Black franchisees at McDonald's file new discrimination lawsuit

The fast-food chain is accused of placing Black franchisees in undesirable inner-city locations with high security and insurance costs and below-average sales, and driving many away by failing to support them as debts rise and profits fall short.

(Reuters) - McDonald's Corp MCD.N was hit on Thursday with a potentially multi-billion-dollar lawsuit by Black franchise owners who accused the fast-food giant of racial discrimination for steering them to underperforming stores.

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The proposed class action led by James and Darrell Byrd, brothers with four McDonald’s restaurants in Tennessee, was filed by the law firm representing 52 Black former franchisees who filed a similar lawsuit on Aug. 31.

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McDonald’s was accused of placing Black franchisees in undesirable inner-city locations with high security and insurance costs and below-average sales, and driving many away by failing to support them as debts rise and profits fall short.

Jim Ferraro, a lawyer for the plaintiffs, estimated that McDonald’s has 186 Black franchisees in the United States, down from a peak of 377 in 1998, who own “700-plus” stores.

The lawsuit, filed in federal court in Chicago, where McDonald’s is headquartered, seeks damages of $4 million to $5 million per store, potentially totaling more than $3 billion.

In a statement, McDonald’s USA said it has an “obvious interest” in the franchisees’ success, and invested significantly in the Byrds’ franchises after they encountered difficulties. McDonald’s said it will defend against the lawsuit.

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McDonald’s has taken steps this year to address concerns about its workplace culture, including updating its corporate values for the first time since 2008.

It has denied treating Black franchisees differently, while acknowledging it wants its franchisee ranks to become more diverse. McDonald’s has also denied racial discrimination claims in a lawsuit filed in January by two Black executives.

“They’ve been on a massive PR campaign to clean up their image,” Ferraro told reporters on a conference call. “This is actually a good thing, at some level, but not a good enough thing.”

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McDonald’s sought last week to dismiss the lawsuit by the former franchisees, which seeks up to $1 billion in damages, saying it disclosed the risks of owning stores and did not set anyone up for failure.

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The case is Byrd et al v McDonald’s USA LLC et al, U.S. District Court, Northern District of Illinois, No. 20-06447.

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Reporting by Jonathan Stempel in New York; Editing by Aurora Ellis and Leslie Adler