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Farrer & Co | The burger giant, the CEO and the minced reputation – are office relationships now off the menu?

The recent sacking of McDonald’s chief executive Steve Easterbrook for having a consensual relationship with a female colleague has shown that an office dalliance can fry your reputation as well as your bank balance.

So far as we know (given that non-disclosure agreements are reportedly in place), Mr Easterbrook was fired not because there was any suggestion that he had made unwanted advances or was guilty of any #MeToo-type behaviour, but because the board determined that he had “violated company policy and demonstrated poor judgment involving a recent consensual relationship with an employee.” In short, the CEO had to be shown the exit because he had broken his own rules.

McDonald’s standards manual, “Standards of Business Conduct, The Promise of the Golden Arches”, which was in force at the time with a Foreword by Mr Easterbrook, outlaws relationships between employees who have a direct or indirect reporting relationship to each other:

“In order to avoid situations in which workplace conduct could negatively impact the work environment, employees who have a direct or indirect reporting relationship to each other are prohibited from dating or having a sexual relationship. It is not appropriate to show favoritism or make business decisions based on emotions or friendships rather than on the best interests of the Company. If you are either in a relationship or plan to enter into a relationship that may violate Company policies, you must advise your Human Resources Representative or Director immediately.”

As the head of the company, Mr Easterbrook had (somewhat ironically with hindsight) appeared as the poster boy for the manual containing the policy and had written in the Foreword:

“As we evolve toward a modern, progressive burger company delivering a contemporary customer experience, we must continue to hold ourselves to the highest standards.

Today’s environment is complicated. Complex laws and regulations, and even new technologies, can make discerning right from wrong more difficult than ever. That’s why our Standards of Business Conduct articulate our moral responsibilities and shine a light on the appropriate conduct in challenging scenarios.”

From millionaire’s donut to single meal

With this policy in force, his position as CEO would quickly have become untenable once the relationship came out, despite the fact that he was by all accounts a talented chief executive credited with spicing up the menu and doubling the company share price during his tenure in the US.

As well as losing his £12.3m a year job at McDonald’s, Mr Easterbrook – who had worked at the company for 25 years - also quit his role as a director at the US supermarket chain Walmart for which he received $233,736 in the last financial year.

In these circumstances it is not hard to see why Mr Easterbrook concluded on stepping down from McDonald’s: “This was a mistake” – and a very expensive one, both professionally and financially.

The existence of the “no relationships” policy meant that, despite his corporate achievements, and the view of many that he had “done nothing wrong”, he has now been branded as “disgraced” and “shamed” by the press, which has somewhat unfairly repeatedly referred to the relationship as an “affair” - despite the fact that Mr Easterbrook and his former wife Susie divorced several years ago.

The tabloids have also dug up a previous relationship which he had with a “high-flying public relationship manager” while separated from his wife and going through his divorce. Pictures of the woman in question, and her own ex-husband, are now plastered across the internet, despite the fact that the woman was not a McDonald’s employee and the relationship did not violate the policy.

We can only guess at the effect on the so-called “naughty boy”, who the press now appear to be stalking like a recently released criminal. The New York Post recently reported that he had been spotted “wearing a quilted black jacket and five o’clock shadow” in an article entitled “McDonald’s CEO Steve Easterbrook spotted at Chicago Apple store” - although some find it hard to sympathise with a man set to benefit from a reported £21m severance package.

The business hasn’t come off a great deal better for taking the moral high ground, the announcement of Mr Easterbrook’s departure caused McDonald’s shares to sink by 3 per cent, wiping a reported $4bn off the company, unsettling investors and pressuring the stock. We don’t know the extent to which this was related to the reason for his departure, or the mere fact of his exit, but either way it illustrates that turmoil at the top is not generally taken lightly by the market.

Contents hot: handle with care

From a reputational perspective, there are a number of things which, we can speculate, both McDonald’s and Mr Easterbrook could have done differently to avoid getting so badly burnt. As CEO, Mr Easterbrook would have known the risk he was taking in breaching company policy and the key lesson learned is self-evident. He would have been well-advised to seek legal advice on his position as soon as the relationship was contemplated. This might have allowed him the opportunity to speak to the board about his options and to negotiate a quiet exit if he was intent on seeing the relationship through. (Whilst we don’t know the fate of the relationship which has caused so much trouble, given the way things have turned out it is fair to assume it won’t have survived.)

On the other hand, it may have been possible for McDonald’s to handle this delicate situation in a more constructive way if it had not had this policy in the first place. Had it instead adopted the more realistic approach of insisting that workplace relationships must be disclosed and well-managed, both Mr Easterbrook and the Golden Arches might have been less tarnished.

So, what is actually “modern” or “progressive” (let alone “woke”) about this outcome, and policies like this, particularly in view of the value now attached to transparency and sustainability?

What could be more likely to work against transparency than a policy which bans relationships (thereby driving them underground), and with people now spending a huge part of their waking hours at work, how can outlawing workplace relationships be sustainable?

In the UK at least, where one in five people reportedly meet their partner at work, McDonald’s stance on consenting relationships is regarded (as well as unrealistic) as unnecessarily draconian; with many critics believing its employees would be better served by a crack-down on the widespread sexual harassment which female employees are alleged to suffer in its UK restaurants. Recent allegations range from managers making repeated sexual comments, brushing up against staff and discussing sexual desires, to abusing access to workers’ contact details in order to send texts and explicit photos and even offering better hours and promotion in return for sex.

If the relationship which Mr Easterbrook was having was wholly consensual – which we are assured that it was – it looks to many like poor old Maccy Dees has got its orders mixed up.

In Europe, consenting workplace relationships have traditionally been seen as acceptable, with it being relatively commonplace for people to go out with, and settle down with or marry, a person they met at work.

As one UK columnist wrote in Mr Easterbrook’s defence, as well as working very long hours: “He couldn’t ask out the competition across the negotiating table, his Durham University friends were probably hooked up with each other and he was living in a different continent from his childhood home in Watford so couldn’t easily ask his family to introduce him to someone. Nor should they be expected to act as the matchmaking Mrs Bennett to a man in his fifties. No wonder Mr Easterbrook looked in-house.”

We are surrounded by people, including at the highest levels of public life, who met their spouse or partner either at work or through work. This includes the current Prime Minister, who met Carrie Symonds, then a Conservative Party press officer, when she was seconded to work on his Mayor of London re-election campaign. Barack and Michelle Obama met when they worked at the same law firm and Bill and Melinda Gates met at a Microsoft event shortly after she joined as a product manager. Forbes magazine has even fêted the subject with an article entitled: “Power couples who fell in love at work”. 

With the average person apparently now spending 90,000 hours working over a lifetime, it is hardly surprising that workplace relationships are quite commonplace. Research even suggests that relationships formed in this way are more likely to end in marriage than relationships formed in other ways, such as meeting through friends. This is again no surprise given that, if you can tolerate someone in your airspace five days of every week, you probably have a better chance of staying the course as a couple.

It is therefore hard to see the benefit to anyone of turning a McFlurry in a teacup into a barbequed chief executive.

Love and the law: the legal position on workplace relationships in the UK

Had Mr Easterbrook stayed in Watford, things might have turned out differently.

The starting point is that there is no rule of English law which prevents a workplace relationship between consenting adults.

In fact, relationships generally fall within the confines of a person’s “private life”, which privacy law protects from intrusion or unwarranted scrutiny.
Article 8 of the European Convention of Human Rights, “Right to respect for private and family life” (which has been enshrined in English law since the Human Rights Act 1998) states that:

  1. Everyone has the right to respect for his private and family life, his home and his correspondence.
  2. There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well-being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others.

The courts have found that the Convention right to respect for private life includes “the right to establish and to develop relationships with other human beings, especially in the emotional field for the development and fulfilment of one’s own personality" and that "respect for private life must…comprise to a certain degree the right to establish and develop relationships with other human beings.”

Accordingly there are cases in which the courts have protected information about workplace relationships from being revealed by the press, even if one of the parties plays a role in public life and their conduct is under scrutiny. This was the case in 2011 when Fred Goodwin, the former Chief Executive of the Royal Bank of Scotland, obtained an injunction preventing the publication of details of a relationship he had had with a colleague, and her identity. Instead the press was restricted to reporting that Mr Goodwin had had a relationship with a work colleague, without the gory details.

The post-Weinstein #MeToo era

That said, and whilst privacy and human rights are all very well in the context of consenting relationships, in the aftermath of the Harvey Weinstein scandal and the consequent #MeToo movement - in which women around the world named and shamed hundreds of men in connection with varying degrees of sexual impropriety - there is now much greater awareness of sexual harassment and sexual misconduct in the workplace.

So bright is the current spotlight that between July and October this year the government even ran a “Consultation on Sexual Harassment in the Workplace”, acknowledging that: “Sexual harassment has been against the law for decades and strong, clear, laws against it are set out in the Equality Act 2010. However, even though these laws are in place, recent reports, including those of the #metoo movement, have shown that there is still a real, worrying problem with sexual harassment.”

Therefore, whilst it was commonplace in the not so distant past for women to have to endure inappropriate male behaviour at work, in today’s gender-charged climate employers simply cannot afford – either reputationally or financially – to pay the price for inappropriate behaviour. 

When things go wrong and powerful men act inappropriately or are accused of doing so, the damage is often severe for the company in question, to say nothing of what it does for the alleged culprit. Sadly, we haven’t had to look very hard for examples in recent years: the video released by The Sun in March of Philip Green pulling a female employee onto his lap whilst telling her: “You didn’t think you’d get so lucky did you?” is unforgettable for all the wrong reasons, as was the recent decision by the Solicitors’ Disciplinary Tribunal to suspend a lawyer at Ben Hoare Bell for sexually harassing a junior colleague.

Once allegations of sexual misconduct have been made, unless there is clear evidence either way, for example if an incident has been caught on CCTV, the employer faces the unenviable task of trying to work out what has happened and who and what to believe, as well as ensuring that correct procedures, protocols and employment law are followed in the way it is dealt with.

The company can either stand by the accused party, and risk attempting to (and being seen to attempt to) defend behaviour that turns out to be indefensible, in which case they will be vilified in the press, or they can place that person under investigation and/or dismiss them. If this turns out to be unfair, then an employer could be facing not just a legal claim from the accuser but also one from the accused, to say little of the accompanying headlines.

A person who is subjected to sexual harassment may have a claim for unlawful discrimination under the Equality Act 2010 if they can show that their harasser engaged in unwanted conduct of a sexual nature and that conduct has the purpose or effect of violating their dignity or creating an intimidating, hostile, degrading, humiliating or offensive environment.

If they felt their position was untenable, and resigned, or were dismissed, a person with two years’ service can also claim unfair dismissal. Whilst claims for unfair dismissal are capped, claims for discrimination are not and the financial consequences of an adverse judgment can be severe.

The press is littered with examples of employers who have carried the can for actual or alleged sexual misconduct by a staff member. For example in 2016 Derbyshire Healthcare NHS Foundation Trust reportedly had to pay more than £830,000 in compensation to a former HR director who brought an unfair dismissal and sex discrimination claim after she was subjected to sexual advances from the trust’s chairman.

Earlier this year, 27-year-old investment manager Nathalie Abildgaard received a £270,000 payout from her former employers IFM Investors in a settlement reached after she alleged that her boss had repeatedly invited her back to his hotel room after a work celebration abroad: (he denied the allegations and stayed at the company). 

Sometimes, in the worst case scenario for the employee, the other party to the relationship is the employer, and the courts are the only recourse. This was the case for a PA who in 2014 was sacked by her boss after his wife found out about their affair. She was awarded £35,000 damages after being dismissed from her £40,000 job by her chief executive lover.
 
With the treatment of women at work now so firmly under the microscope, it is little wonder that employers are increasingly jittery about employee relationships, even when consenting.

A key problem is that it is not always easy to determine what kind of behaviour actually amounts to sexual harassment, as the BBC found from its social experiment: “Is this sexual harassment?”, in which 20 people aged between 18 and 30 were asked to vote on events in a specially written drama which resulted in an accusation of sexual harassment in the workplace. The results revealed just how much confusion and disagreement there is when it comes to specifying exactly where the line should be drawn.

Even where the behaviour is not harassing, and both parties are clearly keen, there is so much that can go wrong, especially if things turn sour.

Relationships at work policies

Little wonder then that since #MeToo an increasing number of UK employers have introduced policies on workplace relationships. The extent to which these may attempt to actually prohibit workplace relationships will vary. However, most employers recognise that employees may have close personal relationships (romantic or otherwise) with each other and, rather than seeking to stigmatise or prevent them, provide guidance about how to manage them when they do arise, the point being to ensure that employees are not influenced by or open to allegations of impropriety, bias, abuse of authority or conflict of interest.

Under such policies, employees are usually required to disclose a personal relationship with another employee to HR. Then, depending on the circumstances, an action plan might be implemented, for example, to ensure that people in relationships are not in a direct report, perhaps by moving someone to a different department or to change working patterns, to ensure that neither the business nor the employees in question are compromised.

A policy may say that failure to disclose a relationship which results in an advantage for one or both parties or which affects the reputation of the company, or engaging in inappropriate behaviour, could become a disciplinary matter.

If it did, an employer may have grounds to terminate the employment. However, in order for that dismissal to be “fair”, and for an employer to avoid liability for unfair dismissal, they would have to show that they had a fair reason for dismissing the employee (in these circumstances, the fair reason is likely to be either “conduct” or “some other substantial reason”), acted reasonably in treating that reason as sufficient for dismissing the employee, and had followed a fair procedure.

“Love contracts”

In recognition that workplace relationships are – and will remain – a fact of life, some US employers arrange for employees who have declared a relationship to sign a so-called “love contract”. The couple are asked to sign an agreement confirming that the relationship is consensual and that they understand the company’s sexual harassment policy, as well as setting out how they will behave at work. Whilst the theory is that this would protect the company from liability (for example from a claim for sexual harassment), this would not hold water in a UK employment tribunal given that (unless reaching settlement) under UK law employees cannot sign away their right to bring harassment or discrimination claims.

According to the most recent figures, the UK workplace certainly remains a minefield for litigation. The most recent Employment Tribunal statistics show a general rise in claims, from 109,698 in 2017-2018 up to 121, 075 for 2018- 2019. Whilst we do not know how many of these were sexual harassment claims, 9,336 were for sex-discrimination, up from 5, 416 the previous year. Together with the current high-profile litigation by female presenters against the BBC around equal pay, the platform for employees with two X chromosomes to voice discontent in a range of spheres has arguably grown from non-existent to extra-large.

However employees may try to navigate the tricky subject of relations between the sexes at work, as the office party season approaches, and with the McDonald’s message still ringing out across the land, this year’s Christmas party circuit may see senior executives scrambling for the exit a bit earlier than usual and the mistletoe left dangling.

If you require further information about anything covered in this briefing, please contact Athalie Matthews or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, November 2019

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