UPDATE, Nov. 18, 2020: Twenty-seven more former Black franchisees have joined the federal lawsuit against McDonald's claiming the company engaged in systemic discrimination, denying the same opportunities as White franchisees, according to a press release. The amended complaint now contains 77 named plaintiffs and includes nearly 300 stores with compensatory damages averaging between $4 million and $5 million per store, exclusive of punitive damages.
UPDATE: October 26, 2020: McDonald’s asked a judge on Friday to dismiss a racial discrimination lawsuit filed by 52 Black former franchisees in September. The chain argues that the statute of limitations — which is four years in Illinois, where the complaint was filed — has expired on the claims based on when the franchisees left the business. McDonald's also claims that the complaint is based on "vague and conclusory allegations" and doesn't provide viable evidence of intentional racial discrimination, breach of contract and fraud.
"On its face, this claim is illogical as it suggests the company somehow has an interest in undermining its franchisees and seeing them fail," the company said in the filing.
"We will defend against this lawsuit even as we move forward with the actions needed to foster an environment where equitable opportunity is part of the lived experience for McDonald’s franchisees, suppliers and employees," McDonald's said in a statement emailed to Restaurant Dive.
- McDonald's has been sued by 52 Black ex-franchisees for allegedly "steering Plaintiffs to locations with low-volume sales and higher operating costs, such as higher security costs due to crime, higher insurance rates, and higher employee turnover," according to the lawsuit. The plaintiffs claim that an acquisition of a McDonald's location under these conditions is a "financial suicide mission."
- The suit includes claims that plaintiffs lost over 200 restaurants, with compensatory damages averaging between $4 million and $5 million per location, not including punitive damages. Plaintiffs were locked into 20-year contracts, and their average yearly sales of $2 million each were more than $700,000 below McDonald's national average of $2.7 million between 2011 and 2016 and $2.9 million last year, according to the suit. Plaintiffs also allege that McDonald's grades the operations of Black-run restaurants unfairly, resulting in negative internal reviews that eventually pushed Black operators out of the QSR's network.
- McDonald's denied these charges Tuesday. "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 an emailed statement. "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."
In June, as protests against systemic racism swept across the country, McDonald's CEO Chris Kempczinski's told CNBC that the company has "created more millionaires within the Black community than probably any other corporation on the planet." But the plaintiff's lawyer, James Ferraro, told Reuters these claims are "total hogwash."
"It’s systematic placement in substandard locations, because they're Black," Ferraro told Reuters. "Revenue at McDonald's is governed by one thing only: location."
McDonald's, however, said in a statement that it does not place operators into franchise locations, claiming that while it may recommend locations, franchisees ultimately pick the restaurant locations they want to buy.
Ferraro also points to the declining number of Black franchisees in McDonald's system, which has slipped from 377 to 186 since 1988. In response, the company claims that while there has been consolidation in the total number of franchise organizations across all demographic groups over several years, the overall representation of Black McDonald's operators is largely the same.
In addition, the suit states that in 1996, McDonald's then-Executive Vice President Thomas S. Dentice admitted that the "company has placed many Black Franchisees in restaurants that have not allowed them to achieve the same level of economic success as their peers."
McDonald's said it works on a case-by-case basis with franchisees in underperforming markets to see if any financial considerations or relief might be provided to improve cashflow and overall valuation in restaurants. It added that it has co-invested in major renovation projects, including its 55% investments in Experience of the Future remodels in the U.S.
This case is just one of numerous race-based lawsuits and complaints over the years against McDonald's. In January, two senior executives at the chain accused the company in a federal lawsuit of pushing out Black executives from senior leadership under former CEO Steve Easterbrook and Kempczinski. The suit also claims that McDonald's strong-armed Black franchisees to get them out of its system and dropped its marketing efforts toward Black consumers, allegedly leading to a drop in Black customers from a historic rate of 20% to 14% in 2019.
McDonald's rejected these claims as well.
"In the U.S. in particular, 45% of corporate officers are people of color and all U.S. field vice presidents are people of color," McDonald's said in a statement. "While we disagree with characterizations in the complaint, we are currently reviewing it and will respond accordingly."
In February, at least 10 current and former McDonald's franchisees hired a law firm to investigate discrimination allegations at the chain, including revenue distributions, Business Insider reported.
This series of discrimination allegations comes as McDonald's attempts to claw back ousted Easterbrook's severance package, claiming that the ex-CEO hid numerous sexual relationships with female employees from the company at the time of his exit negotiations last fall. Now, Bloomberg has reported that Easterbrook may have also covered up misconduct by other employees, and The Wall Street Journal reports that McDonald's HR may have ignored employee complaints about executive behavior.
The company has made public announcements of change, stating in July its intent to attract diverse franchisees and increase spend with diverse suppliers. McDonald's also updated its corporate values in August to include a stronger focus on diversity and inclusion.
The sum of these claims and the lawsuit filed by the 52 Black ex-franchisees, however, paint a picture of systemic culture issues at the company. And though McDonald's has scrambled to refresh its corporate values and distance itself from bad players like Easterbrook, it may not be enough to wipe its slate clean of these accusations, especially as diners take corporate ethics more seriously when making purchasing decisions.