MCD McDonalds Corp

By Heather Haddon 

Several dozen former McDonald's Corp. franchisees sued the burger giant, alleging that it unfairly treated Black owners by selling them subpar stores and failing to support their businesses.

The lawsuit, filed Monday night in the U.S. District Court for the Northern District of Illinois, accused McDonald's of steering Black franchisees to restaurants in undesirable locations in inner-cities for years. Those restaurants were destined to fail, and often had lower sales and higher operating costs, according to the lawsuit.

The former Black franchisees say their annual average sales of $2 million were $700,000 below the national average for U.S. McDonald's owners between 2011 and 2016, according to the suit. Many of the 52 former owners from 18 states, including Georgia, Texas and New York, said they lost their businesses in the past four years.

McDonald's denied the allegations of discrimination against franchisees and said they didn't reflect the company's work as a partner in the small business community.

"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 company said in a statement Tuesday.

McDonald's Chief Executive Chris Kempczinski said in a message to U.S. employees, franchisees and suppliers Tuesday morning 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," said Mr. Kempczinski in the video message viewed by The Wall Street Journal.

According to the lawsuit, the number of Black operators in the U.S. fell to 186 this year from a high of 377 in 1998 because of what it described as the company's racial discriminatory practices. "McDonald's intentionally and covertly deprived plaintiffs of the same rights enjoyed by white franchisees," according to the complaint. The suit seeks compensatory damages for owners of $4 million to $5 million per store for the more than 200 locations they once operated.

McDonald's said the allegations that it evaluates Black franchisees differently were false. It said the total number of owners fell amid consolidation in the past several years, but that Black franchisees as a proportion of the roughly 2,000 restaurant owners remain largely unchanged. It added that the former franchisees who are suing the company operated restaurants in a variety of communities, and many retired after regularly making profit.

The lawsuit comes at a sensitive time for McDonald's, which is under pressure to address concerns about its workplace culture. In January, two Black executives who say they experienced racial discrimination filed a lawsuit against the company, allegations McDonald's has denied.

Write to Heather Haddon at heather.haddon@wsj.com

(END) Dow Jones Newswires

September 01, 2020 08:41 ET (12:41 GMT)

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