearly feel they have been wronged, and they will have their day in court. It will be interesting to see how these lawsuits get resolved.