Howard Levitt: When there's a conflict, senior executives must declare it. Ex-McDonald's CEO Easterbrook did not

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Can an employer come to a severance settlement, pay the monies and then sue to get it back? That’s the basis of McDonald’s Corp. case for US$40 million against its former CEO Steve Easterbrook.

The answer is that it can — and for reasons similar to the problems plaguing our Prime Minister and Finance Minister, specifically around the issues of dishonesty and conflict of interest.

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Howard Levitt: When there's a conflict, senior executives must declare it. Ex-McDonald's CEO Easterbrook did not Back to video

Easterbrook was fired last year as CEO of McDonald’s for having a consensual office relationship. Even though their relationship was contrary to company policy, and even though he was the CEO, inherently responsible for upholding and being a role model for adherence to all company policies, that was probably not cause for his discharge. After all, it was only one breach and it was consensual. McDonald’s clearly did not view it as cause either. Hence, the payout.

But that was then.

Months later, an anonymous tip led to a further investigation which led to the discovery that he had not just that one, but at least four consensual relationships, three in his last year in office alone.

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Courts and human rights tribunals in Canada have found that superior-subordinate relationships are never fully consensual because of the power imbalance. CEOs and human resource heads, and in particular, the senior executives most responsible for those policies, are its first casualties if they violate them, with courts providing little room for exculpation.

But it wasn’t just the additional relationships which motivated McDonald’s to sue. It was the two types of ’cause’ which courts view most seriously in the employment law lexicon: dishonesty and conflict of interest.

During his termination meetings, Easterbrook was asked whether he had any other sexual relationships in the workplace. He lied. Dishonesty, particularly during an investigation, and particularly by a CEO or a C-suite executive, is almost always cause for discharge. He also was found to have deleted inculpatory emails. The new investigation further discovered that he had awarded hundreds of thousands of dollars in stock options to one of his romantic partners, all without disclosing the relationship.

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If there is a conflict, an employee must come clean and declare it. Most large companies have policies requiring employees to disclose if they are in a relationship. The purpose of that is so that one or both can be moved to positions where neither has influence over the others’ affairs in the company and the company can prevent them from granting benefits or providing internal references to the other.

By not disclosing the relationship while awarding his romantic partner the stock options, Easterbrook’s conflict of interest was cause for his discharge. In the same way, if Prime Minister Justin Trudeau and Finance Minister Bill Morneau were Canadian corporate executives, they would have been dismissed for voting to award a grant to WE Charity without disclosing the benefits that WE had afforded to them and their family members.

I have a current case where an employee of an employer client was terminated for cause. One of the grounds is that she provided the name of her husband (who was also a former coworker) as a reference without disclosing their relationship. This was only learned well after her employment commenced. This example illustrates how conflict of interest veers into dishonesty.

Can McDonald’s sue Easterbrook to return his severance? Certainly, because the deal was only made because Easterbrook lied during the investigation. McDonald’s can succeed if it can convince a judge that, if Easterbrook had told the truth, McDonald’s would have alleged cause initially and never have paid him the severance monies.

It is analogous to employees lying on their resumes or in job interviews. If a company can prove that an employee would have never been hired if she had been forthright, it becomes cause for discharge.

Howard Levitt is senior partner ofLevitt LLP, employment and labour lawyers. He practises employment law in eight provinces. He is the author of six books including the Law of Dismissal in Canada.