A group of more than 50 Black former McDonald’s franchisees filed a lawsuit on Tuesday accusing the company of a longtime pattern of racial discrimination that prevented them from succeeding and drove them out of the business.
The lawsuit, filed in a federal court in Illinois, said McDonald’s did not offer them the same growth opportunities as White operators, saying the cost of operating a Black McDonald’s franchise was “a financial suicide mission.”
The lawsuit, using figures from the National Black McDonald’s Operators Association (NBMOA), notes that the cash flow gap between McDonald’s franchisees and the system average more than tripled between 2010 and 2019. The operators listed in the lawsuit averaged $2 million between 2011 and 2016, compared with $2.7 million for the system.
“The trajectory of the treatment of African American owners is moving backwards,” Larry Tripplett, chairman of the NBMOA, said in a letter to McDonald’s executives last year, according to the lawsuit. “Through no fault of our own we lag behind the general market in all measures. This is reflected in the loss of sales to African American consumers. We believe that the loss of sales is closely correlated to how African Americans are treated within the company.”
In a statement, McDonald’s denied the accusations. “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,” the company said. “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.”
The lawsuit notes that the number of Black operators in the McDonald’s system has been cut in half since peaking at 400 in 1998. Yet McDonald’s noted that over that time, the system as a whole has consolidated as the average franchisee bought up additional restaurants. As a percentage of the system, the company said that the number of Black franchisees has remained largely unchanged over that time.
McDonald’s also said that cash flow at restaurants owned by Black operators has been improving, and that company leadership is in regular communication with NBMOA leadership. More recently, the company vowed to push more diversity throughout its system, including with suppliers and franchisees.
And the company notes that it does not place franchisees into locations, but the operators themselves select locations they wish to purchase.
Still, the lawsuit is the latest accusation of racial discrimination against the Chicago-based burger giant and comes at a particularly tumultuous time for the chain as it deals with issues surrounding former CEO Steve Easterbrook and former Chief People Officer David Fairhurst.
In January, two executives sued McDonald’s, saying the company abandoned the Black market and used “strong-arm tactics” to drive certain franchisees out of the system, frequently targeting Black operators in the process.
The latest lawsuit features more than 50 Black franchisees, some of whom ran restaurants for more than 30 years. They operated locations in numerous markets around the country.
The lawsuit provides a detailed history of McDonald’s racial challenges, noting that Black franchisees were denied entry into the system until 1968. Black franchisees sued the company for racial discrimination in the 1980s, with one operator telling the New York Times that “my stores are in hellholes” and get robbed monthly.
The complaint says that relations soured again after Easterbrook replaced Don Thompson as CEO. Thompson was the company’s first Black CEO, but left the company in 2015. Under Easterbrook and current CEO Chris Kempczinski, the lawsuit says the company instituted discriminatory policies, including rejecting ad budget modifications that target Black consumers.
The lawsuit also says that Black operators were confined to inner city or urban areas with higher costs and denied operators’ request for rent relief while remodel requirements disproportionately targeted Black-owned restaurants.
The lawsuit says that McDonald’s steered operators into Black neighborhoods filled with high crime, low-income consumers and high operating costs for security, insurance and employee turnover. White operators received stores with better terms, the complaint says.
Some franchisees were told to make decisions on stores quickly. One operator was told to fly to Atlanta the same day to inspect the location because a decision was needed “ASAP.” The franchisee who owned that location, the complaint says, was another Black operator who was forced out of the system.
The lawsuit accuses one former executive of making racial comments about McDonald’s employees and franchisees.
The complaint also says that many of the stores owned by Black operators were in need of a rebuild or a renovation but fixing those restaurants did not provide increased sales to offset operators’ higher costs.
The operators also say they were denied opportunities to expand, even though they were qualified to do so.
When franchisees wanted to exit the system, McDonald’s controlled that process and made it more difficult, the lawsuit says. That kept them from getting the best potential offer. “Because McDonald’s controlled the exit process, there was no way for plaintiffs to gauge what their restaurants could have sold for in the open market,” the lawsuit says.
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