Welcome to S&C Critical Insights. I'm Annie
Ostrager, a partner in S&C's Litigation Group,
a member of the Firm's Criminal Defense and
Investigations Group and co-head of the Labor
and Employment Group.
With me today is Elizabeth Cassady, special
counsel in the Firm's Litigation Group.
We're going to provide an update to our podcast
on anti-fraternization policies, which we
recorded on July 13th and which you can listen
to on our podcast channel, S&C Critical Insights.
Annie, that's right-as we discussed in July,
effective and well thought-out anti-fraternization
policies, and the enforcement of those policies,
are important. A recent litigation that we'll
discuss makes clear the need for thorough
investigation and, where necessary, enforceable
consequences when those policies are breached.
Moreover, company leadership is crucial to
establishing a tone from the top, both in
developing and enforcing the relevant policies,
and in creating a workplace culture that recognizes
their importance.
We noted in our previous podcast that the
CEO of McDonald's, Stephen Easterbrook, stepped
down in November 2019 after violating the
company's anti-fraternization policy by engaging
in a consensual relationship with a subordinate.1
Although he is not the only prominent business
leader who has stepped down for this kind of misconduct,
recent developments in that story have put
company policies on this issue back in the spotlight.
Agreed, Liz. As alleged in a complaint filed
on August 10, in Delaware State court
by McDonald's against Easterbook, McDonald's
learned of an allegation that Easterbrook
had a consensual relationship with a subordinate
while he was running McDonald's.
Upon learning of the allegation, McDonalds'
board promptly launched an internal investigation
the findings of which it deemed to corroborate
the allegation. In the course of the investigation,
Easterbrook represented that this relationship,
which consisted of text and video messages,
was the only one he had had with a subordinate
and he was terminated without cause with an
entitlement to substantial separation benefits.
Thereafter, according to the complaint, McDonald's
learned of evidence that Easterbrook had intimate
physical relationships with three other employees
in the year before his separation and approved
an extraordinary grant of stock to one of
those employees during the relationship.
The lawsuit filed by the company asserts that
Easterbrook's conduct was a breach of his
duties to the company and seeks to recoup
stock options and other compensation awarded
to Easterbrook.
This type of litigation has historically been
exceedingly rare, however, as corporate citizenship
becomes increasingly important, and consumers
look not only to a company's product but to
their culture and reputation when making purchasing
decisions, even the perception of the tacit
tolerance of wrongdoing can be disastrous.
Indeed, McDonald's has made front and center
in its complaint that "[f]or McDonald's, the
ethical operation of its business is not just
a legal imperative, but also a cherished value."
Right, and the McDonald's complaint focuses
heavily on allegations that Easterbrook "concealed
evidence and lied about his wrongdoing," but
it also makes clear that the initial internal
investigation conducted by the company did
not include a thorough search of the former
CEO's email account, which it later determined
he used to send sexually explicit photos and
videos. So, the risk of more information or
potential misconduct being brought to light
after the fact should be weighed carefully
in determining the scope of an internal
investigation.
That's right Annie. In addition, the lawsuit
discloses the difficulty of defining "for
cause" when a company determines that it will
seek to separate an employee as a result of
violating anti-fraternization policies. Making
such a determination , of course, bears heavily
on the amount of compensation an employee
may be entitled to.
This further highlights how integral it is
that anti-fraternization policies are thorough,
detailed, and widely disseminated in the company.
That's a good point. The severance "for cause"
issue also underscores the ways in which different
company policies interact. In this case, it
was not only McDonald's anti-fraternization
policy at issue, it was also the company's
severance policy, and broader strategic corporate
concerns.
In crafting the most effective anti-fraternization
policies, companies should therefore be attuned
to the way in which other of their corporate
policies and practices will be implicated,
and whether anti-fraternization policies should
explicitly be referenced in policies that
might otherwise not be incorporated into those
policies
So Annie to conclude, what are some key takeaways?
As we discussed in July, and as recent developments
have further proved, this is an important
area that companies should be thinking about.
Every company needs to consider carefully
their anti-fraternization policy, and whether
or not to even have one and if they do what the scope
of it will be and the way in which it will
interact including it's application to even the high-ranking company
employees.
Thank you for listening. For more information
about our practice, please visit us on the
web at www.sullcrom.com.
