The Wall Street Journal reported that 52 Black, former McDonald’s franchisees filed a class-action lawsuit against the fast-food giant for racial discrimination. The plaintiffs claim that despite McDonald’s branding as socially conscious and commitment to racial equality, the company has placed Black franchisees in locations that are likely to fail with high-costs and low-volume sales. Moreover, they allege that the company hinders their ability to acquire other restaurants, unable to achieve success according to its business model and ultimately forced out of business. The plaintiffs believe that they were “misled and denied equal opportunity to economic success by McDonald’s systematic and covert racial discrimination.” They call owning a McDonald’s franchise under such circumstances a “financial suicide mission.”
The lawsuit cites examples of disparity, including corporate culture, racial steering, denial of opportunities for growth, and misinformation:
- Despite the repeated acknowledgment of racial bias and aspirations to achieve parity, executives continued to institute discriminatory practices against Black franchisees.
- McDonald’s offered Black franchisee candidates stores in neighborhoods considered “tough areas, often filled with high-crime, patrons with little to no means to purchase significant meal tickets, leading to low-volume cash sales and high operating costs in the form of higher insurance rates, security costs, and employee turnover.” On the other hand, it offered White franchisees packages “with no restraints, on better terms, and in better locations than Plaintiffs.”
- In entering the franchise system, McDonald’s implied to Plaintiffs that their ability to buy or acquire a future restaurant could take months or years if they turned down an initial substandard location. “Plaintiffs took the bad to get the good.”
- “McDonald’s offered Black franchisees historically underperforming restaurants that White franchisees did not want to purchase. Conversely, and upon information and belief, White franchisees were routinely given preferred locations and were able to buy and sell restaurants without restriction, allowing them to prosper.” McDonald’s often hid restaurant location availability from Black franchisees.
- McDonald’s misled plaintiffs by:
- “providing Plaintiffs with financial representations that McDonald’s knew did not—and could not—accurately reflect the net revenues of the locations it steered Plaintiffs to;
- assurances that these restaurants would be profitable if Plaintiffs made significant initial investments in rebuilds and/or renovations, encouraging debt as part of a fraudulent scheme to force Plaintiffs into debt, bankruptcy, and/or economic duress, and more easily cycle them out of the system; and
- assurances that any losses would be offset by growth opportunities to better locations, which was the key to any successful McDonald’s franchise model."
- "Whereas Plaintiffs generally had positive business reviews prior to experiencing financial hardship and/or rejecting McDonald’s offer to continue to operate in substandard locations, that immediately shifted as McDonald’s began grading Plaintiffs more harshly in business reviews in a manner that disproportionately impacted Black franchisees as compared to White franchisees. Instituting harsher grading standards and through unreasonable inspections, McDonald’s negatively impacted Plaintiffs’ performance ratings as pretext for McDonald’s denial of growth and/or rewrite opportunities."
- The increasing cash flow gap between White and Black franchisee owners tripled between 2010 and 2019.
- Black franchisees average annual sales fall $700,000 below McDonald’s national average
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.
- McDonald's Statement
As a result of racial discrimination, Black franchisees were unfairly forced to sell. Plaintiffs brought about the class-action lawsuit against McDonald's for the following:
- Violation of 42 U.S.C., Section1981 Equal rights under the law
- Bad Faith Breach of Contract
- Fraudulent Inducement and Fraudulent Omission
- Punitive Damages
They also requested a jury trial.
The Wall Street Journal reported that McDonald's said in a statement, “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.”
It also reported that McDonald’s Chief Executive Chris Kempczinski said in a video message "that he personally takes seriously any allegations that the company hasn’t lived up to its values. 'Based upon our review, we disagree with the claims in this lawsuit and we intend to strongly defend against it.'"