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Former Black McDonald’s franchise owners filed a federal lawsuit today demanding economic justice from McDonald’s for denying them the same opportunities as White franchisees and steering them to economically depressed and dangerous areas where low-volume sales, high rent and operating costs guaranteed failure.
The 52 plaintiffs allege that McDonald’s sold itself as a recruiter and developer of Black talent, profited from its Black consumer base and maintained a two-tier system that sent unsuspecting Black owners on “financial suicide missions” from which there was little chance of success.
The claims include over 200 stores with compensatory damages that average between $4 million and $5 million per store, exclusive of punitive damages.
James L. Ferraro, the lawyer representing the plaintiffs, said in early February, when his firm first started investigating the case, it was clear his clients experienced serious racial injustice.
“The notion that McDonald’s is a friend of the Black entrepreneur is complete fiction,” said Ferraro. “McDonald’s has been hemorrhaging Black franchisees for decades due to blatant and implicit racial discrimination. The company will now be held accountable.”
The historic high of 377 Black McDonald’s franchisees in 1998 has been more than cut in half. Today, there are only 186 Black franchisees left standing. Meanwhile, over the same period, from 1998 to 2019, McDonald’s has increased its stores from 15,086 to 36,059. The cash flow gap for Black franchisees more than tripled from 2010 to 2019, per National Black McDonald’s Operators Association (“NBMOA”) data.
Plaintiffs’ average annual sales of $2 million was more than $700,000 under McDonald’s national average of $2.7 million between 2011 and 2016 and $2.9 million in 2019.
The complaint alleges that McDonald’s history of discrimination began in Chicago in 1968, after the assassination of Dr. Martin Luther King, Jr. McDonald’s denied Blacks entry into its system until the doors were pried open in 1969, after a boycott in Cleveland that led to some of the first Black-owned franchises in the McDonald’s system.
In 1984, Rev. Jesse Jackson wrote to McDonald’s on behalf of Operation PUSH to complain that Black franchisees felt they were “being subjected to a double standard” in that they were confined to inner-city areas with high maintenance and security costs. Blacks were usually offered only recycled stores, which are generally more expensive and less profitable than new ones.
In the late 90s, McDonald’s candidly acknowledged it has excluded Blacks from the same opportunities afforded to Whites. Executive Vice President Thomas S. Dentice conceded in 1996 the “company has placed many Black Franchisees in restaurants that have not allowed them to achieve the same level of economic success as their peers.”
For decades, McDonald’s ruthless, one-sided bargaining steered Blacks toward the oldest, most decrepit stores in the toughest neighborhoods routinely rejected by Whites franchisees. This severely limited opportunities for expansion and growth, and far too often set in place a chain of events – low cash flow, decreased equity, debt and bankruptcy – that led to financial ruin.
Ferraro said today’s filing tells 52 different heartbreaking stories of Black men and women who were employers, philanthropists and community leaders before they were forced out of business through McDonald’s gross violations of federal law by:
- Steering Black franchisees to inner city neighborhoods with low volume sales, high security and insurance costs and constant employee turnover.
- Retaliating against Black franchisees for rejecting strong-arm offers to continue operations in crime-ridden neighborhoods.
- Denying Black franchisees meaningful assistance during financial hardships while White franchisees were routinely given such support.
- Excluding Black franchisees from the same growth opportunities found at safer, higher-volume, lower-cost stores offered to Whites.
- Failing to provide any legitimate business reasons for repeated denials of franchise opportunities over many years.
- Unfairly grading the operations of Black restaurants, which resulted in poor internal reviews, effectively pushing Black franchisees out of the McDonald’s system by denying them the eligibility for growth and favorable franchise terms.
- Providing misleading projections which induced Black franchisees to purchase undesirable franchises.
“Each and every one of these businessmen and women tell a story of dashed hopes and lost dreams,” Ferraro said. “The world will soon see how these 52 people of color risked everything on the Golden Arches only to be kept down, marginalized and driven to ruin.”
Ferraro added, “Black lives matter on the streets, in our communities and they matter in Corporate America.”