Tesla investors who had sued CEO Elon Musk and other company officials over allegations of fostering a “toxic workplace culture” have seen their lawsuit shut down, at least for now. A federal court has ruled that the shareholders cannot proceed until they first make a formal demand to the company’s board to take legal action.
The lawsuit revolves around claims that Tesla’s directors and executives contributed to a workplace culture steeped in racism, sexism, and discrimination. Shareholders Solomon Chau and Alvin Janklow argued that this environment not only harmed the company’s reputation but also posed a significant financial liability risk.
The decision to dismiss the lawsuit on these grounds, handed down by Judge David Alan Ezra in the US District Court for the Western District of Texas and reported by Bloomberg Law, suggests that the shareholders failed to demonstrate that their demand to the board would be futile. In essence, the court found that the majority of the board members did not have a personal stake or substantial liability in the alleged misconduct, nor were they lacking in independence from individuals who might face liability.
While this ruling represents a setback for the investors, Judge Ezra did leave the door open for them to refile their lawsuit. The investors have a chance to file an amended case and make a more compelling argument, with the court’s decision in mind, within the next 30 days.
This legal battle adds to the growing list of lawsuits Tesla has faced with in recent years, including allegations of worker discrimination, racial harassment lawsuits, and conflicts with California regulators.
