McDonald’s Lawsuit Puts Spotlight on Severance Policy


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McDonald’s is suing its former C.E.O. Steve Easterbrook, who was fired last fall for having a consensual relationship with a subordinate that consisted of the two sending sexual messages to each other. Now, according to a lawsuit filed in a Delaware court, McDonald’s is seeking to recoup Mr. Easterbrook’s $40 million-plus severance package, accusing him of lying, concealing evidence and fraud.

The lawsuit claims that Mr. Easterbrook had sexual relationships with three other employees, and that he awarded a lucrative batch of shares to one of them. In the investigation last year that led to his firing, Mr. Easterbrook was “knowingly untruthful” about the existence of these other relationships, the company alleges.

Every company’s legal team may want to revisit pay and severance policies after reading about the saga at McDonald’s. The new revelations persuaded the board to conclude that Mr. Easterbrook should have been fired for “cause,” which McDonald’s defined in its separation agreement as any act “involving dishonesty, fraud, illegality, or moral turpitude.” A firing for cause requires the repayment of all severance benefits, according to the company’s policy.

The idea of clawing back money is not new. Bankers and traders have clawback provisions in their contracts, mostly tied to actions that lead to outsize or unexpected losses. The McDonald’s case is unusual because it is about suing a former employee by claiming the terms of separation were based on fraudulent statements. Lawyers have recently been warning companies to revisit their definition of cause, potentially to expand it beyond financial matters to include things like “reputational harm and adverse publicity.” The triggers for clawing back pay when someone is fired for cause is also a thorny area, especially if the severance has already been paid in cash or stock and options available to be vested.

• Mr. Easterbrook’s severance package was worth just under $42 million when it was announced, about $700,000 of it in cash. Can McDonald’s prevent him from selling the shares or spending the money? Would it settle for anything less than the full amount? As the lawsuit progresses, it will become clear whether the case is as much about defending the company’s reputation as it is about recouping the severance paid to the former C.E.O.

An end to the disclose-it-and-move-on decorum in the boardroom? As The Times’s David Enrich and Rachel Abrams write, the case is an extraordinary departure from the traditional way that executive misconduct is handled — that is, how McDonald’s initially handled it. In its complaint, McDonald’s goes out of its way to justify its original investigation and the decision to fire Mr. Easterbrook without cause. Directors took the former C.E.O. at his word, and their investigation concluded that his conduct did not clear the “high bar” set out in its definition of cause. At the time, it was best for the company to terminate him “with as little disruption as possible,” it said.

• Evidence provided by a whistle-blower last month led to the discovery of deleted messages, and suggests that if McDonald’s directors had tried to investigate the matter more thoroughly at the time, they could have saved themselves the high-profile disruption generated by such a lawsuit now.

Credit…Issei Kato/Reuters

SoftBank posted a $12 billion profit. The turnaround for the Japanese conglomerate reversed a big loss in the previous quarter, thanks to asset sales and rising markets that bolstered the value of its stakes in both public and private companies.

A coalition of major companies pledged to hire 100,000 low-income and minority New Yorkers. The group is supported by the likes of Larry Fink of BlackRock, Sundar Pichai of Google and Satya Nadella of Microsoft, who say that they will work with universities, government and nonprofit groups to prepare a new generation of workers for jobs at their companies.

Lebanon’s government resigned amid anger over the deadly explosion in Beirut. Last week’s blast in the capital’s port killed at least 150 people, injured 6,000 others and left hundreds of thousands homeless. The country, already struggling with an economic crisis, has seen huge protests calling for political change.

Robinhood reported far more trades than its rivals. In June, the online broker handled 4.3 million trades a day, on average, surpassing more established competitors like TD Ameritrade and Charles Schwab. It was the first time that Robinhood, which has attracted millions of first-time investors to dabble in stocks during the lockdown, had released monthly trade data.

Airline security checks, subway turnstiles, mobile-mapping apps … there are many ways to measure how much activity has fallen during the pandemic, and whether fears of a resurgence in the virus are hampering the reopening of the economy.

Here’s a new one: the share price ratio of Clorox to Dave & Buster’s. It’s the brainchild of Nick Mazing, director of research at data provider Sentieo. “It’s an easy ‘make your own’ Covid risk indicator,” he says. “Does the market see people crowding and playing arcade games any time soon, or does the market expect continued growth in demand for disinfectants?” The more that Clorox gains in value versus Dave & Buster’s, the more concern there appears to be about the virus.

Steven Davidoff Solomon, a.k.a. the Deal Professor, is a professor at the U.C. Berkeley School of Law and the faculty co-director at the Berkeley Center for Law, Business and the Economy. Here, he considers what TikTok could have done differently to avoid its current trouble with the Trump administration.

A year from now, TikTok’s U.S. operations will be run by a new, American owner and the company’s former parent, China’s ByteDance, will have only itself to blame.

To be sure, TikTok, which hosts fun, short videos and claims to harm no one, is caught up in the U.S.-China trade war. The U.S. asserts that the Chinese government could access U.S. citizens’ data through Beijing-based ByteDance, making it a potential tool for blackmail, espionage and disinformation. An executive order by President Trump says that TikTok’s U.S. business must be sold or shut down by mid-September.

TikTok denies the White House’s claims. But TikTok’s terms of use allow ByteDance access to TikTok users’ data, including phone information. And, perhaps more important, China bans Facebook, Google and other major American apps from operating in the country. This is the reason China is likely to bluster but not protest too much about TikTok’s fate in the U.S.

But ultimately, the White House is going to need a legal hook to follow through on its threat: this is where TikTok could have done things differently. When ByteDance bought for $1 billion in 2017 (TikTok’s predecessor), it failed to file for national security clearance in the U.S. with the Committee on Foreign Investment in the United States, or CFIUS. This is the committee charged with vetting foreign acquisitions to see if they impair national security. (Although was based in Shanghai, it had an office in Santa Monica, Calif., and proved particularly popular in the U.S.) Committee filings are largely voluntary, but if a buyer files and clears a transaction, the deal is safe from unwinding on national security grounds.

ByteDance and its advisers may have thought it wasn’t worth the bother for a social network that specializes in lip-sync videos. Big mistake. While ByteDance might have cleared a committee review in 2017, more recently, the agency has become laser-focused on data privacy and China. The committee forced the sale of the dating app Grindr in 2019 after it was acquired by a Chinese company, and this year ordered the divestment of StayNTouch, a hotel technology provider, that was acquired by a Chinese company in 2018.

Now, companies that deal with personal data of any sort appear off limits to Chinese acquirers (and maybe buyers from other countries, too). The committee on foreign investment began an investigation into the acquisition late last year. It will be almost impossible for TikTok to challenge an eventual order from the agency. Ralls, a Chinese company ordered to divest a wind farm it bought close to a U.S. military base in Oregon, fought a similar order for years before settling.

ByteDance’s many U.S. investors will probably rush to head off a TikTok shutdown by buying the app themselves or arranging a sale to Microsoft. The forced transaction will be the result of ByteDance not being overly cautious back in 2017. It’s highly unlikely that any foreign buyer will make the same mistake in the future.

Credit…Susan Walsh/Associated Press

That is the question facing companies after President Trump’s weekend announcement of a payroll tax holiday through the end of the year.

“This is not a holiday, because there’s a bill at the other end of it,” Isaac Boltansky, an analyst with the research firm Compass Point, told The Times’s Alan Rappeport and Gillian Friedman. Mr. Trump’s order calls for suspending the tax, not cutting it, meaning that if companies don’t withhold the tax they will still have to find all the money to pay it next year. Many C.F.O.s are waiting for clearer guidance from the Treasury Department before deciding what to do.

“This order is really an offer of a zero-interest loan,” said Michael Feroli, an economist at JPMorgan. If every business in the U.S. ceased withholding payroll taxes through the end of the year, up to $40 billion a month would be added to workers’ paychecks, according to the bank. Practically speaking, the action’s effect is unlikely to have that sort of impact in the short term, when the economy needs it the most.

• Companies that cease to collect the tax would probably warn employees to think twice about spending the extra cash, since it will come out of future paychecks.

• Companies that continue to withhold the tax could repay workers if the holiday becomes a permanent cut, provided that there is legislative action in the future.


• Barry Diller’s media and technology conglomerate IAC acquired a 12 percent stake in MGM Resorts for $1 billion in an “opportunistic” bet on online gambling. (NYT)

• Delta Air Lines bought an oil refinery. It didn’t go as planned. (NYT)

Politics and policy

• Russia became the first country in the world to approve a coronavirus vaccine. Although it is yet to complete clinical trials, the vaccine works “effectively enough,” President Vladimir Putin said. (NYT)

• The Fed’s rescue-loan program for midsize firms is off to a rocky start, according to new data. (NYT)


• After a big-budget flop, Amazon is making another foray into video games. (NYT)

• The run-up in Apple’s share price has made its C.E.O., Tim Cook, a billionaire. (Bloomberg)

Best of the rest

• Britain has imported America’s culture war over face masks. (The Economist)

• People usually spend less on pet health care during recessions. This time, they’re spending more. (NYT)

• Nostalgic, cheerful tie dye is a Covid-19 fashion trend and D.I.Y. craft boom “twisted, squeezed, and tied into one.” (Quartz)

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