Meta Under Fire From Employees and Advertisers: AI Layoff Tool Sued, AI Ad Tool Called a ‘Nightmare’

As of 3:00 PM ET on July 14, Meta (META) shares were trading at $658.92, up 0.33% (+$2.19) from the prior close of $656.73. The stock opened at $652.50, hit an intraday high of $666.24, and a low of $649.05. Despite a raft of legal and commercial headwinds, the stock managed a modest gain for the session. In the previous trading day (July 13), Meta shares closed down about 1.2%, suggesting the market had already partially priced in the initial shock.

AI Layoff Tool Sparks Employee Class Action

On July 13, 26 current and former Meta employees filed a class-action lawsuit in the U.S. District Court for the Northern District of California, alleging that the company illegally used an artificial intelligence system to screen and select employees for a mass layoff that began on May 20.^{[Courthouse News]} In a 71-page complaint, the plaintiffs detailed an internal AI system called “Metamate,” which they claim combined employee-trained “second brain” agents, keystroke and activity monitoring data, an AI token usage dashboard, and algorithm-assisted performance rankings and calibrations to score, rank, and select employees for termination.

“Meta did not compile its layoff lists through the considered judgment of managers who know their employees’ work,” the plaintiffs wrote in the complaint. “Instead, Meta used a series of internal artificial intelligence systems … to score, rank, and place employees on the list.”^{[Courthouse News]} The plaintiffs allege the AI system specifically targeted employees who had taken protected leave (such as sick leave or maternity leave), potentially violating federal and state labor laws. This case is the latest legal challenge Meta faces in its AI deployment, following previous lawsuits over AI training data copyright and AI-generated misinformation.

AI Ad Tool: A Brand ‘Nightmare’

Beyond the employee lawsuit, Meta’s AI ad tools are becoming a “nightmare” for brands. According to a July 14 Business Insider report, Meta is aggressively pushing advertisers to use its AI tools to optimize ad creative, but the results have been “chaotic.”^{[Business Insider]} The report says the tool generates ads with distorted limbs, garbled text, or completely altered product appearances. For example, a pajama brand promoting a pajama dress was instead served an AI-suggested image of a shirt and pants. Another client, a social network for women in Montana, had male figures inserted into its ads by the AI.

“These tools are not helping my clients grow their businesses,” said advertising consultant Jessica Gleim.^{[Business Insider]} Adding to the frustration, some AI features default to off but have a bug that re-enables them automatically. Karissa Tuccio, Director of Social & Influencer at Mediassociates, said most of her 15 clients have encountered this bug, which she reported to a Meta representative on July 9. Earlier, outdoor retailer REI faced a consumer backlash after the AI generated an absurd ad for a bicycle with two handlebars. REI said Meta’s AI tool “auto-enrolled” its account, generating “inaccurate” and “inappropriate” images.^[MediaPost]

AI Image Feature Pulled Over Privacy Backlash

Meta’s aggressive AI product strategy is also evident in another feature that was quickly launched and just as quickly pulled. According to a July 13 iTnews report, Meta’s “Muse Image” AI generation feature, launched on July 7, was abruptly shut down days later.^[iTnews] The feature allowed users to generate images using public Instagram accounts, but its default opt-in setting sparked widespread privacy concerns.

Emmy-nominated actor Hannah Einbinder criticized the feature on Instagram for being automatically enabled and urged users to turn it off. The SAG-AFTRA actors’ union also urged members and users to opt out, stating: “Any opt-in that is not explicit and conspicuous is unacceptable for this use of Instagram user images. It is a complete misreading of public sentiment about the clear dangers and harms of such use.”^[iTnews] After Meta decided to remove the feature, SAG-AFTRA welcomed the move, saying, “Given the widely known dangers of non-consensual digital replicas, a feature that encourages this behavior was unwise. We are grateful it has been terminated. It was the responsible thing to do.”

Meta Under Legal and Commercial Siege

Meta’s current legal challenges extend beyond the employee lawsuit. According to a July 13 Law.com report, a Meta-owned startup is being sued for allegedly misclassifying its AI trainers as independent contractors to avoid providing employee benefits and labor protections.^[Law.com] The lawsuits allege the existence of a “hidden workforce” of employees critical to training AI models who are denied the benefits of full-time staff.

Meanwhile, a Business Insider analysis argues that tech companies, including Meta, are entering an era of the “forever layoff.”^{[Business Insider]} The article notes that after Cloudflare cut over 20% of its workforce in May, CEO Matthew Prince wrote in a Wall Street Journal column: “What we did will likely be the norm over the next year.”^{[Business Insider]} These companies are using layoffs to free up capital for expensive AI investments. AlphaSense data shows that when ChatGPT launched in 2022, the number of corporate earnings calls mentioning both “layoffs” and “AI” was under five per quarter. That figure has now climbed to over 100 per quarter.^{[Business Insider]}

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