Suit By Black, Former Franchisees Alleges Racial Discrimination By McDonald's

McDonald’s has been hit with a new lawsuit by multiple former franchisees who are alleging discriminatory practices. The lawsuit was filed Monday in an Illinois U.S. District Court by 52 former franchise owners from 18 states who are Black and lost their stores over the last four years.

McDonald's issued a press release Tuesday denying the allegations.

The lawsuit claims McDonald’s actively steered potential Black franchise owners to stores in low-income neighborhoods, which the franchisees said were “destined to fail.” This is because stores in lower-income areas suffer from lower sales while requiring higher insurance and operating costs. In turn, the stores operated at a significant loss, averaging between $4 million and $5 million in losses from 2011 to 2016 at these locations.

McDonald’s provided misleading figures to convince potential Black franchisees to take these undesirable locations, the suit claims.

“Revenue, at McDonald’s, is based on one factor and one factor only: location,” attorney James Ferraro, who is representing the former franchisees, told CNBC. “It has nothing to do with the taste of a Big Mac. You don’t go to a different McDonald’s because the Big Macs are better. You go to the closest McDonald’s, period.”

McDonald’s has denied the accusations in the lawsuit, saying it only recommends potential locations and the onus for the stores was on the former franchisees.

“These allegations fly in the face of everything we stand for as an organization and as a partner to communities and small business owners around the world,” McDonald’s said in a press release Tuesday.

“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.”