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MIAMI, Oct. 29, 2020 – A federal civil rights class action lawsuit was filed today on behalf of current McDonald’s Black franchisees who desire to hold McDonald’s accountable for its company-wide and decades-long violations of federal and state laws in denying Black franchisees equal rights under their franchise agreements.
The class is seeking compensatory damages averaging between four million dollars ($4,000,000.00) and five million dollars ($5,000,000.00) per store, punitive damages, restitution and disgorgement of lost profits, and declaratory relief to assure that similar discriminatory conduct does not reoccur in the future.
This follows a similar federal lawsuit filed by 52 Black former franchisees on Sept. 1. Since the filing of that lawsuit, McDonald’s has mounted a full-court press to clean up its image and, according to the class action, has been trying to win over the current Black franchisees with various enticements like rent relief in exchange for general releases of liability from further suit.
The lead plaintiffs are two brothers who own and operate McDonald’s restaurants in Tennessee, a company region with the highest cash flow disparity between White and Black McDonald’s franchisees in the entire nation.
“These plaintiffs have risked everything by stepping forward on behalf of all current Black operators,” said James L. Ferraro, lead attorney and founder of The Ferraro Law Firm. “They believe they can no longer remain silent and allow other Black McDonald’s franchisees to be misled and injured by the same pipeline of discrimination that has plagued Black franchisees for decades.”
The current operators will be free to opt-in or opt-out of the class as determined by the trial judge. The decision to be part of the class will be made by the individual franchisees sometime next year.
“There is a lot of fear amongst the current operators with regards to suing McDonald’s. The class action provides some protection against those fears because all of the other class members are not specifically named,” Ferraro said.
Ferraro explained that the class action seeks long-term change and something more than aspirational, empty promises. The change will have to be fought for rather than given, he added. “We are under no illusion about what McDonald’s will do,” Ferraro said. “They will open the checkbook to the remaining Black operators and demand they not join the class. They’ll put the screws to them and force some of them to go public saying ‘all is well.’”
McDonald’s has long led aspiring Black entrepreneurs to believe franchise ownership was a “Golden Opportunity,” their ticket to the American dream, but the reality was the opposite. Black franchisees signed up for financial suicide missions.
As made clear in the Sept. 1 lawsuit, McDonald’s growth strategy has been predatory, targeting Black consumers, markets, and territories by steering Black franchisees to Black neighborhoods with high overhead costs—including higher security, insurance, and employee turnover—where White franchisees refused to own and operate restaurants.
By placing Black franchisees in predominantly Black, inner city, and/or rural neighborhoods, McDonald’s is able to both increase its capital through the acquisition of real estate in areas with lower market prices, and increase sales to Black consumers, resulting in higher company profits, which are based only on gross sales and do not account for the higher operational costs associated with these locations.
McDonald’s shifts the entire risk of loss to Black franchisees through high rents and ongoing fees that pay for McDonald’s acquisition and development of real estate and generate consistent company profits. Black franchisees are solely responsible for all related occupancy costs, as well as renovations and/or rebuilds, despite these stores historically underperforming. When Black franchisees are inevitably unable to pay McDonald’s rent and fees, and McDonald’s wants them out, it holds all of the power, and benefits by keeping the real estate with all improvements paid for by Black franchisees.
This model pushes Black franchisees further into debt, allowing McDonald’s to deem Black franchisees ineligible for growth and/or renewal, while offering White franchisees newer, safer, and more profitable locations. Through this vicious cycle, Black franchisees go in and out of locations with consistent profit shortfalls, on land and buildings owned by McDonald’s, operated by Black franchisees to better target Black consumers, with improvements paid for by Black franchisees, maximizing McDonald’s profits.
The cash flow gap between White and Black operators has more than tripled between 2010 to 2019, per the National Black McDonald’s Operators Association (“NBMOA”) data. Black franchisees’ annual sales fall below McDonald’s national average sales of $2.7 million between 2011 and 2016, and $2.9 million in 2019, and are insufficient to cover the expenses associated with their substandard locations, resulting in consistent profit shortfalls and accumulating debt.
The historic high of nearly 400 Black McDonald’s franchisees in 1998 has been more than cut in half today while from 1998 to date, meanwhile the total number of McDonald’s franchised restaurants more than doubled.
The lawsuit is filed with the U.S. District Court for the Northern District of Illinois Eastern Division.