Judge rules former chief people officer had responsibility to report toxic work culture
McDonald’s former chief people officer had a responsibility to report to the company’s stakeholders the toxic work culture brought on by its former CEO, a judge ruled.
Shareholders filed a lawsuit against the fast-food giant and its ex-HR chief David Fairhurst, arguing that he participated in the seedy environment created by former CEO Steve Easterbrook. That toxic culture includes multiple consensual affairs between Easterbrook and employees, which ultimately led to his firing in 2019.
Fairhurst “had an obligation to make a good faith effort to put in place reasonable information systems so that he obtained the information necessary to do his job and report to the CEO and the board, and he could not consciously ignore red flags indicating that the corporation was going to suffer harm,” Vice Chancellor Travis Laster wrote in the ruling.
Also, based on the allegations in the complaint, the court believed that it was “reasonable to infer that Fairhurst knew about and played a role in creating the company’s problems with sexual harassment and misconduct, which led to the external signs that took the form of employee complaints and a ten-city strike,” according to Cooley LLP.
Whether stakeholders can sue Fairhurst over this failure remains to be seen, according to the report from Restaurant Business.
Fairhurst had requested that the lawsuit be dismissed, arguing that shareholders failed to stake a proper claim. However, Laster ruled in favor of the stakeholders. Fairhurst was ousted as global chief people officer in 2019.
The U.S. Securities and Exchange Commission (SEC) recently charged Easterbrook for making false and misleading statements to investors about the circumstances leading to his termination. Easterbrook was ousted over a consensual relationship with an employee a day before Fairhurst was fired. However, McDonald’s and Easterbrook entered into a separation agreement that concluded his termination was without cause, according to the SEC.
In late 2021, McDonald’s settled a lawsuit with Easterbrook, in which the disgraced executive was tasked to pay back his severance package of $105 million in cash and equity awards. McDonald’s filed a $40 million lawsuit against Easterbrook in August 2020, alleging he lied to the company’s board and misled investigators about his physical sexual relationships with three employees in 2018.