A US federal court has ruled against social media giant X, formerly known as Twitter, in a breach-of-contract lawsuit. The court held that the company violated contracts by failing to fulfill its commitment to pay annual performance bonuses that were orally promised to its employees.

The lawsuit, initiated by former employee Mark Schobinger in June, asserted that Twitter had pledged a performance bonus for the year 2022 to employees who remained with the company until the final possible payout date, which was specified as the first quarter of this year.

Despite attempts by X to have the case dismissed, the court ruled in favor of Schobinger, deeming his claim of breach of contract under California law as valid. US District Judge Vince Chhabria stated, “Schobinger has plausibly stated a breach of contract claim under California law. He alleges that Twitter orally promised to pay each employee a portion of the bonus contemplated. And by allegedly refusing to pay Schobinger his promised bonus, Twitter violated that contract.”

X has the option to appeal the court’s decision, providing a potential avenue for the social network to contest the ruling.

The legal setback comes at a challenging time for X, now under the ownership of Elon Musk. The company is currently grappling with various challenges, including an ongoing European Union probe initiated under legislation designed to combat disinformation and hate. Additionally, criticism has been directed at the platform’s response to recent incidents of rioting in Dublin. Moreover, X is experiencing an exodus of prominent advertisers.

Internal documents, as reported by tech publication The Verge, reveal that the company’s current valuation is less than half of the $44 billion that Elon Musk paid for it in October 2022. The combination of legal troubles and external pressures raises questions about the social media platform’s future trajectory.