Dozens of Black former franchisees sue McDonald's over alleged discrimination

A group of 52 former Black franchise operators is suing McDonald's over alleged racial discrimination.The lawsuit, filed late Monday night, accused Mc...

Posted: Sep 1, 2020 5:19 PM

A group of 52 former Black franchise operators is suing McDonald's over alleged racial discrimination.

The lawsuit, filed late Monday night, accused McDonald's of systematically discriminating against Black franchise operators by offering better financial support and more favorable locations to their White counterparts. The former franchisees, who together operated about 200 restaurants, operated stores from the 1980s through this year.

According to the complaint, McDonald's "systematically steered" the plaintiffs toward stores in locations that required more security and made less in sales than others, and misled them about how profitable the restaurants could be.

"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," McDonald's said in a statement in response to the lawsuit Tuesday. "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 statement continued.

In a video sent out to McDonald's US employees, suppliers and franchisees on Tuesday morning, CEO Chris Kempczinski responded to the lawsuit.

"We disagree with the claims in this lawsuit and we intend to strongly defend against it," he said, but noted that the company can go further on increasing diversity within its franchise operations. "Our franchisee ranks should and must more closely reflect the increasingly diverse composition of this country," he said. "We are committed to being better allies, better sponsors and better leaders."

Franchisees operate about 95% of McDonald's locations in the United States.

McDonald's said that while it may recommend locations, the franchisees themselves ultimately decided where to purchase. Franchisees have access to information about each location, the company said, adding that Black franchisees operate in a variety of communities.

The lawsuit also said that McDonald's asked Black franchise operators to renovate or rebuild their restaurants within a shorter window of time than their White counterparts, and offered them less financial support. The number of Black franchise operators has declined, from nearly 400 in 1998 to under 200 today, the lawsuit said, citing data from McDonald's and the National Black McDonald's Operators Association.

McDonald's said that it determines how to offer financial relief on a case-by-case basis and does not offer different financial terms to its Black franchise operators. It also said that over the years, franchisees of all races have exited the system and that the representation of Black franchisees has remained largely unchanged.

The alleged discrimination widened the cash flow gap between Black and White franchisees, according to the suit. Each of the roughly 200 stores mentioned in the suit suffered an average of between $4 million and $5 million in compensatory damages, according to the complaint.

The company said that cash flow has been getting better at restaurants operated by Black franchisees, and added that it is committed to working with franchisees to make improvements.

In January, two Black McDonald's executives filed a lawsuit against McDonald's, alleging that the company had racially discriminated against them.

"Our actions are rooted in our belief that a diverse, vibrant, inclusive and respectful company makes us stronger," the company said in response to the January lawsuit at the time, adding "while we disagree with characterizations in the complaint, we are currently reviewing it and will respond to the complaint accordingly." It also said that nearly half of its US corporate officers are people of color.

McDonald's has since filed a motion to dismiss the January suit, which is pending.

The allegations of racism come at a time when the company's workplace culture is under the spotlight.

McDonald's cut ties with former CEO Easterbrook last year for engaging in a consensual relationship with an employee. Now, the company is attempting to claw back his severance, arguing that he lied about the scope of his relationships and should have been terminated with cause. Easterbrook's lawyers filed a motion to dismiss the lawsuit, saying the company doesn't have grounds to take back the severance package because it had evidence of his relationships on company servers. McDonald's is also investigating its HR department.

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