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Black Franchisees Not Lovin’ It In Ongoing Dispute With McDonald’s Over System Practices

Washington v. McDonald’s USA, LLC, No. 4:21-cv-00367 (N.D. Ohio Feb. 16, 2021) — Herbert Washington, once one of McDonald’s largest Black franchisee owners, filed suit in the District Court for the Northern District of Ohio against the international, fast-food giant based on its alleged pattern of racial discrimination and retaliation against him and other Black franchisees.

Mr. Washington now joins two-hundred thirty-eight (238) other current and former Black franchisees who recently brought class action lawsuits against McDonald’s USA and McDonald’s Corporation, for what they also described as franchisor’s “pattern and practice of covert and systemic discrimination against Black franchisees.” See Crawford v. McDonald’s USA, LLC, No. 1:20-cv-05132 (N.D. Ill. Aug. 31, 2020); Byrd v. McDonald’s USA, LLC, No. 1:20-cv-6447 (N.D. Ill. Oct. 29, 2020).

Specifically, and similar to the class plaintiffs in Crawford and Byrd, Mr. Washington alleges that McDonald’s instituted a policy and engaged in a decades-long practice of “redlining” or steering Black franchisees into low-volume stores located in impoverished, predominantly Black neighborhoods, which stores had disproportionately high operating costs due to higher insurance rates, security costs, required investment time, and employee turnover. He further alleges that McDonald’s was able to induce Black franchisees into investing in these high-cost, low-volume store locations through a combination of high-pressure sales tactics, the parties’ unequal bargaining power, and its promises of future growth and renewal opportunities.

Mr. Washington contends that the promised growth and renewal opportunities were actually rarely available to Black franchisees, limited to purchasing underperforming stores in the same distressed neighborhoods, and offered without the same financial assistance/support and restructuring plans offered to White franchisees. The detrimental impact(s) of the foregoing actions he says were compounded by McDonald’s regular practices of denying Black franchisees rent and impact relief, targeting them for harsh and unreasonable site inspections and performance reviews, and using franchisor’s renewal power to force Black franchisees into undertaking expensive renovation projects in short timeframes and/or selling their stores to White franchisees at below market value or otherwise at a loss. And this alleged pattern and practice had the intended result of driving him and other Black franchisees out of the System.

Mr. Washington relies on his 40 years of knowledge and experience as a McDonald’s franchisee, and McDonald’s past acknowledgement of its disparate treatment of Black and White franchisees. Additionally, he highlights recent data collected by the National Black McDonald’s Operators Association (NBMOA) that shows, between 2010 and 2019:

• the cash flow gap between McDonald’s Black and White franchisees more than tripled;
• the average annual sales per store of Black franchisees was more than $700,000 less than those owned by White franchisees; and,
• over the past 22 years, the number of Black franchisees has been cut by more than half (to less than 200), notwithstanding that, in that same time, the total number of stores has more than doubled from 15,086 to 38,999.

Mr. Washington maintains, as a direct and proximate result of McDonald’s pattern of disparate treatment, he was forced to divest of 9 (of his 23) store locations and lost numerous opportunities for growth and renewal; and thus, seeks relief in the form of an unspecified amount of compensatory damages, as well as special, consequential, and punitive damages.

Special and consequential damages in cases like Washington are always difficult to quantify, because lost opportunity costs are inherently speculative. But, assuming the compensatory damages alleged in Crawford and Byrd are representative — i.e., between $4,000,000 and $5,000,000 per store, then Mr. Washington’s claim likely exceeds $36,000,000 (and the class plaintiffs’ damages exceed $950,000,000).

Washington (and Crawford and Byrd) could have potentially significant implications with respect to the McDonald’s System, particularly given the recent spotlight on the legacy of systemic racism in America and the role of “Devalued Assets” in the racial wealth gap. These cases may also have significant implications with respect to the franchisor-franchisee relationship more generally (including a franchisor’s right to treat its franchisees differently, and control the transfer or resale of units/stores by franchisees).

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