Franchising

McDonald's 'categorically' denies lawsuit's discrimination claims

A suit filed Tuesday in federal court in Illinois alleged that McDonald's has systematically discriminated against Black franchisees for decades.

Photo: iStock

September 1, 2020

McDonald's is denying allegations of racial discrimination made in a federal lawsuit by 52 Black former McDonald's franchisees. Filed this week in the U.S. District Court for the Northern District of Illinois Eastern Division, the suit claimed that the plaintiffs were directed to buy franchises in low-income, high-crime areas where business success was difficult if not impossible.

"These allegations fly in the face of everything we stand for as an organization and as a partner to communities and small business owners around the world," according to a statement sent to QSRweb from McDonald's. "Not only do we categorically deny the allegations that these franchisees were unable to succeed because of any form of discrimination by McDonald's, we are confident that the facts will show how committed we are to the diversity and equal opportunity of the McDonald's System, including across our franchisees, suppliers and employees."

In fact, McDonald's CEO Chris Kempczinski also addressed employees via this video that the chain shared this morning with this website, which underlines what he said the company values.

Plaintiffs said that although McDonald's marketed itself as a Black talent recruiter and developer and profited from its Black consumer base, it maintained a two-tier system where the deck was stacked against them. The claims involve more than 200 stores with compensatory damages that average between $4 million and $5 million per store, exclusive of punitive damages.

"The notion that McDonald's is a friend of the Black entrepreneur is complete fiction," James L. Ferraro, the plaintiffs' attorney, said in a news release about the filing. "McDonald's has been hemorrhaging Black franchisees for decades due to blatant and implicit racial discrimination. The company will now be held accountable."

Ferraro said that although McDonald's reached a historic high of 377 Black franchisees in 1998, fewer than half – 186 - were still owners of despite the company growing from 15,086 to 36,059 locations over that same period. In fact, the firm cited National Black McDonald's Operators Association data that said the "cash flow gap for Black franchisees" more than tripled from 2010 to 2019.

The law firm also said that the plaintiffs' average annual sales fell more than $700,000 short of the $2 million McDonald's national average of $2.7 million between 2011 and 2016 and $2.9 million in 2019.

The suit alleges violations of federal law by McDonald's, including:

Steering Black franchisees to inner city neighborhoods with low volume sales, high security and insurance costs and constant employee turnover.
Retaliating against Black franchisees for rejecting strong-arm offers to continue operations in crime-ridden neighborhoods.
Denying Black franchisees meaningful assistance during financial hardships while white franchisees were routinely given such support.
Excluding Black franchisees from the same growth opportunities found at safer, higher-volume, lower-cost stores offered to whites.
Failing to provide any legitimate business reasons for repeated denials of franchise opportunities over many years.
Unfairly grading the operations of Black restaurants, which resulted in poor internal reviews, effectively pushing Black franchisees out of the McDonald's system by denying them the eligibility for growth and favorable franchise terms.
Providing misleading projections which induced Black franchisees to purchase undesirable franchises.

"Each and every one of these businessmen and women tell a story of dashed hopes and lost dreams," Ferraro said in the release. "The world will soon see how these 52 people of color risked everything on the Golden Arches only to be kept down, marginalized and driven to ruin. Black lives matter on the streets, in our communities and they matter in Corporate America."

McDonald's, for its part, provided additional points in response to the suit in its emailed response to QSRweb, saying that:

Black franchisees — including the former franchisees that are part of this complaint — operate (or operated) restaurants in all types of communities, rural, urban and suburban.
McDonald's does not place franchisees into franchises (though it may make recommendations), franchisees select their locations.
Most sales are directly between franchisees.
Sales and performance data is available for all franchisees before a franchise purchase.
McDonald's has sold high-performing company-owned restaurants to Black franchisees.
McDonald's categorically denies that it evaluates Black franchisees differently than other franchisees or offers Black franchisees different financial terms than other franchisees.
At McDonald's has, in recent years, the total number of franchise organizations across all demographic groups has consolidated, but overall representation of Black operators is broadly unchanged.
McDonald's has taken many steps to support the success of all franchisees, throughout the last 10 years there have been white, Hispanic, Asian and Black operators who have left the system due to business challenges.
Some plaintiffs were franchisees for more than 20 years, who retired successfully after profitable ownership.
Through McDonald's relations with the NMBOA, it notes that cash flow at restaurants of Black operators has been improving.
McDonald's is working on a case-by-case basis with all franchisees in markets that are underperforming.
McDonald's supports all franchisees' financial health both through co-investing in major renovation projects.