Following an investigation into alleged misconduct, Steve Easterbrook, the former CEO of fast-food giant McDonald’s, has returned over $105 million in cash and equity awards to the Company.
McDonald’s terminated Mr. Easterbrook in 2019 after discovering that he had violated Company policy by engaging in a consensual relationship with an employee through video calls and text messages. At the time of his dismissal, Mr. Easterbrook stated that he had not participated in misconduct with any other employees.
While the McDonald’s Board of Directors acknowledged that Mr. Easterbrook had exercised poor judgement, they nevertheless decided to terminate him without cause. The Company also approved a settlement agreement which provided their former CEO with a multi-million-dollar compensation package.
However, the agreement also contained a provision which would require Mr. Easterbrook to return his severance payments if the Company discovered that he had engaged in conduct which would justify a termination for cause. This provision would prove problematic for Mr. Easterbrook in July of 2020, when an anonymous McDonald’s employee came forward and accused him of having a sexual relationship with another employee during his time as CEO.
Following an investigation, McDonald’s not only confirmed the new accusation to be true, but also discovered that Mr. Easterbrook had engaged in other sexual relationships with employees during his tenure as CEO. McDonald’s learned that Mr. Easterbrook had sent “dozens of nude, partially nude or sexually explicit photographs and videos of various women, including photographs of company employees” to his personal email account. The Company also determined that he attempted to conceal these relationships by deleting evidence from his phone.
As well, the investigation revealed that one of the women Mr. Easterbrook was in a sexual relationship with received stocks worth hundreds of thousands of dollars from the former CEO.
As a result of these new discoveries, the McDonald’s Board of Directors sued Mr. Easterbrook in August of 2020. The Company’s position was that Mr. Easterbrook concealed information during the initial investigation, and that he would have been terminated for cause in 2019 had the full extent of his misconduct been known. Pursuant to the above-mentioned provision of the settlement agreement, the Company looked to recover the large financial amounts paid to Mr. Easterbrook on account of discovering additional misconduct following the settlement.
On December 16, 2021, Mr. Easterbrook agreed to return the significant sums of money and stocks to the Company, thus accepting the role he played in the misconduct and avoiding a long legal battle. The value of those equity awards and cash was in excess of $105 million.
The Use of Settlement Agreements in Canada
While the matter between McDonald’s and its former CEO occurred in the American legal context, the circumstances befalling both parties also have important implications for Canadian employers. Much like in the U.S., settlement agreements are common in Canadian workplaces.
Canadian courts have recognized that settlement agreements are essentially contracts entered into between employers and employees. Furthermore, the courts will generally uphold the terms of settlement agreements as final, barring the presence of fraud, misrepresentation, undue influence, and/or other factors.
In situations where a false or misleading representation results in one party entering into a settlement agreement with the other, the agreement can be revoked. In other words, employers may not be bound by a settlement agreement entered into because of an employee’s misrepresentation or dishonesty. An employer who seeks to rescind a settlement agreement must prove the misrepresentation significantly influenced their decision to enter into the agreement. In fact, this was the very argument relied upon by McDonald’s in their lawsuit against Mr. Easterbrook.
The Bottom Line
McDonald’s settlement agreement with Mr. Easterbrook was expertly drafted to ensure maximum protection for the Company, and employers should be equally prudent during settlement negotiations with former employees. We strongly recommend that all settlement agreements be negotiated and drafted with the assistance of experienced employment law counsel, as each case is unique and turns on its own set of facts.
If you are looking for an experienced team to assist with negotiating and drafting your settlement agreement, please do not hesitate to contact us.