By: Lisanne L. Mikula, Esquire
Dozens of Black former owners of McDonald’s franchises recently filed a racial discrimination lawsuit in federal court in Illinois, alleging that McDonald’s denied them the same business opportunities that McDonald’s provides to white franchise owners. The 52 plaintiffs –who ran a total of 200 restaurants—claim that they were “denied equal opportunity to economic success by McDonald’s systematic and covert racial discrimination,” and seek up to $1 billion in damages.
The predominant allegation in the complaint is that McDonald’s systematically offered to Black franchisees restaurants which were located in less profitable areas. Since all McDonald’s restaurants offer the same products, the success of any given franchise strongly depends on its location. The plaintiffs claim that the restaurant locations which McDonald’s offered to Black franchisees were typically situated in less prosperous areas which have a higher percentage of residents lacking the economic resources to spend on dining and a lower number of persons who visit the area for work, school, or recreation.
The plaintiffs allege that as a result, their stores suffered from lower sales. Plaintiffs’ locations averaged approximately $2,000,000 in annual sales, which is roughly $700,000 less than the nationwide annual average sales per store for McDonald’s franchises nationwide.
In addition to lower sales, according to the plaintiffs, the restaurant locations offered to Black franchisees had higher operating costs. Black franchisees were often provided the opportunity to purchase only restaurants which were in poor condition, requiring higher maintenance and repair costs, and which were frequently located in high-crime areas, with correspondingly higher insurance and security costs. Unable to make a profit from the restaurants, and instead experiencing significant losses, many of the plaintiffs were forced to declare bankruptcy.
The complaint also alleges that Black franchisees were not offered the same level of support and assistance which white franchisees received from McDonald’s when a franchise suffered financial difficulties or weathered an economic downturn. To the contrary, the complaint alleges that Black franchisees were subject to heightened scrutiny with respect to their restaurants’ performance. Further, according to the complaint, McDonald’s did not offer Black franchise owners the same growth opportunities which it offered to white franchise owners, such as, for example, the ability to acquire additional restaurants in more profitable locations which could have helped Black franchisees offset their losses from struggling restaurants.
As with any litigation in its earliest stages, plaintiffs have not yet produced evidence to prove their allegations, and McDonald’s has not yet filed its response to the Complaint. Whether or not plaintiffs are able to ultimately prove that McDonald’s engaged in unlawful racial discrimination, however, the fact remains that Black-owned franchises are suffering, and the number of Black McDonald’s franchisees is in sharp decline. According to a Business Insider report in December 2019, there exists a large and expanding gap between cash flow realized by Black-owned franchises and other franchises in the McDonald’s system. Further, while currently 90% of McDonald’s 14,400 restaurants in the US are owned by approximately 1,600 franchisees, only 186 franchisees are Black—a severe decrease from the 377 Black franchisees who operated McDonald’s restaurants in 1998.
The Law Firm of DiOrio & Sereni, LLP is a full-service law firm in Media, Delaware County, Pennsylvania. We strive to help people, businesses and institutions throughout Southeastern Pennsylvania solve legal problems – and even prevent legal problems before they occur. To learn more about the full range of our specific practice areas, please visit www.dioriosereni.com or contact Lisanne L. Mikula, Esquire at 610-565-5700 or at [email protected].
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