A black franchisee alleges that McDonald’s racially discriminated against him by pigeonholing him at low-volume restaurants in Black neighborhoods and forcing him to shrink his store stock years later after judging his locations unfairly.
Herbert Washington, a former Major League Baseball player and once the chain’s largest Black franchisee in the US, operates 14 McDonald’s restaurants, up from 23 in 2017. He filed a lawsuit against the fast food giant in Ohio federal court on Tuesday. It follows two racial discrimination lawsuits involving similar allegations from Black’s current and former McDonald’s franchisees last year.
“As I stood up for 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 pending the complaint, but offered CNBC a statement saying Washington faces business challenges and that the company has provided it with multiple opportunities to address those concerns. 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 failed to meet many of our people, operations, guest satisfaction and reinvestment standards,” the company said in a statement. “His restaurants have a public record of these issues, including past health and hygiene problems and some of the largest customer complaints in the country.”
A separate complaint filed by 52 Black operators in September claimed their locations generated about $ 700,000 less than the national average for their franchisees between 2011 and 2016. Washington’s complaint alleges that McDonald’s told Black franchisees in 2018 that it was this cash flow gap between Black and White operators. According to the lawsuit, the plan to fix the problem involved White franchisees getting more of the low-volume locations operated by Black franchisees.
Washington started out as a franchisee at McDonald’s in 1980. Despite living in Michigan most of his life and having no connections to Rochester, New York, the company is said to have forced him to buy a restaurant there in a predominantly black neighborhood, resulting in he had no other options for a retail location.
After about two decades as a Rochester franchisee, Washington operated five restaurants. According to the complaint, white franchisees in the area were allowed to expand much faster than Washington, which was only allowed to purchase locations in low-volume neighborhoods.
For example, in the early 1990s, Washington struck a deal to buy restaurants in the outskirts of Rochester from a white operator. McDonald’s is said to have blocked the sale and instead 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 US.
Over the next decade, Washington continued to buy more Cleveland locations. Typically the restaurants were older and in predominantly black areas with lower sales volumes.
For example, Washington added three restaurants on Cleveland’s East Side to its retail base after the field office vice president reportedly asked him to step in because the previous owners were having problems. When it took over, McDonald’s immediately increased rents, the lawsuit said. When Washington protested, the company is said to have told him it could run small volumes better than anyone else.
However, according to the complaint, McDonald’s would not approve of Washington to operate locations in the West Side or in the Cleveland suburbs, which generally have more white residents. Washington claims he has complained to the company about the matter over the years.
In 2011 he was given a location in the University Heights neighborhood. The restaurant is said to be located near a mall with a Whole Foods, and the community was about 70% white, according to census data cited in the complaint.
The deal was done, and Washington had selected the equipment and scenery for the venue. But then McDonald’s allegedly stepped in and awarded the restaurant to a white franchisee. According to the complaint, Washington filed a complaint with McDonald’s chief operating officer telling him that the white franchisee was racist, and the director replied “I know.”
In 2015, Steve Easterbrook became the company’s chief executive, replacing its first Black CEO Don Thompson. Under Easterbrook and now CEO Chris Kempczinski, who first served as head of the U.S. division, McDonald’s stopped advertising from trying to reach black consumers, Washington’s complaint said.
Franchise agreements prevented Washington from reaching those customers itself because it was not allowed to use advertisements or promotional materials that were not approved by McDonald’s.
In other words, he could not rely on the company’s decision to stop advertising much 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 expand its store base, which it had hoped to offset the cost of store renovations the franchisor needed. According to the complaint, nothing had changed in the way he ran his restaurants, which were still profitable.
Washington claims that McDonald’s has subjected its sites to “targeted and unreasonable inspections and rigorous reviews” as a pretext to force it to sell. To expand again, Washington had to sell some of its locations within a set deadline.
The company initially proposed buying four company-owned sites in a 90% white neighborhood. The big restaurants would help Washington pay for the expensive retail renovations that American restaurants underwent, such as the addition of digital menu boards and self-ordering kiosks. Washington agreed to the plan, but McDonald’s declined the takeover.
Meanwhile, McDonald’s continued to insist that Washington sell some of its restaurants within a set deadline before allowing it to expand again. All of the approved buyers that McDonald’s presented to Washington for those restaurants were white. The company also pressured him to keep up with the store’s renovations, including for the locations he needed to sell.
“McDonald’s demanded that Mr. Washington subsidize his own demise by pouring funds into these properties as they were being ripped from his hands,” the complaint claims.
While Washington struggled to find interested buyers who would pay a fair price for the low-volume locations, McDonald’s told him to pack those restaurants with its high-volume restaurants to make them more appealing rather than just moving away the locations. to give.
The White franchisee who bought three of the Cleveland, Washington restaurants, was offered $ 3 million in incentives from McDonald’s to purchase the locations. Washington never got any incentives or financial support when he bought or ran those restaurants.