By Heather Haddon
Several dozen former McDonald's Corp. franchisees sued the
burger giant, alleging 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 Black former 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
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 video
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 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 U.S.
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
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.
McDonald's was among the companies that pledged to boost racial
diversity following the killing of George Floyd while in the
custody of Minneapolis police in May. In July, Mr. Kempczinski said
the company would increase racial diversity across employees,
franchisees and suppliers.
McDonald's is also embroiled in a legal battle with former CEO
Steve Easterbrook. The company filed a lawsuit against him seeking
to recoup tens of millions of dollars it paid in severance and
benefits, alleging he lied to the board about sexual relationships
with employees before his ouster last November. Daniel Herr, an
attorney for Mr. Easterbrook, said in a filing two weeks ago that
McDonald's lawsuit was meritless and misleading. Mr. Herr didn't
comment directly on Mr. Easterbrook's alleged sexual relationships
within the company.
The relationship between McDonald's and its Black franchisees
became strained over the years. McDonald's began selling
restaurants to Black entrepreneurs 50 years ago, earlier than many
other chains. In the late 1990s, however, McDonald's came under
pressure from Black owners to do more to help them boost
sales----and company executives agreed, according to the suit filed
Tom Dentice, a former McDonald's executive vice president, wrote
in a letter included in the suit that the company's philosophy on
franchising had resulted in many Black owners buying stores that
didn't allow for the same level of success as other operators. "I
am personally tired by the lack of progress by my company," wrote
Mr. Dentice in 1996 to the chairman of the National Black
McDonald's Operators Association at the time.
Black owners said in the lawsuit that they saw improvements in
their businesses in the years soon after a parity agreement was
made between the company and franchisees around 1996. But by 2002,
the National Black McDonald's Operators Association went back to
the company to negotiate for more, according to a letter included
in the suit, and progress further stalled in recent years.
"The trajectory of the treatment of African American owners is
moving backwards," wrote Larry Tripplett, head of the National
Black McDonald's Operators Association, in a letter sent to the
company last year, also included in the complaint.
James Ferraro, one of the lawyers representing the franchisees,
said 17 plaintiffs originally signed on to the lawsuit in February,
a month after the separate suit filed by the two Black executives
alleging they were demoted amid a hostile climate for Black
executives and franchisees at McDonald's.
Black owners and their attorneys had been in discussion with
McDonald's about negotiating a settlement after they notified the
company of an impending lawsuit in June, but talks broke down, Mr.
Ferraro said. More franchisees joined in the weeks after that, he
said. McDonald's declined to comment on any negotiations before the
The suit accused McDonald's of providing misleading financial
information to Black owners to induce them to purchase the least
desirable locations and required them to invest in rebuilds or
renovations within short time frames not required of white
In one example outlined in the suit, a Black owner in the
Atlanta area asked McDonald's to pay for an armed security guard
and reduce his rent given the store's location. McDonald's refused,
according to the suit.
Another Black owner was only given the option by McDonald's to
purchase locations within Walmart Inc. stores, though these
locations tend to have lower sales, according to the suit.
McDonald's said the company doesn't place franchisees into
stores, and owners have the ability to select the locations they
want to purchase. Most sales of restaurants occur directly between
franchisees, and McDonald's makes store financial data available to
owners before a purchase, the company said.
McDonald's said while some operators of all races have exited
their stores amid challenges, it helps all of its franchisees try
and succeed, including through financial help. Cash flow at
Black-owned restaurants has been improving recently, it said.
"I'm proud of the work we've done as a company to foster
entrepreneurship, economic growth and mobility," Mr. Kempczinski
said in the employee message.
Write to Heather Haddon at email@example.com
(END) Dow Jones Newswires
September 01, 2020 11:46 ET (15:46 GMT)
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