Black franchisees sue McDonald's, claiming racial discrimination

McDonald's faces a class-action lawsuit accusing it of steering Black franchisees toward less-profitable locations. 

The suit was filed last week in Illinois on behalf of plaintiffs including brothers James and Darrell Byrd, who allege the burger chain didn't give them the same support and opportunities that White franchisees receive. The brothers are being represented by the same law firm, The Ferraro Law Firm, that currently represents more than 50 Black former McDonald's franchise owners in a similar suit against McDonald's filed in August. There are currently 186 Black-owned-and-operated franchises in the U.S.

James Byrd was forced to sell eight of 10 locations due to underperformance, while Darrell's four locations have been cut down to two, the lawsuit states. These former franchisees "are not bad businesspeople as McDonald's has led them to believe," their lawyers argue in the complaint. 

Rather, "They are victims of McDonald's targeted discrimination against Black franchisees, which McDonald's covered up during years of parity deals and false promises," the suit alleges. The plaintiffs are seeking as much as $5 million per store in damages — the same amount as in the August lawsuit — claiming they were sent on "a financial suicide mission." 

McDonald's is taking the allegations seriously and has a business interest in making sure all locations are profitable, the fast-food giant said in a statement Monday to CBS MoneyWatch. The company also said it has helped the Byrd brothers even as their locations struggled. 

"McDonald's has invested significantly in each of their respective businesses after they ran into business difficulties caused by mismanagement of their organizations," McDonald's said, alluding to the Byrds. "We will defend against this lawsuit while we move forward with our priorities to foster equitable opportunity for franchisees, suppliers and employees."

According to the suit, McDonald's steered Black franchisees to locations in inner-city neighborhoods with low sales and high security and insurance costs. Once Black franchisees owned a store, they were required to rebuild or buy new equipment immediately, at their own expense, while White franchisees were not, the complaint says. 

In response to the lawsuit filed by the 52 Black former franchisees in August, McDonald's said it "categorically" denied the allegations, in a statement to CBS News last month. "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 statement said.

McDonald's legal team filed a motion last month to have the case dismissed, calling the plantiffs' argument "self-serving" and "illogical." 

Troubled history

McDonald's has a troubled history with Black franchisees. In 1969, activists boycotted four McDonald's in Cleveland until the company sold them to Black owners. In 1983, a Black franchise owner from Los Angeles sued the company for discrimination. McDonald's eventually paid him $4.5 million.

In 1996, McDonald's leadership acknowledged Black franchisees weren't achieving parity with their White counterparts and resolved to make changes, but charges of discrimination have since continued. 

Two Black McDonald's executives sued the company in January, claiming it shifted advertising away from Black customers, graded Black-owned stores more harshly than White-owned ones and implemented business plans that had a discriminatory impact on Black franchisees.

McDonald's disputed these allegations, noting that 45% of its corporate officers and all of its field vice presidents are people of color.