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52 Black Ex-Franchisees Sue McDonald’s In $1 Billion Racial-Discrimination Case
McDonald's is facing a new lawsuit from Black for- mer franchisees who say they faced decades of dis- crimination at the fast-food chain.
A complaint filed by 52 former franchisees on Tues- day in the U. S. Dis- trict Court for the Northern District of Illinois is seeking more than $1 billion, collec- tively, in direct damages from McDonald's.
Franchisees in the com- plaint said they faced "sys- tematic and covert racial discrimination," with the company denying them the same opportunities as their white counterparts. McDon- ald's has to approve all new franchisees, and the lawsuit argues it "systematically steered" Black franchisees to buy locations in Black neigh- borhoods. These locations tend to have higher insur- ance and security costs while bringing in less revenue.
One franchisee said in the complaint that Black fran- chisees were at such a signif- icant disadvantage that acquiring McDonald's loca- tions as a Black franchisee was a "financial suicide mis- sion."
The franchisees say they lost more than 200 McDon- ald's locations over the past decade because of miscon- duct by the company. The franchisees are seeking com- pensatory damages averag- ing $4 million to $5 million a store, with collective dam- ages of more than $1 billion.
Dozens of other Black franchisees have been forced out of the chain over the past two decades, according to the complaint. The com- plaint says there are only 186 Black McDonald's fran- chisees, down from 377 in 1998.
"But for Plaintiffs' race, McDonald's would have of- fered Plaintiffs profitable restaurant locations, oppor- tunities for growth and ex- pansion, on equal terms as White franchisees, rather than forcing them out after decades of sweat and tears dedicated to the franchise,"
the complaint says. McDonald's said that,
while it has consolidated its total number of franchisees, the overall proportion of Black franchisees within the system is overall unchanged. (Business Insider previously reported that from 2007 to 2017, Black franchisees went from making up 13.4% of all McDonald's U. S. franchisees to 12.5% of all U. S. fran- chisees.)
"My priority is always to seek the truth," McDonald's CEO Chris Kempczinski said in a video message about the lawsuit to employ- ees and suppliers on Tuesday morning.
"When allegations such as these occur, I want them investigated thoroughly and objectively," Kempczinski continued. "That's been our approach to this situation. Based upon our review, we disagree with the claims in this lawsuit and we intend to strongly defend against it."
McDonald's said in a statement to Business In- sider that the company cate- gorically denies the allegations, saying that they "fly in the face of everything we stand for as an organiza- tion and as a partner to com- munities and small business owners around the world."
Why Mcdonald's Black Franchisees Face Inequalities
Last December, Business Insider reported that Black McDonald's franchisees made hundreds of thousands of dollars less a year, on av-
erage, than their white coun- terparts at the fast-food giant..
Tuesday's complaint states that the plaintiffs' av- erage annual sales of roughly $2 million were more than $700,000 lower than Mc- Donald's national average of $2.7 million from 2011 to 2016 and $2.9 million in 2019.
"These differences are statistically significant and are the result of Defendants' racial bias and barriers within the McDonald's fran- chise system," the complaint says.
Conversations with five current and former Black franchisees over the past year, as well as the lawsuit filed Tuesday, indicate nu- merous reasons Black fran- chisees make significantly less than their white counter- parts. The complaint says McDonald's:
"Covertly" restricts Black franchisees to owning loca- tions predicted to bring in less money. Black fran- chisees say they were offered
only opportunities to own older stores in primarily Black neighborhoods. These locations tend to have higher insurance and security costs while bringing in less rev- enue.
Excludes Black fran- chisees from growth oppor- tunities while offering new white franchisees the oppor- tunity to buy newer, more desirable locations.
Enforces harsher renova- tion and rebuilding require- ments on locations owned by Black franchisees than white franchisees.
Deploys "targeted, rigor- ous, and unreasonable" in- spections, forcing Black franchisees out of the busi- ness when they receive poor grades.
Forces Black franchisees to sell stores at a loss by con- trolling which franchisees are presented as qualified buyers.
McDonald's denied alle- gations that the company limits where Black fran- chisees can operate, noting that the plaintiffs are from across the U. S. and that the "overwhelming majority of business transactions involve a sale directly between fran- chisees." The company also said it has sold high-per- forming company-owned lo- cations in "various communities to Black fran- chisees'
"We're always taking on the worst stores," Juneth Daniel, one of the former franchisees suing McDon- ald's, told Business Insider last year.
"They had serious prob- lems with having to be
staffed, if they weren't being robbed," Daniel added. "But you want into the system, you want it to be a McDon- ald's owner-operator. So, you took the bad to hopefully get to a better place.
The Franchisees' Attorney Says McDonald's Is 'More Focused On PR' Than Doing The Right Thing
"It's my belief that our franchisee ranks should and must more closely reflect the increasingly diverse compo- sition of this country and the world," Kempczinski said in his message on Tuesday morning.
Kempczinski contin- ued: "At Worldwide Connec- tion, we discussed an even more ambitious approach to attract diverse franchisees and to increase spend with diverse suppliers." At the time, McDonald's did not specify exactly how it planned to recruit more di- verse franchisees.
Recently, McDonald's has been emphasizing the impor- tance of values and diversity at the company. The com- pany donated $1 million to the National Urban League and the NAACP in the after- math of protests over George Floyd's death in Minneapolis. McDonald's re- leased an advertisement in early June mourning the deaths of Black people killed by the police or in incidents of racist violence. Joe Er- linger, the head of the U. S. business at McDonald's, said in an internal meeting at the time that "silence is not an option."
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