Largest Black franchisee sues McDonald’s

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Herb Washington accuses fast-food chain of unraveling his 27-chain empire

By Erick Johnson

Prominent community leader Herb Washington, believed to be the largest Black McDonald’s franchisee in the country, on February 12, filed a civil rights lawsuit against the fast-food giant after he was allegedly forced to sell seven of his franchises to white owners.

At his height, Washington ran 27 McDonald’s restaurants in New York, Pennsylvania, and Ohio during his 40 years with the company.

A college track star at Michigan State University and former Oakland A’s baseball player, Washington, 69, became one of the most notable Black success stories among McDonald’s franchisees.

Washington alleges that in 2017 McDonald’s began a campaign to drive him out, retaliation for speaking about the “predatory, racially-biased steering practices” against Black franchisees.

Today, Washington has only 14 franchises and accuses McDonald’s of racial discrimination and retaliation.

He is the latest Black franchisee to sue McDonald’s after 52 Black franchisees filed a class-action lawsuit last year in Chicago, accusing the fast-food chain of forcing them to operate in poor neighborhoods that eventually drove them out of business. That class-action lawsuit has since grown to 80 plaintiffs, most of them are Black.

In his lawsuit, filed in federal court in Youngstown, Ohio, Washington accuses McDonald’s of forcing him to sell seven franchises to white owners. In a conference call on February 16, Washington said the white owners used those restaurants to drive down revenue to create parity to show a mix of locations in their franchise portfolio. He said McDonald’s recently offered him $6 a day for each of his franchises to help close the sales gap.

Washington accused McDonald’s of hypocrisy, joining corporations releasing statements proclaiming Black Lives Matter. In his lawsuit, Washington said, “McDonald’s has done nothing to change its own internal policies that perpetuate systemic racism by disadvantaging and squeezing out its Black franchise owners.”

McDonald’s responded to the lawsuit Tuesday by blaming Washington for his business challenges.

According to the lawsuit, after he complained that inner-city stores were losing value while white suburban stores continued to prosper and that Black franchisees’ stores were being evaluated unfairly within a corporate franchising committee, Washington said he was removed from the committee.

Washington also said as he became more vocal in his criticisms, his son, who graduated from a McDonald’s training program, was deemed ineligible to purchase any restaurants—from Washington or anyone else.

Washington said when stores became available in suburban Rochester, New York, in the early 1990s, McDonald’s blocked the sale even though he had struck a deal with the white owner to purchase the restaurants. Instead, McDonald’s approved the sale to a white owner. Washington said the field-office executive who blocked the sale, Mike Andres, went on to become president of McDonald’s USA.

In another alleged incident, Washington said in 2011 he had finalized a deal to purchase a store in the predominantly white suburb of University Heights near Cleveland. He said McDonald’s intervened and awarded the store to a white operator.

A McDonald’s spokesperson in the Washington Post denied Washington’s allegations and said the company does not place franchisees into specific restaurants. McDonald’s says it only makes recommendations, and the franchisees decide which restaurants to purchase and to whom they sell. The company also said Black franchisees operate restaurants in rural, urban and suburban communities.

In his lawsuit, Washington also alleges that McDonald’s demanded that he make massive capital investments into the same restaurants that were eventually sold to white owners. He said the renovations in those lost restaurants benefited white franchisees that McDonald’s approved to purchase his stores.

He said Black franchisees make, on average, $700,000 less in annual sales per store than white owners. He said the disparity is directly the result of McDonald’s alleged discriminatory policies that favor white owners.

According to the lawsuit, franchisees make minimum monthly base rent payments on top of rent payments calculated on a percentage of gross sales revenue, an amount that varies from store to store.

The owners pay all operational costs, including property tax and maintenance, monthly service fees and royalties calculated on the percentage of sales. They also contribute to the costs of collective advertising. At the end of the 20-year term, the lease must be renewed for franchisees to continue operating — a key point when McDonald’s can cap their growth.

The lawsuit alleges disparities grow when Black owners such as Washington are required to incur disproportionately high operational costs and low sales volume, the lawsuit alleges. And although the company grants rent relief at its discretion, Washington alleges McDonald’s disproportionately helps white franchisees while refusing similar requests from Black owners.

The decline in Black restaurant owners accelerated after Steve Easterbrook and Chris Kempczinski became president and chief executive of McDonald’s Corporation and McDonald’s USA, respectively.

Under them, Washington alleges Black senior executives who objected to the company’s policies suffered swift retaliation, and under Kempczinski’s leadership, the number of Black executives dropped from 42 to seven.

Washington, who helped the Oakland A’s win the World Series in 1974, became a McDonald’s franchisee in 1980 at age 29. He opened his first restaurant near a public housing development in Rochester, New York, after the company allegedly steered him to a store in a distressed, predominantly Black neighborhood as his only option, according to the lawsuit.

Also, according to the lawsuit, in 1998, there were 377 Black franchisees in the McDonald’s system. Today, there are just 186. “There are two McDonald’s systems: one that is designed for white owners to flourish and grow and another that is designed to pigeonhole and oppress Black owners,” Washington said.

“I will no longer give up my seat on the bus for white franchisees. After four decades in the McDonald’s system, I have been targeted for extinction. When I stood up for myself and other Black franchisees, McDonald’s began dismantling my life’s work, forcing me to sell one store after another to white operators.”

McDonald’s is based in Chicago. Herman Petty opened the first Black-owned McDonald’s in the country in 1968 at Stony Island Avenue and Marquette Road in Chicago’s South Shore neighborhood.

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