McDonald’s sues former CEO Easterbrook, alleges he lied about relationships he had with workers

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Steve Easterbrook, chief executive officer of McDonald’s Corp., speaks during the opening of the company’s new headquarters in Chicago, Illinois, U.S., on Monday, June 4, 2018.

Joshua Lott | Bloomberg | Getty Images

McDonald’s is trying to recover millions in compensation it paid out to former CEO Steve Easterbrook by suing him for allegedly committing fraud and lying during the company’s internal probe into his behavior, according to a filing with the Securities and Exchange Commission.

The fast-food chain’s board announced in November that it had terminated Easterbrook for having a consensual relationship with an employee and tapped Chris Kempczinski as his successor. 

“McDonald’s does not tolerate behavior from any employee that does not reflect our values,” Kempczinski wrote in a letter to the McDonald’s system about the lawsuit. “These actions reflect a continued demonstration of this commitment.”

McDonald’s now alleges that new information about Easterbrook’s actions came to light in July, prompting further investigation from the company. A probe allegedly revealed that Easterbrook lied to the company and destroyed information regarding his inappropriate behavior, including three alleged additional sexual relationships with employees before his firing. None of the employees have been named.

The complaint alleges that Easterbrook told investigators in October that he only had one relationship with an employee. 

Newly uncovered evidence includes dozens of nude or sexually explicit photos and videos of women — including images of the female employees — that were taken in late 2018 or early 2019 and sent as attachments from his corporate email account to his personal email, according to the lawsuit. Easterbrook allegedly deleted those photos and emails from his phone before it was searched by an outside investigator. 

Easterbrook also approved “an extraordinary stock grant, worth hundreds of thousands of dollars” for one of the employees while they were involved in a sexual relationship, according to the complaint. An anonymous report about an alleged relationship between Easterbrook and this employee triggered the July probe.

The board said it would not have signed a separation agreement with Easterbrook had it known about this alleged conduct. Instead, it fired him without cause in the hopes of avoiding a lengthy legal dispute with him over whether his behavior crossed into “dishonesty, fraud, illegality or moral turpitude.”

McDonald’s is suing him in Delaware state court to recover the compensation and severance benefits he received as part of the separation agreement. The company said it has also taken action to prevent him from exercising any stock options or selling any stock from outstanding equity rewards. 

At the time of Easterbrook’s firing, as a condition of his separation agreement, he wrote an email to employees that said the relationship was a “mistake.” 

The agreement also included 26 weeks of severance. In 2018, Easterbrook earned $15.9 million in total compensation, including a $1.3 million base salary. He was eligible for prorated payment for hitting 2019 performance targets. Equilar, which tracks executive compensation, estimated that his severance package was worth nearly $42 million.

CNBC reached out to Easterbrook for comment.

While he was chief executive at McDonald’s, the company sold off many of its company-owned stores to franchisees, helping profits but leading to falling revenue as a result of accounting differences. The all-day breakfast menu and tech-focused restaurant renovations also kicked off during his tenure. 

Shares of McDonald’s were down less than 1% in morning trading. The stock, which has a market value of $157 billion, has risen 4% since Easterbrook’s ouster.