Dozens of former McDonald’s franchisees say the fast-food giant steered them toward restaurants in poor, crime-ridden neighborhoods because they were black.
The 52 entrepreneurs made the allegations in a sweeping racial discrimination lawsuit accusing McDonald’s of sending them on a “financial suicide mission” and denying them the same opportunities it gave white franchisees.
“McDonald’s proclaims a commitment to racial equality, profits from its black customers, yet places black franchisees in locations that are destined to fail,” says the complaint filed Monday in a Chicago federal court.
Black franchisees often ended up with stores that had lower sales volumes and higher operating costs because they were in “tough and depressed areas” and required more security, insurance and renovations, the lawsuit says.
The result of McDonald’s discriminatory practices is a widening “cash flow gap” between its black franchisees and their white counterparts, who often got better locations and better terms, the complaint alleges. The plaintiffs say their average annual sales of $2 million were more than $700,000 below the national average between 2011 and 2016.
McDonald’s denied the allegations, saying the former franchisees who brought the lawsuit operated restaurants in a variety of places including urban, suburban and rural areas. While McDonald’s may recommend locations to franchisees, they ultimately choose the stores they want to purchase, the Chicago-based company said.
“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.
But the lawsuit alleges that McDonald’s led black franchisees to believe they could wait months or years to be offered another store if they turned down an undesirable one.
“McDonald’s made plaintiffs believe that these substandard locations were their only way in,” the complaint reads.
Those who refused to keep going in tough neighborhoods faced “targeted, rigorous, and unreasonable inspections” that white franchisees weren’t subjected to, according to the suit. McDonald’s denied that it evaluates black franchisees differently or offers them different financial terms than others.
The lawsuit pins the discriminatory policies on McDonald’s CEO Chris Kempczinski and his predecessor, Steve Easterbrook, whom the company is currently suing for allegedly covering up sexual relationships with underlings.
Kempczinski addressed the discrimination complaint in a video message to McDonald’s employees and suppliers, saying the company disagrees with the claims and intends to “strongly defend” itself against the suit.
“McDonald’s stands for diversity, equity and inclusion,” Kempczinski said. “I’m proud of the work we’ve done as a company to foster entrepreneurship, economic growth and mobility.”
McDonald’s shares were down about 1.6 percent in premarket trading at $210.11 as of 9:09 a.m.