A Black franchisee alleges that McDonald’s racially discriminated against him by using him to exploit low-volume restaurants in black neighborhoods and forcing him to shrink his store base years later after unfairly classifying his locations.
Herbert Washington, a former Major League Baseball player and the chain’s largest black franchisee in the United States at one time, operates 14 McDonald’s restaurants, up from 23 in 2017. On Tuesday, he filed a lawsuit against the fast food giant in court federal state of Ohio. It follows two racial discrimination lawsuits with similar allegations of Black currents and former McDonald’s franchisees last year.
“When I defended myself and other black franchisees, McDonald’s began to dismantle my life’s work, forcing me to sell one store after another to white operators,” Washington said in a statement. .
McDonald’s USA said it is still reviewing the complaint, but offered a statement to CNBC that said Washington faces business challenges and that the company has offered it multiple opportunities to address these issues. The company also said it has invested “significantly” in its organization.
“This situation is the result of years of mismanagement by Mr. Washington, whose organization has not met many of our standards on people, operations, customer satisfaction and reinvestment,” the company said in a statement. “Their restaurants have a public record of these issues, including past health and sanitation issues and some of the highest volumes of customer complaints in the country.”
A separate complaint filed by 52 black operators in September alleged that their locations generated about $ 700,000 less than the national average of their franchisees between 2011 and 2016. The Washington complaint states that McDonald’s told black franchisees in 2018 that it would close this gap in cash flows between Black and White Operators. According to the lawsuit, the plan to fix the problem involved giving white franchisees more low-volume positions that were operated by black franchisees.
Washington began as a McDonald’s franchisee in 1980. Despite living in Michigan most of his life and having no connection to Rochester, New York, the company allegedly pushed him to buy a restaurant in a predominantly black neighborhood. without giving you other options for a store location.
After about two decades as a franchisee in Rochester, Washington had five restaurants. According to the complaint, white franchisees in the area were allowed to expand much faster than Washington, which was only allowed to buy locations in low-volume neighborhoods.
In one example, Washington signed an agreement in the early 1990s to buy restaurants located in the suburbs of Rochester from a white operator. McDonald’s allegedly blocked the sale and sold the locations to a white owner.
In 1998, Washington sold its New York restaurants to buy 25 locations from a white operator with locations in Ohio and Pennsylvania. The acquisitions made him the largest black franchisee in the United States
Over the next decade, Washington continued to buy more locations in Cleveland. Typically, restaurants were older and in predominantly black neighborhoods with less sales volume.
For example, Washington added three restaurants on Cleveland’s East Side to the base of its store after the vice president of the office asked him to intervene because previous owners had problems. When it took over, McDonald’s immediately raised rents, according to demand. When Washington protested, the company allegedly told him he could run a few volumes better than anyone.
However, according to the complaint, McDonald’s would not approve of Washington to operate locations on the West Side or the suburbs of Cleveland, which typically have more white residents. Washington alleges that over the years the company complained about the issue.
In 2011 he was granted a location in the University Heights neighborhood. The restaurant would be located near a mall that included a Whole Foods and the community had approximately 70% whites, according to census data cited in the complaint.
The deal was finalized and Washington had selected the equipment and decor for the location. But then McDonald’s allegedly intervened and awarded the restaurant to a White franchisee. According to the complaint, Washington complained to McDonald’s chief operating officer and told him the white franchisee was racist and the executive responded “I know.”
In 2015, Steve Easterbrook became the company’s CEO, replacing its first black CEO, Don Thompson. According to the Washington complaint, according to Easterbrook and current CEO Chris Kempczinski, who first served as head of the U.S. division, McDonald’s advertising stopped trying to reach black consumers.
Franchise agreements prevented Washington from reaching these customers himself because they were prohibited from using advertisements or promotional material that McDonald’s did not approve.
“In other words, it did not appeal the company’s decision to stop advertising to a large part of its customer base and the resulting impact on its sales,” the complaint said.
In 2017, McDonald’s told Washington that it was no longer eligible to continue to expand its store base, which it hoped to do to offset the store renovation costs required by the franchisor. According to the complaint, nothing had changed about the way he ran his restaurants, which were still profitable.
Washington alleges that McDonald’s subjected its locations to “specific and irrational inspections and a harsh classification” as a pretext to force it to sell. To re-expand, Washington had to sell some of its locations within a set time frame.
The company initially proposed that it buy four locations owned by a company in a neighborhood that was 90% white. High-volume restaurants would help Washington pay for the expensive store renovations that U.S. restaurants were undergoing, such as the addition of digital menu boards and self-service kiosks. Washington accepted the plan, but McDonald’s turned down the acquisition.
Meanwhile, McDonald’s continued to insist that Washington sell some of its restaurants within a set timeframe before letting it expand again. All approved buyers that McDonald’s filed in Washington for these restaurants were white. The company also pressured him to keep up with store renovations, including locations he demanded to sell.
“McDonald’s demanded that Mr. Washington subsidize his own disappearance by pouring resources into these properties while they were being ripped out of hand,” the complaint alleges.
While Washington struggled to find interested shoppers who would pay a fair price for low-volume locations, McDonald’s told it to package these restaurants with its high-volume restaurants to make them more attractive instead of giving them away.
The White franchisee who bought three of the restaurants in Cleveland, Washington, was offered $ 3 million in incentives from McDonald’s to buy the locations. Washington was never offered incentives or financial support when it bought or ran these restaurants.