52 Black ex-franchisees file a $1 billion racial-discrimination lawsuit against McDonald's, claiming the company sent them on 'financial suicide missions'

mcdonalds systematic discrimination 4x3 — Black McDonald's franchisees say they were forced to close or sell more than 200 McDonald's locations due to "systematic and covert racial discrimination."
Samantha Lee/Business Insider

52 Black former McDonald's franchisees are suing the fast-food giant, seeking more than $1 billion in damages.
The franchisees say they were forced to close or sell more than 200 McDonald's locations due to "systematic and covert racial discrimination."
Black franchisees were at such a significant disadvantage, one franchisee said in the complaint, acquiring McDonald's locations as a Black franchisee was a "financial suicide mission."
McDonald's did not immediately respond to Business Insider's request for comment.
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McDonald's is facing a new lawsuit from Black former franchisees, claiming they faced decades of discrimination at the fast-food chain.

A complaint filed by 52 former franchisees on Tuesday in the US District Court for the Northern District of Illinois is seeking more than $1 billion, collectively, in direct damages from McDonald's.

Franchisees said in the complaint they faced "systematic and covert racial discrimination," as the company denied them the same opportunities as their white counterparts. McDonald's has to approve all new franchisees and, according to the lawsuit, "systematically steered" Black franchisees to buy locations in Black neighborhoods.

Black franchisees were at such a significant disadvantage, one franchisee said in the complaint, acquiring McDonald's locations as a Black franchisee was a "financial suicide mission."

The franchisees say they lost more than 200 McDonald's locations over the last decade due to the company's misconduct. The franchisees are seeking compensatory damages averaging between $4 million and $5 million per store, with collective damages of more than $1 billion.

Dozens of other Black franchisees have been forced out of the chain over the last two decades, according to the complaint. In 1998, there were 377 Black McDonald's franchisees, the complaint states. In 2020, there are only 186 Black franchisees left.

"But for Plaintiffs' race, McDonald's would have offered Plaintiffs profitable restaurant locations, opportunities for growth and expansion, on equal terms as White franchisees, rather than forcing them out after decades of sweat and tears dedicated to the franchise," the complaint reads.

McDonald's did not immediately respond to Business Insider's request for comment.

Why McDonald's Black franchisees face inequalities

Last December, Business Insider reported that Black McDonald's franchisees make hundreds of thousands of dollars less a year, on average, than their white counterparts at the fast-food giant. Two of the plaintiffs in Tuesday's lawsuit spoke with Business Insider last year as part of the investigation.

Tuesday's complaint states that the plaintiffs' average annual sales of roughly $2 million were more than $700,000 lower than McDonald's national average of $2.7 million between 2011 and 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 franchise system," the complaint states.

Past conversations with five current and former Black franchisees over the last year, as well as the lawsuit filed on Tuesday, indicate that there are a number of reasons why Black franchisees make significantly less than their white counterparts. The complaint says that McDonald's:

"Covertly" restricts Black franchisees to owning locations predicted to bring in less money. Black franchisees say they were only offered opportunities to own older stores in primarily Black neighborhoods. These locations tend to have higher insurance and security costs while bringing in less revenue.
Excludes Black franchisees from growth opportunities, while offering new white franchisees the opportunity to buy newer, more desirable locations.
Enforces harsher renovation and rebuilding requirements on locations owned by Black franchisees than white franchisees.
Deploys "targeted, rigorous, and unreasonable" inspections, forcing Black franchisees out of the business when they receive poor grades.
Forces Black franchisees to sell stores at a loss, by controlling what franchisees are presented as qualified buyers.

"We're always taking on the worst stores," Juneth Daniel, one of the former franchisees suing McDonald's, told Business Insider last year.

"They had serious problems 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 McDonald'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

McDonald's told Business Insider last year that it "is among our top priorities that all McDonald's franchises in all communities have the opportunity to prosper, grow and achieve their business ambitions."

It added: "These efforts are rooted in our core belief that diversity and a vibrant, inclusive and respectful McDonald's makes us stronger. McDonald's is proud to create opportunities for entrepreneurship, economic growth and mobility in communities across the country."

Recently, McDonald's has been emphasizing the importance of values and diversity at the company.

The company donated $1 million to the National Urban League and the National Association for the Advancement of Colored People (NAACP) in the aftermath of the George Floyd protests. McDonald's released an advertisement mourning the deaths of Black people killed by police or in incidents of racist violence in early June. Joe Erlinger, the head of McDonald's US business, said in an internal meeting at the time that "silence is not an option."

"We've probably — McDonald's has created more millionaires within the Black community than probably any other corporation on the planet, but there's still work to do," CEO Chris Kempczinski told CNBC in June. "We're certainly not perfect, we're talking with our franchisees about how do we continue to bring in diverse franchisees."

The franchisees' attorney James L. Ferraro told Business Insider in an interview that the chain has been on a "PR campaign" since he alerted the company of the upcoming filing in early June.

McDonald's is "more concerned about PR than they are about action, about doing the right thing," Ferraro said. "They're just purely about protecting their image."

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