Black Owners Accuse McDonald's Of Systematic Discrimination In $1BN Lawsuit

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by Tyler Durden
Tuesday, Sep 01, 2020 - 12:35 PM

Why have so many of McDonalds' black franchisees lost their businesses over the past 4 years? Could it possibly be due to 'entrenched racism' by one of the world's foremost practitioners of 'corporate activism?'

That's what a group of plaintiffs are alleging in a lawsuit first reported Wednesday morning by the Wall Street Journal. A group of several dozen black franchisees are suing the world's most recognizable fast-food chain, accusing management of deliberately sabotaging the business prospects if black franchisees. In the lawsuit, filed Monday night in the US District Court for the Northern District of Illinois, the lawyers detail allegations that McDonald’s routinely steered Black franchisees to restaurants in undesirable locations, mostly in inner-city, minority dominated, neighborhoods.

Among other tactics, McDonald's allegedly provided black franchisees with "misleading" information to push them toward these less-desirable areas. McDonald's responded that most purchases of businesses occur between franchisees, and that the company makes information available to all franchisees online.

The lawsuit is seeking compensatory damages for owners of between $4 million and $5 million per store. The owners involved represent more than 200 McDonald's restaurants around the US. That would be a total of $1 billion at the high end.

Due to this implicit policy, black-owned restaurants often carried higher operating costs, while bringing in less in average annual sales.

Between 2011 and 2016, black franchisees say, their average annual sales were roughly $2 million, $700k below the average for all franchisees during that period.

The plaintiffs also accused Micky D's corporate of showering white franchisees with rent assistance and other subsidies, while the needs of black franchisees went largely ignored.

In one example, the company refused to pay for an armed security guard, and also refused to reduce the rent, for a franchisee in a troubled neighborhood in Atlanta.

According to the lawsuit, open and covert discrimination caused the number of black franchisees to dwindle to just 186 this year, from a high of 377 in 1998, a shift the plaintiffs and their lawyers attributed to "racially discriminatory practices."

“McDonald’s intentionally and covertly deprived plaintiffs of the same rights enjoyed by white franchisees,” according to the complaint.

McDonald's, via its PR team and corporate counsel, repudiated the allegations from the lawsuit, and claimed that the total number of owners has fallen amid considerable consolidation over the past several years. As a percentage of the overall population, black franchisees remain largely unchanged.

The company added that many of the franchisees who joined the suit successfully operated multiple restaurants for years.

However, McDonald's has repeatedly shown that it "cares" about "social justice and equality". It was one of the first major American corporations to join the advertiser boycott of Facebook. It made a big show last year when it said it would no longer resist the localized push for a $15 minimum wage.

Has McDonald's willingness to engage in 'corporate activism' simply opened the door to being targeted by opportunistic lawsuits in the hopes of a quick settlement? 

To be sure, the fast food chain is also enmeshed in a battle with its former CEO Steve Easterbrook to try and clawback some of his compensation ins the name of...decency? (we honestly don't understand why the lawsuit seems to be such a priority for Easterbrook's successors, but we imagine the motives there are somewhat less than noble).