McDonald's suing ousted CEO, alleging employee relationships

McDonald’s says it's suing Stephen Easterbrook, the CEO it ousted last year over an inappropriate relationship with an employee, alleging Monday that he covered up relationships with three other employees and destroyed evidence.

The company now wants to reclaim millions of dollars in compensation paid to Easterbrook.

“McDonald's does not tolerate behavior from employees that does not reflect our values,” said McDonald's President and CEO Chris Kempczinski, who was promoted following Easterbrook's departure, in a message to employees Monday.

The lawsuit puts a spotlight — again — on a years-long reckoning over sexual harassment at Chicago-based McDonald's and its 39,000 restaurants. In the U.S. alone, more than 50 workers have filed separate sexual harassment charges against McDonald’s with the U.S. Equal Employment Opportunity Commission or in state courts.

Leaders with Fight for $15, which supports higher wages and unions for fast food workers, said Monday that McDonald's should use any money it recoups from Easterbrook for worker-led programs that combat sexual harassment.

In his message to employees, Kempczinski said he is committed to making sure that employees are “encouraged and comfortable coming forward with information about any behavior that doesn't align with our values.”

McDonald's also told workers Monday it is conducting a global survey and listening sessions to assess the current state of its corporate culture. The assessment will be completed and shared with employees in November, McDonald’s Chief People Officer Heidi Capozzi said in a message obtained by The Associated Press.

McDonald’s fired Easterbrook last November after he acknowledged exchanging videos and text messages in a non-physical, consensual relationship with an employee. Easterbrook told the company that there were no other similar instances. An initial search of his cellphone confirmed that.

Based on what the company knew at the time, McDonald’s board approved a separation agreement “without cause” that allowed Easterbrook to keep nearly $42 million in stock-based benefits, according to Equilar, which tracks executive compensation. Easterbrook also collected 26 weeks of pay, amounting to compensation of about $670,000.

According to the lawsuit, McDonald's received an anonymous tip in July that Easterbrook had engaged in a sexual relationship with another employee. After an investigation, McDonald's confirmed that relationship as well as two other physical, sexual relationships in the year before he was fired. Easterbrook also approved a special grant of restricted stock, worth hundreds of thousands of dollars, to one of those employees, the lawsuit said.

The company said Monday that Easterbrook removed evidence of those relationships — including sexually explicit photos and videos sent from corporate email accounts — from his cell phone, preventing investigators from learning about them prior to his firing. But that evidence remained on the company's email servers.

McDonald's didn't say why those servers weren't checked during its initial investigation. In the lawsuit, the company says it relied on Easterbrook — its highest ranking executive — to be truthful.

“That reliance caused the company injury,” McDonald's said in the lawsuit.

In the lawsuit, which was filed in Delaware, McDonald’s said it would not have terminated Easterbrook without cause if it had known of the additional relationships.

Tim Hubbard, an assistant professor of management at the University of Notre Dame’s Mendoza College of Business, said firing a CEO with cause can lead to protracted, expensive legal battles, which is why boards try to avoid it. Easterbrook's case seemed clear-cut, he said.

But Hubbard applauded McDonald's for reopening the investigation when new information came forward. He said McDonald's experience may teach other companies not to reach severance agreements without a thorough investigation.

“That’s my big hope with this thing, that we learn from it,” he said. “Companies are not going to settle for this anymore.”

McDonald’s is now attempting to block Easterbrook from exercising his stock options and said it will seek compensatory damages.

It's unclear how much Easterbrook might have to pay. In the lawsuit, McDonald's says Easterbrook's separation agreement makes clear that his 2018 and 2019 equity awards may be forfeited if the company determines he has engaged in “detrimental conduct.” Easterbrook was awarded more than $29 million in stock-based compensation in those two years.

Telephone and email messages seeking comment were left with Easterbrook’s attorney.

Easterbrook and his wife divorced in 2015, the same year he became McDonald’s CEO. Easterbrook, who is British, began his career with McDonald’s in 1993 when he served as a finance manager in London.

McDonald's has taken steps to halt harassment in its ranks. In 2017, Easterbrook assured McDonald’s board that he and other executives were completing anti-harassment training. Last October — a month before Easterbrook was fired — McDonald’s introduced a new harassment training program for its 850,000 U.S. employees. But franchisees — who own 95% of McDonald’s U.S. restaurants — aren’t required to offer it.

McDonald’s shares were flat at $204.23 in midday trading.