December 4, 2023

One black franchisee claims McDonald’s raced him by placing him in the operation of low volume restaurants in black neighborhoods and forcing him years later to downsize his store base after unfairly rating its locations.

Herbert Washington, a former major league baseball player and at one point the chain’s largest black franchisee in the United States, operates 14 McDonald’s restaurants (up from 23 in 2017). On Tuesday, he filed a lawsuit against the fast food giant in federal court in Ohio. This is followed by two racial discrimination lawsuits with similar allegations by Black Current and former McDonald’s franchisees last year.

“As I stood up for myself and other black franchisees, McDonald’s began to degrade my life’s work, forcing me to sell one store at a time to white operators,” Washington said in a statement.

McDonald’s USA said it was still investigating the complaint, but issued a statement to CNBC that Washington was facing business challenges and the company had offered it several options to address those issues. The company also said it invested “heavily” in its organization.

“This situation is the result of years of mismanagement by Mr. Washington, whose organization has failed to meet many of our standards for people, operations, guest satisfaction and reinvestment,” the company said in a statement. “His restaurants have a public record of these issues, including past health and hygiene concerns and some of the highest customer complaints in the country.”

In a separate complaint filed by 52 Black operators in September, it was alleged that their locations earned about $ 700,000 less than the national average of their franchisees between 2011 and 2016. Washington’s complaint alleges that McDonald’s told Black franchisees in 2018 that they were closing that cash flow gap between black and white operators. According to the lawsuit, the plan to address the problem was to give white franchisees more low volume locations operated by black franchisees.

Washington started as a McDonald’s franchisee in 1980. Although he lived in Michigan for most of his life and had no ties to Rochester, New York, the company pushed him to buy a restaurant there in a mostly black neighborhood and gave him no other options for a business location.

After about two decades as a Rochester franchisee, Washington operated five restaurants. According to the complaint, white franchisees were allowed to expand in the area much faster than Washington, which was given permission to only buy locations in low-volume neighborhoods.

In one example, Washington signed a deal to buy restaurants in the suburbs of Rochester from a white operator in the early 1990s. McDonald’s reportedly blocked sales 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 in Ohio and Pennsylvania. The acquisitions made him the largest black franchisee in the United States

Over the next decade, Washington bought several Cleveland locations. Typically, the restaurants were older and mostly in black neighborhoods with lower sales volumes.

For example, Washington added three restaurants on the East Side of Cleveland to its store base after the field office’s vice president allegedly asked him to intervene over problems the previous owners were facing. When it took over, McDonald’s immediately increased rents according to the lawsuit. When Washington protested, the company allegedly told him it could run small amounts better than anyone.

However, according to the complaint, McDonald’s would not allow Washington to operate locations on the West Side or in the Cleveland suburbs, which tend to be more white residents. Washington claims he has complained to the company about the problem over the years.

In 2011 he was given a location in the University Heights district. The restaurant would be near a mall that had whole foods and the community was roughly 70% white, based on the census data cited in the complaint.

The deal was closed and Washington had selected the equipment and decor for the site. But then McDonald’s allegedly intervened and loaned 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 replied, “I know.”

In 2015, Steve Easterbrook was named chief executive of the company, replacing its first black CEO, Don Thompson. Under Easterbrook and current CEO Chris Kempczinski, who initially served as head of the US division, McDonald’s no longer tried to reach black consumers, according to Washington.

Franchise agreements prevented Washington from reaching these customers on its own as it was prohibited from using advertisements or promotional material that was not approved by McDonald’s.

“In other words, he had no recourse to the company’s decision to stop advertising a large part of its customer base and the resulting impact on 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 store renovation costs demanded by the franchisor. According to the complaint, the way he ran his restaurants, which were still profitable, hadn’t changed.

Washington claims that McDonald’s “subjected its sites to” targeted and unreasonable inspections and rigorous ratings “in an attempt to force it to sell. In order to expand again, Washington had to sell some of its locations within a set period.

The company initially proposed buying four company-owned locations in a 90% white neighborhood. The high-volume restaurants would help Washington pay for the expensive store renovations in the US restaurants, such as the addition of digital menu boards and self-ordering kiosks. Washington agreed to the plan, but McDonald’s refused to take over.

Meanwhile, McDonald’s continued to insist that Washington sell some of its restaurants within a set time limit before it could expand again, the complaint said. All of the eligible buyers McDonald’s Washington introduced to these restaurants were whites. The company also put pressure on him to keep up with the store’s renovations, including the locations where he had to sell.

“McDonald’s demanded that Mr. Washington subsidize his own demise by pouring resources into these properties as they are being snatched from his hands,” the complaint read.

When Washington struggled to find interested buyers who would pay a fair price for the low volume locations, McDonald’s urged them to pack these restaurants with its high volume restaurants to make them more attractive, rather than just blocking the locations give away.

The white franchisee, who bought three of Cleveland’s Washington restaurants, was offered $ 3 million in incentives by McDonald’s to purchase the locations. Washington was never offered any incentives or financial assistance when buying or operating these restaurants.