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Liberty Tax board agrees to settle lawsuit over sex scandal

Liberty Tax Inc. directors agreed to beef-up the company’s sexual-harassment policies to settle a lawsuit alleging founder John Hewitt routinely had sex in his office and showed favoritism to female employees with whom he’d had romantic relationships.

The tax preparer’s board changed its corporate-governance policies to make it a firing offense to violate the new harassment policies, which include a provision to claw back bonuses from offenders, according to a filing Friday in a Delaware state court.

Hewitt, who founded Liberty Tax in 1997, stepped down as chairman in July and agreed to sell his controlling stake after the sex scandal made headlines. The day Hewitt announced his departure, the shares surged as much as 28 percent. He’s one of a number of high-profile corporate executives recently forced out over sexual-misconduct claims.

Liberty Tax founder John Hewitt
Liberty Tax founder John Hewitt

Hewitt’s initial refusal to sell his stake caused so much turmoil at the Virginia Beach, Virginia-based firm that Liberty delayed earnings releases in 2017 and 2018 and watched its auditor, KPMG LLP, resign over Hewitt’s continued involvement with the company. A pension fund that owned shares in the company sued to demand his ouster.

Brian Ashcraft, a company spokesman, didn’t return a call or an email Friday seeking comment on the settlement. David Dorey and Larry Wood, lawyers representing Hewitt, also didn’t return calls for comment.

Another provision of the settlement requires Liberty Tax’s board to approve “any contracts, agreements, or business relationships to be entered into between the company and John Hewitt,’’ according to the Delaware Chancery Court filing.

The filing also notes Hewitt and other defendants in the case aren’t admitting any wrongdoing in the settlement. They agreed to resolve the case to “eliminate the burden, expense, and uncertainties inherent in further litigation,’’ according to the filing.

A call to a Liberty ethics hotline touched off an internal investigation of Hewitt’s activities, according to court filings. Directors hired the New York-based law firm of Skadden Arps Slate Meagher & Flom to probe the CEO’s behavior. The law firm found Hewitt had romantic relationships with at least 10 female employees that created a hostile work environment.

Getting Promotions

Promotions at work or franchise deals often followed when someone became romantically involved with Hewitt, Anne Fuller, who once owned a South Carolina-based Liberty Tax franchise, said in court filings in that state. She denied being romantically involved with the company’s founder.

“There’s a handful — probably two handfuls — of women who have either become area developers or franchisees, or employees of” Liberty “because of nothing more than favors,’’ Fuller said in an October 2010 filing in a fraud lawsuit against the tax preparer. Those favors included a “physical relationship’’ with Hewitt, she added.

As part of the Delaware settlement, Liberty Tax will “conduct yearly training’’ on the company’s conduct code, “including the anti-harassment policy, for managers and full-time employees,’’ according to the filing.

Any Liberty Tax executive who violates the sexual-harassment policy faces termination and would face demands to return stock grants and bonuses, the filing says. The company also is separating the jobs of board chairman and CEO as part of the settlement.

The case is Asbestos Workers Philadelphia Pension Fund v. Hewitt, 2017-0883, Delaware Chancery Court (Wilmington).