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McDonald's gets slammed with new lawsuit claiming black franchisees were 'disparately strong armed' out of system

A new lawsuit filed by two black McDonald's executives mirrors franchisees' claims that they face unfair treatment within the fast-food giant.

Vicki Guster-Hines and Domineca Neal, two McDonald's operations officers based in Dallas, Texas, filed a suit against the fast-food company in the North District Court of Illinois on Tuesday, alleging race discrimination, a hostile work environment, and unlawful retaliation. Guster-Hines and Neal are seeking millions of dollars in damages and lost pay. The executives also said that they faced retaliation for speaking out against discrimination more generally at the company - including the unequal treatment of black franchisees that they witnessed at the company.

mcdonalds cash flow gap african american franchisees

According to the lawsuit, McDonald's saw a "startling decrease" in its number of black franchisees after 2015, when Steve Easterbrook became CEO and Chris Kempczinski became the head of the US business. Kempczinski became CEO in November 2019, when Easterbrook was abruptly forced to leave the company.

"The disproportionate loss of nearly one-third of the African American franchisees in the Easterbrook and Kempczinski era was intentional or, in the alternative, it was in reckless disregard of plainly foreseeable consequences of business decisions made by Easterbrook and Kempczinski and their minions," the complaint alleges.

In December, Business Insider published an investigation into McDonald's black franchisees' claims that their stores net roughly $68,000 less per month than the system-wide average.
According to documents from the National Black McDonald's Owners Association obtained by Business Insider, there were 304 black McDonald's franchisees at the end of 2008. By the end of 2017, NBMOA documents showed that number had dropped to 222. By late 2019, two franchisees told Business Insider, black franchisees made up fewer than 200 of the roughly 1,700 franchisees at McDonald's.

"The culture of and fabric of the company hasn't cared to address the disparity issue towards African Americans," McDonald's franchisee Jim Byrd told Business Insider on Wednesday.

mcdonalds franchisee count shrinking

"At McDonald's, our actions are rooted in our belief that a diverse, vibrant, inclusive and respectful company makes us stronger," a McDonald's representative said in a statement on Wednesday.

According to the company, almost half of all its corporate officers are people of color, representing an increase of nearly 10% since 2013, and all 10 US field vice presidents are people of color. McDonald's uses the term "officer" to describe employees at a vice-president level or above that.

"While we disagree with characterizations in the complaint, we are currently reviewing it and will respond to the complaint accordingly," the representative said.

Carmen Caruso and Linda Chatman, attorneys for Guster-Hines and Neal, noted in a statement to Business Insider on Wednesday that none of the 10 field vice presidents are people of color are black women; two are black men but one was only promoted after Guster-Hines and Neal notified McDonald's of the allegations in the lawsuit in September. "Vicki and Domineca have bravely stepped forward to expose the long-standing and deep rooted bigotry and bias at McDonald's," Caruso and Chatman said. "They are prepared to take McDonald's head-on, standing behind each and every allegation in their Complaint."

McDonald's black franchisees are fighting to earn as much as their white counterparts

mcdonald's sign 1978

The complaint says that nearly one-third of African American franchisees left McDonald's when Easterbrook was CEO.

"McDonald's uses strong-arm tactics to drive unwanted franchisees out of the system, such as unfairly grading franchised restaurants and jeopardizing a franchisee's rights under his or her franchise agreement; and then preventing an unwanted franchisee from selling his or her restaurants in an open market," the lawsuit claims.

The lawsuit continues: "All McDonald's franchisees are vulnerable to these strong-arm tactics (among others) but, on information and belief, African American franchisees were disparately strong armed, driving them out of the system in record numbers, and damaging them by the loss of equity in their businesses."
Current and former franchisees told Business Insider that they were treated more harshly in some instances when finances were reviewed and when consultants inspected stores.

McDonald's, like most franchises, reserves the right to terminate franchisees' agreements if they fail to meet certain standards. According to McDonald's, these routine business reviews aim to inform organizations about where they stand and how to better their chances for growth.

mcdonalds african american franchisee cash

According to NBMOA documents obtained by Business Insider, the cash flow gap between black franchisees and McDonald's system-wide average doubled under Easterbrook and Kempczinski's leadership.

While franchisees who spoke with Business Insider said the cash flow gap had been an issue at McDonald's for decades, the disparity grew in recent years in part because of McDonald's 2017 growth plan, internally called the Big Bolder Vision 2020 (BBV2020).

Remodels required by the growth plan could cost up to $750,000 a location, an investment that many franchisees with fewer locations and lower cash flows could not afford, even with McDonald's covering 55% of costs. With these higher costs, franchisees with one to five locations have struggled, according to three former franchisees.

"McDonald's knew or recklessly disregarded the likelihood that BBV2020 (among other financial stresses imposed by the Company) would put disproportionate financial stress on African American franchisees and cause a disproportionate number of them to leave the system," Tuesday's complaint alleges. "McDonald's knew but did it anyway." McDonald's said in a statement to Business Insider in December that it "is among our top priorities that all McDonald's franchises in all communities have the opportunity to prosper, grow and achieve their business ambitions."

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