Labor & Employment Law Daily McDonald’s sues former CEO to undo severance when terminated for consensual employee relationship
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Wednesday, August 12, 2020

McDonald’s sues former CEO to undo severance when terminated for consensual employee relationship

By Pamela Wolf, J.D.

Evidence that Stephen Easterbrook allegedly had three physical sexual relationships with employees, plus other misconduct, has come to light that would have prompted his firing “for cause” without a severance package.

In an August 10 Securities and Exchange Commission filing, McDonald’s Corporation details a lawsuit that the company has brought against former CEO Stephen Easterbrook in a Delaware Chancery Court to recover compensation and severance benefits that would he would not have retained had he been terminated “for cause,” as would have been the case had the company known about new employee sexual relationship allegations recently brought to light. McDonald’s has taken immediate action to prevent Easterbrook from exercising any stock options or selling any stock issuable in respect to outstanding equity awards.

In its two-count complaint, McDonald’s alleges that Easterbrook breached his fiduciary duties as an officer and director of the company and committed fraud in the inducement. McDonald’s is seeking, among other things, compensatory damages for all the amounts paid to Easterbrook under his separation agreement, and other costs and expenses that the company incurred by virtue of his misconduct.

Terminated “without cause.” On November 3, 2019, McDonald’s announced Easterbrook’s termination after the board of directors determined that he had violated company policy and demonstrated poor judgment involving a consensual relationship with an employee. At the time, Easterbrook told investigators that the relationship “was the only one of an intimate nature he had ever had with a McDonald’s employee,” according to the complaint. The former CEO also purportedly said that “he had never engaged in a physical sexual relationship with any McDonald’s employee.”

Based on available information at the time, and after carefully weighing the alternatives, the board decided to negotiate a separation agreement with Easterbrook under which he would be terminated “without cause,” which entitled him to receive substantial severance benefits, the complaint states.

Further investigation prompted. But recently, additional information about the former CEO’s conduct came to the Board’s attention via an employee report that prompted further investigation. Based on the results of that investigation, the board concluded that Easterbrook had lied to the company and the board; he allegedly had destroyed information about “inappropriate personal behavior” and in fact had been involved in sexual relationships with three more employees prior to his termination, all in violation of company policy.

McDonald’s says it has now learned that Easterbrook “concealed evidence and lied about his wrongdoing,” pointing to recently identified evidence showing that:

  • Easterbrook had physical sexual relationships with three McDonald’s employees in the year before his termination;
  • The former CEO approved an extraordinary stock grant, worth hundreds of thousands of dollars, for one of those employees in the midst of their sexual relationship; and
  • Easterbrook was knowingly untruthful to McDonald’s investigators in 2019.

Photographs and videos. The complaint describes that evidence as including “dozens of nude, partially nude, or sexually explicit photographs and videos of various women, including photographs of these Company employees that Easterbrook had sent as attachments to messages from his Company e-mail account to his personal e-mail account.” The date and time stamps on the photos of the three company employees show they were all taken in late 2018 or early 2019.

McDonalds called the photos “undisputable evidence” that Easterbrook repeatedly violated the company’s prohibition of any kind of intimate relationship between employees in a direct or indirect reporting relationship. “They are undisputable evidence that Easterbrook lied during the investigation into his behavior in October 2019, when independent outside counsel expressly asked him if he had ever engaged in a physical sexual relationship with any Company employee,” the complaint states.

Should have been terminated “with cause.” These actions amount to breaches of Easterbrook’s duties to McDonald’s, according to the complaint. “Had Easterbrook been candid with McDonald’s investigators and not concealed evidence, McDonald’s would have known that it had legal cause to terminate him in 2019 and would not have agreed that his termination was ‘without cause,’” the complaint alleges.

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