McDonald’s is being sued by a group of black former franchisees who have accused the fast-food group of forcing them out of business by putting them in locations that were destined to fail and refusing assistance given to white counterparts.
In a lawsuit filed in federal court in Illinois, about 50 former franchisees claimed there had been an “exodus” of black franchisees from the system as McDonald’s routinely placed them in high-crime neighbourhoods and in outdated restaurants in need of renovation.
McDonald’s said in a statement: “These allegations fly in the face of everything we stand for as an organisation and as a partner to communities and small business owners around the world.
“Not only do we categorically deny the allegations that these franchisees were unable to succeed because of any form of discrimination by McDonald’s, 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 lawsuit said that McDonald’s “steered” black franchisees to depressed neighbourhoods with low sales volumes and high costs, and failed to help when they encountered difficulties. It also claimed they were subject to harsher inspection standards.
As a result, it said, the number of black franchisees in the system had dropped from about 400 in 1998 to fewer than 200, while the total number of franchised restaurants more than doubled to 39,000.
The plaintiffs’ average annual sales of $2m were substantially less than McDonald’s national average of $2.7m between 2011 and 2016, the suit said.
The differences in performance were “statistically significant” and the result of “historical racial bias and barriers built into the McDonald’s franchise system”, it claimed. The plaintiffs are seeking damages worth an average of between $4m and $5m per outlet.
McDonald’s described the allegations in the lawsuit as “highly inaccurate”. The company said that while it sometimes recommended locations, the decision ultimately rested with the franchisees. Those involved with the litigation operated restaurants in “a wide variety of communities throughout the country”, the company said.
The company also described as “categorically false” claims that McDonald’s evaluated black franchisees differently or offered them different financial terms than other franchisees.
It said the “overall representation of black operators in the McDonald’s system” was “broadly unchanged”, and that cash flow at restaurants run by black operators was improving.
The allegations come at a sensitive time from McDonald’s, which is in a separate legal battle with its former chief executive, Steve Easterbrook.
McDonald’s claims that Mr Easterbrook hid evidence from the company of several sexual relationships with employees. Lawyers for Mr Easterbrook have called for the court to dismiss the case, describing it as meritless.
Mr Easterbrook’s successor as chief executive, Chris Kempczinski, has put an emphasis on McDonald’s values and sought the make the business more inclusive.