Black franchisees allege 'pipeline of discrimination' at McDonald's in class action lawsuit, following another racial-discrimination lawsuit from ex-franchisees

McDonald's current Black franchisees filed a class action suit on Thursday, alleging they faced racial discrimination at the fast-food giant.
Named plaintiffs James and Darrell Byrd allege that McDonald's restricted their opportunities to economically-depressed areas, while white franchisees with similar financial performances were given greater opportunities to grow.
"McDonald's placed Mr. Byrd in a financial hole that only McDonald's can get him out of," Thursday's complaint alleges.
The class action suit follows a $1 billion racial-discrimination lawsuit filled by former Black McDonald's franchisee in August.
"We take the allegations in this case very seriously," McDonald's said in a statement on ex-franchisees' lawsuit, saying that the company is moving forward with actions to foster an equitable environment for franchisees, suppliers, and employees.
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McDonald's Black franchisees filed a class action suit against the fast-food giant, following in the footsteps of former franchisees who allege the chain sent them on "financial suicide missions."

On Thursday, a federal civil rights class action lawsuit was filed on behalf of current Black McDonald's franchisees in the US District Court for the Northern District of Illinois Eastern Division. Named plaintiffs are James Byrd, Jr. and Darrell Byrd, two brothers who own four McDonald's locations between them in Tennessee.

"Although the Byrds risk retaliation (and potentially any chance at saving their only remaining restaurants) in bringing forth this action, they cannot 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 complaint reads.

The new lawsuit follows a racial-discrimination suit filed by 52 former McDonald's franchisees in late August. According James L. Ferraro, who is representing plaintiffs in both lawsuits, the original suit led to roughly 50 current franchisees reaching out with similar allegations.

"We've had literally dozens and dozens of former owners calling us about their desire to go after McDonald's, but also the fear that they have that McDonald's would literally close them down," Ferraro told reporters on Thursday.

There are 186 current Black franchisees within the McDonald's system, according to Ferraro, a significant decrease from 377 in 1998. Ferrero said that the decision to be a part of the class will be made by individual Black franchisees at some point in 2021.

All of McDonald's current Black franchisees could be included in the class in the lawsuit, which is seeking between $4 million and $5 million in damages per store. As most franchisees own multiple locations, plaintiffs could seek damages far exceeding $1 billion.

McDonald's did not immediately respond to Business Insider's request for comment, but has denied past allegations of racial discrimination.

Black franchisees say the fast-food giant sent them on a "financial suicide mission"

ronald mcdonald ballon Mcdonald's — New York Police Officers watch as the "Ronald McDonald" balloon passes by during the 89th Macy's Thanksgiving Day Parade
Andrew Kelly/Reuters

Current and former Black franchisees allege in both lawsuits that McDonald's locations owned by Black franchisees were less profitable than those owned by white franchisees. One former franchisee said in the complaint that acquiring McDonald's locations as a Black franchisee was a "financial suicide mission," due to the unequal treatment.

A Business Insider investigation in 2019 found that there was a documented gap between the two groups. According to internal 2017 data from the National Black McDonald's Owners Association, the average McDonald's location brought in more than $60,000 more than Black franchisees' locations on average every month.

Both former and current franchisees claimed that McDonald's restricted Black operators to neighborhoods with lower sales and higher costs. According to the franchisees' complaint, Black franchisees are primarily offered opportunities to buy locations in Black neighborhoods and less likely than white franchisees to be offered new opportunities.

Darrell and James Byrd, the named plaintiffs in the complaint filed on Thursday, allege that McDonald's restricted their opportunities to "Black, inner-city, or rural and economically depressed neighborhoods." Meanwhile, white franchisees in their areas with similar performances were given significant growth opportunities, the complaint alleges.

"Mr. Byrd has become a captive tenant of McDonald's no way out but to sell on McDonald's terms at a loss or operate at a loss," the complaint alleges. "By continually denying Mr. Byrd profitable locations, which were instead given to White franchisees, and isolating him every step of the way, McDonald's placed Mr. Byrd in a financial hole that only McDonald's can get him out of. "

James Byrd spoke with Business Insider last year about the financial gaps between Black and white franchisees at McDonald's.

"All franchisees and McDonald's are held theoretically to that same standard, so that you spend a lot of time just doing what you're supposed to do," Byrd said at the time. "And you don't really want to realize that the deck is not really stacked in your favor. It's a bitter pill to swallow."

Franchisees say there are 'two standards' for Black and white franchisees

Current and former franchisees' complaints further allege that Black franchisees face harsher inspections and renovation requirements.

One former consultant who left McDonald's in 2016 told Business Insider last year that she faced pressure to treat restaurants owned by Black franchisees more harshly than their white counterparts.

She said she saw Black franchisees get written up for minor infractions, while white franchisees did not face consequences for safety violations. In one instance, she said, a white franchisee got off scot-free after half of a dead mouse was discovered in his location's the ice machine.

"We have said for many, many years as African American operators, there's two standards," Ken Manning, one of the plaintiffs in the ex-franchisee case, told Business Insider last year. "There is one for us and there's one for our general market operators."

McDonald's has denied current and former franchisees' racial-discrimination allegations. Last week, McDonald's filed a motion to dismiss ex-franchisees' lawsuit, arguing that the complaint is "illogical" and falls short on legal grounds.

"We take the allegations in this case very seriously," McDonald's said in a statement last week, saying that the company is moving forward with actions to foster an equitable environment for franchisees, suppliers, and employees.

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