Lawsuit says McDonald's discriminates against Black franchisees

The plaintiffs are seeking up to $1 billion of damages from McDonald's.

(Reuters) - McDonald’s Corp has been sued by 52 Black former franchise owners who accuse the fast-food giant of racial discrimination by steering them to depressed, crime-ridden neighborhoods and setting them up for failure.

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In a complaint seeking up to $1 billion of damages, the plaintiffs said McDonald’s has not offered profitable restaurant locations and growth opportunities to Black franchisees on the same terms as white franchisees, belying its public commitment to diversity and Black entrepreneurship.

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In a statement on early on Tuesday, McDonald’s denied the charges that the franchisees were unable to succeed due to discrimination.

“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”, the statement added.

Chris Kempczinski was named McDonald's new president and CEO. (Credit: McDonald's)

The complaint said McDonald’s saddled the plaintiffs under its standard 20-year franchise agreements with stores requiring high security and insurance costs, and whose $2 million average annual sales from 2011 to 2016 were $700,000 below the nationwide norm. Bankruptcy often resulted, they said.

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“It’s systematic placement in substandard locations, because they’re Black,” the plaintiffs’ lawyer Jim Ferraro said in a phone interview. “Revenue at McDonald’s is governed by one thing only: location.”

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The plaintiffs are suing in Chicago federal court five weeks after McDonald’s updated its corporate values, pledging a greater focus on diversity.

Chief Executive Chris Kempczinski told CNBC in June that diversity was “critically important” and needed to touch “every single aspect” of its business.

A worker wears a mask and gloves as she hands soft drinks to a customer at a McDonald's drive-thru on April 22, 2020 in Novato, California. (Photo by Justin Sullivan/Getty Images)

He also defended McDonald’s record, saying the Chicago-based company had “created more millionaires within the Black community than probably any other corporation on the planet, but there’s still work to do.”

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Ferraro called that claim “total hogwash,” saying the number of Black franchisees has fallen to 186 from 377 since 1998.

More than 90% of McDonald’s 14,400 U.S. restaurants were recently operated by about 1,600 franchisees.

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The company updated its values before suing ousted Chief Executive Steve Easterbrook to recoup his estimated $41.8 million severance package for allegedly concealing improper sexual relationships with three employees.

Easterbrook said the lawsuit is “meritless.”