Black Former Franchisees Sue McDonald’s For $1 Billion, Claiming Bias

More than 50 Black former McDonald's franchise owners are suing the burger chain, alleging the company steered them to less-profitable restaurants and didn't give them the same support and opportunities White franchisees received. The plaintiffs are seeking compensation of as much as $5 million per store, claiming they were sent on "a financial suicide mission."

The 52 plaintiffs, who owned around 200 U.S. stores, allege they were forced to sell the locations over the last decade because of McDonald's actions. The suit was filed Tuesday in federal court in Chicago, where McDonald's is based.

According to the lawsuit, McDonald's steered Black franchisees to stores in inner-city neighborhoods with lower sales volumes and higher security and insurance costs. The company would provide them with misleading financial information or push them to decide quickly when a store became available, the lawsuit says.

Once Black franchisees owned a store, they would be asked to rebuild or remodel within a shorter period of time than White franchisees, without the rent relief and other financial support given to White franchisees, according to the complaint. Black franchise owners were also denied the chance to buy more profitable stores in better neighborhoods, it says.

"McDonald's proclaims a commitment to racial equality, profits from its Black customers, yet places Black franchisees in locations that are destined to fail, with low-volume sales and high operating costs, leading to consistent profit shortfalls or losses," the lawsuit alleges.

As a result, the plaintiffs averaged sales of $2 million per year. By comparison, the average McDonald's U.S. store brought in $2.7 million annually between 2011 and 2016 and $2.9 million in 2019, the lawsuit says.

McDonald's said it "categorically" denies the allegations, in a statement emailed to CBS News. "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 statement said.

A cash "gap"

The lawsuit alleges a "cash flow gap" between Black and White franchise owners. 

"Revenue is determined by one thing and one thing only: location," said James Ferraro, the Miami-based attorney representing the plaintiffs. "It's a Big Mac. They're the same everywhere."

Ferraro also noted that the number of Black McDonald's franchisees has fallen by half over the last two decades. The chain had 377 Black franchisees in 1998; it has 186 now. At the same time, the number of franchised restaurants has more than doubled to 36,000.

Collectively, the damages for McDonald's could amount to $1 billion, given the number of locations involved and the compensation sought by the plaintiffs.

Troubled history

McDonald's has a troubled history with Black franchisees. In 1969, activists boycotted four McDonald's in Cleveland until the company sold them to Black owners. In 1983, a Black franchise owner from Los Angeles sued the company for discrimination; McDonald's eventually paid him $4.5 million.

In 1996, McDonald's leadership acknowledged that Black franchisees weren't achieving parity with their White counterparts and resolved to make changes. Don Thompson, the company's first Black president and CEO, served from 2012 to 2015.

But charges of discrimination continued. In January, two Black McDonald's executives sued the company. They claimed McDonald's shifted advertising away from Black customers, graded Black-owned stores more harshly than White-owned ones and implemented business plans that had a discriminatory impact on Black franchisees.

At the time, McDonald's said it disagreed with the characterization of its actions. It noted that 45% of its corporate officers and all of its field vice presidents are people of color.

First published on September 1, 2020 / 10:58 AM

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