Lawsuit dismissed over McDonald’s board’s severance pay to fired CEO

6:29 pm Wednesday, March 01st, 2023

By Tom Hals

WILMINGTON, Delaware (Reuters) -McDonald’s Corp’s board cannot be sued for allowing former CEO Steve Easterbrook to keep tens of millions of dollars when the restaurant chain fired him for having a relationship with an employee, a Delaware judge ruled on Wednesday.

The directors acted in good faith in 2019 when they fired Easterbrook without cause for having a non-physical relationship with an employee, Delaware Vice Chancellor Travis Laster said in his ruling.

Because he had not been fired for cause, Easterbrook collected severance that shareholders said was worth $125 million.

A year after Easterbrook was fired, the company discovered that he had sexual relationships with at least three company employees. Easterbrook agreed in 2021 to pay the company $105 million to settle claims that he misled the board about his relations with employees. He apologized to his former co-workers and the board.

Investors argued directors could have saved millions of dollars if they had conducted a thorough investigation of Easterbrook at the time he was fired, but that the directors refused to do so because they did not want to expose their own allegedly careless oversight.

Laster said regardless of whether the directors could have handled the Easterbrook investigation better, they were protected if they acted in good faith.

“The record shows that the Board actively enforced the Company’s policies and commitment to maintaining safe, respectful, and inclusive workplaces,” the company said in a statement.

A lawyer for the plaintiffs did not respond to a request for comment.

Laster also said the directors could not be sued for ignoring a wave of sexual misconduct allegations, including lawsuits by employees, complaints to regulators and allegations that David Fairhurst, the top human resources executive, committed sexual harassment.

Rather than ignore the problem, the directors updated corporate policy, implemented training and brought in consultants, Laster said.

While the judge ruled in January that shareholders can pursue a case against Fairhurst for allegedly allowing a culture of misconduct to flourish at the company, that case was also dismissed on Wednesday.

(Reporting by Tom Hals in Wilmington, Delaware; Editing by Bill Berkrot)