Hewitt John Facebook 1A class action suit against Liberty Tax and former CEO John Hewitt have reached a proposed settlement in which the plaintiffs receive no money from the tax services company. It does require certain behaviors on the part of the company, includi some steps Liberty has already taken—implementing an anti-harassment policy and attempting to have its stock relisted on Nasdaq.

The suit, brought originally by Asbestos Workers’ Philadelphia Pension Fund and Erie County Employees Retirement System, was filed in December 2017 on behalf of shareholders. The action stemmed from events which followed Liberty’s firing Hewitt, the company’s founder, after an investigation found employee complaints Hewitt was repeatedly heard having sex in his office and that he favored several female employees with whom he had relationships

That lead to series of executive changes, the resignation of two outside auditing firms and Hewitt’s using his then-ownership of Class B shares to control the board of directors. The audit firm changes resulted in Liberty’s falling behind on filing quarterly and annual reports with the SEC and the delisting of its stock.

The agreement calls for the company to attempt to engage one of the Big Four firms as its independent auditor by end of the year. It was KPMG which resigned in dDecember 2017, citing its concern over “tone at the top” and because Hewitt was still interacting employees and franchisees despite his firing. The terms would also extend a ban on Hewitt's soliciting direct company employees through March 6. That extends the terms of an employment agreement dated July 1, 2016, which expired last month.

As part of the proposed settlement, Hewitt and Liberty denied any wrongdoing or that any actions caused harm to the plaintiffs.

Provisions required under the anti-harassment policy are a major part of the settlement. The company, which had already adopted such a policy, agreed to terminate for cause any employee proven to have violated the policy, to conduct annual board investigations of any harassment claims and for the next three years an executive officer found to have violated the policy would forfeit all unvested and vested (but unexercised) equity awards, along with severance payments.

Additionally, the audit committee will approve any material changes to area developer and franchise agreements. It will also approve any agreements between the company and Hewitt and any entities with which he is affiliated. That ban does not apply to persons employed by area developers or franchisors.

Last modified on Tuesday, 16 April 2019
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