52 Black Former Franchisees Sue McDonald’s, Alleging Discrimination

A group of 52 Black former McDonald’s franchisees filed a federal lawsuit early Tuesday morning, alleging that they were “denied equal opportunity to success” by the restaurant giant’s “systemic and covert racial discrimination.”

The complaint claims that McDonald’s sent Black franchisees on “financial suicide missions” by providing them with “misleading financial information” that steered them to neighborhoods with low sales volumes and high security and insurance costs.

The filing also alleges that Black franchisees were treated differently from their white counterparts in how McDonald’s graded their locations, required them to invest and rebuild in their restaurants, and denied them assistance during financial struggles.

As a result of these practices, say the plaintiffs, there has been a widening cash flow gap between McDonald’s Black franchisees and white franchisees—a gap the plaintiffs claim has more than tripled between 2010 and 2019.

The filing claims that the plaintiffs’ average annual sales were more than $700,000 less than McDonald’s national average, which led the plaintiffs to lose more than 200 stores with damages averaging between $4 million to $5 million per store.

“McDonald’s knew or should have known that these differential revenue and operating costs of Black-operated franchises as compared to white-operated franchises are not random or due to poor management,” the claim reads. “These differences are statistically significant and are the result of the historical racial bias and barriers built into the McDonald’s franchise system.”

In response to the filing, McDonald’s CEO Chris Kempczinski sent out a video message to employees and suppliers, saying, “Based upon our review, we disagree with the claims in this lawsuit, and we intend to strongly defend against it.”

The company also issued a statement, saying: “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. 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.”

The complaint claims that the number of Black franchisees was reduced by more than half between 1998 and 2019, from 377 to 186. McDonald’s, however, says that over the past several years there has been a consolidation of the total number of franchisees across all demographics, and that the overall representation of Black franchisees is “broadly unchanged.”

McDonald’s also said that Black franchisees, including the plaintiffs in the complaint, operate restaurants in all types of communities. The company said while it “may recommend locations, franchisees ultimately select the locations they wish to purchase.

Cash flow at restaurants owned by Black franchisees “has been improving, and McDonald’s is committed to working with franchisees to make improvements,” the company said in its statement. In July, the company announced a new diversity and inclusion plan.

The plaintiffs’ lawyer, James Ferraro, told Fortune that McDonald’s was made aware of the impending complaint earlier this summer, and that since that time the company has undertaken a “zealous PR campaign to clean up its image with reference to Black franchisees.”

The complaint claims that McDonald’s branded itself as a “socially conscious company, committed to strengthening Black entrepreneurship, and embracing racial opportunity as a critical component of its corporate culture,” despite its “decades-long history of racial discrimination against its own Black franchisees.”

In January, two former McDonald’s executives sued the company, alleging that it fired Black leaders and pushed out Black franchisees.

McDonald’s is also locked in a legal battle with its former CEO Steve Easterbrook, who the company claims had physical sexual relationships with three McDonald’s employees and then was “knowingly untruthful with McDonald’s investigators” about those relationships.