A group of 52 Black former McDonald's franchisees is accusing the fast-food giant of discrimination, alleging they were "denied equal opportunity to economic success" compared to their white peers.
A federal lawsuit filed in Illinois alleges that the fast-food chain steered Black franchisees toward certain neighborhoods where sales are lower while costs are higher, leaving them with less money and yet higher scrutiny from corporate headquarters. The franchisees, who ran a total of more than 200 restaurants in the past decade, are seeking up to $1 billion in damages.
Location is key for a fast-food restaurant, and African-American franchisees have long spoken out about higher costs associated with security and insurance as well as upkeep of stores sold to them in poor condition. A report by Business Insider in December showed a ballooning gap between the average cash flow of Black franchisees versus others in the McDonald's system.
"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 lawsuit said. "These differences are statistically significant and are the result of the historical racial bias and barriers built into the McDonald's franchise system."
McDonald's rejected the allegations, saying they "fly in the face of everything we stand for as an organization."
"Not only do we categorically deny the allegations that these franchisees were unable to succeed because of any form of discrimination by McDonald's," the company said in Tuesday's statement, "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 a separate lawsuit filed in January, two Black senior executives accused McDonald's of a racial discrimination across the company, saying McDonald's drove out both African-American leaders and franchisees. The company has denied the allegations.
In Tuesday's filing, former franchisees say that they were often rushed or otherwise steered toward older and underperforming restaurants in areas that required big spending on security, staff turnover and store upkeep, and that they were sidelined when trying to purchase more lucrative locations. This meant their average annual sales of $2 million, between 2011 and 2016, were $700,000 short of the nationwide norm, the lawsuit says.
They also allege, among other things, that there were more-frequent inspections of smaller Black-owned franchises than of other bigger ones, including at odd hours and late at night. The lawsuit says McDonald's tactics denied them growth opportunities and eroded their equity, pushing them into significant debt and bankruptcy.
McDonald's said on Tuesday that while it does "recommend" locations, the franchisees ultimately select which to purchase and that cash flow at restaurants of Black operators has been improving. In a video address to staff shared with the press, CEO Chris Kempczinski said the company investigated the claims in the lawsuit, disagreed with them and would "strongly defend" against them.
In June, he told CNBC that 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."
Editor's note: McDonald's is among NPR's recent financial supporters.
STEVE INSKEEP, HOST:
Dozens of former franchise owners are suing McDonald's. They are Black business people who allege McDonald's denied them, quote, "equal opportunity to economic success." We should note that McDonald's has been a financial supporter of NPR, and we cover them just like any other company, including news they may not like. NPR's Alina Selyukh is covering this story. Good morning.
ALINA SELYUKH, BYLINE: Good morning.
INSKEEP: Hey. According to the lawsuit, how did McDonald's deny equal opportunity to people?
SELYUKH: There are various claims, but the main one is that McDonald's steers Black franchisees toward certain neighborhoods with less-profitable stores, which is a long-running allegation. As you can imagine, location is a key for fast-food restaurants. And in this federal lawsuit by 52 Black former franchisees, they say they were rushed or otherwise pushed toward older and underperforming restaurants, which meant they had to absorb bigger costs for security, staff turnover, store upkeep. The lawsuit calls them financial suicide missions.
And the franchisees say they often faced roadblocks when trying to purchase more lucrative locations. The plaintiffs say, for example, their average annual sales fell $700,000 short of a nationwide norm and that McDonald's should've known that this was not random but a result of historical racial barriers. And they're seeking a total of up to a billion dollars in damages.
INSKEEP: Wow. How is McDonald's responding to this accusation that they steered Black owners to certain locations?
SELYUKH: They - the company said in a statement that it categorically denies this. They're denying that, quote, "these franchisees were unable to succeed because of any form of discrimination by McDonald's." The company issued a rebuttal of the lawsuit, saying, for example, that some of these plaintiffs retired after running profitable restaurants and even recorded and issued to the press a video address by CEO Chris Kempczinski to staff and business partners.
(SOUNDBITE OF ARCHIVED RECORDING)
CHRIS KEMPCZINSKI: I think it's important in moments like this to remind ourselves what we do stand for. McDonald's stands for diversity, equity and inclusion.
INSKEEP: I'm sure they would like to stand for that, but what is the history here?
SELYUKH: Well, the history is fairly complicated. I spoke with Marcia Chatelain, a historian at Georgetown University who wrote a book called "Franchise: The Golden Arches In Black America." And she says McDonald's was one of the first chains to start selling restaurants to Black franchisees to begin with, but versions of this complaint that Black franchisees are getting steered into African American neighborhoods and then limited to them - it has endured since the '60s.
MARCIA CHATELAIN: The filing has the benefit of 50 years of history in which these tensions have been raised and mediated in a number of ways. But this may be the first time that a lawsuit of this size has forced a public reckoning.
SELYUKH: In the '80s, there was a lawsuit with similar allegations from one franchisee, which ended after McDonald's bought him out of the chain. In the '90s, Chatelain says the National Black McDonald's Operators Association negotiated an agreement with the company to open up more opportunities for Black franchisees, but a few years later, the group indicated the progress stalled.
INSKEEP: How is McDonald's addressing this moment of racial reckoning across the country?
SELYUKH: Well, they have pledged to boost racial diversity within the ranks of the company, like many others. They are facing another lawsuit by two Black senior executives who accuse McDonald's of driving out both African American leaders and franchisees. The company has fought these allegations. And Chatelain points out McDonald's often tends to respond to criticism of today by talking about accomplishments of the past, about their diverse workforce, the successes of some people within the system. But it will be telling to see how they handle the lawsuit now.
INSKEEP: NPR's Alina Selyukh, thanks so much. Transcript provided by NPR, Copyright NPR.