Here’s Why McDonald’s Had To Pay A Whooping $35.5M In Settlement

For several decades, African American Franchisees of McDonald’s have alleged racism by the management of the company. While the racism is not in a literal sense of mistreating African American employees or customers, McDonald’s has apparently been pulling it off in a more subtle way. The company’s policy, on the other hand, screams inclusivity and in light of the recent controversy surrounding the racial discrimination lawsuit the company is facing, McDonald’s has agreed to commit $350 million to serve all of its communities better.

McDonald’s Long History Of Racial Discrimination

Back in 2020, a whopping 52 of McDonald’s African American franchisees sued the company for racial discrimination. So here’s what actually went down. The franchisees alleged that they were given franchise locations in predominantly black communities where insurance outlays and security risks were much greater than in other localities. According to the lawsuit, McDonald’s also put more pressure on African American franchisees to renovate their outlets faster and did not support them with the same financial benefits as their white counterparts enjoyed.

In response to these allegations, McDonald’s sent out an email saying that it completely rejects the claims made in the lawsuit. It added that facts will show up for themselves and reiterate how the company’s core values stand by diversity and equal opportunity across its franchisees, employees, and suppliers. 

McDonald’s Expansion To Black Neighborhoods

When McDonald’s was in a rapid expansion mode in the 60s and 70s it had saturated the urban market and it had to move to the inner city roads which were in African American neighborhoods. At that time, the government created policies and grants that allowed African Americans to become business owners and the Black Power movement also asked for mandates in which fast-food restaurants in the area need to be owned by people of their community. This is when the company took in applications from African American franchisees. 

However, the franchisees of these locations, alleged that the company only gives them exclusive access to the challenging locations without providing adequate support. While the precise extent to which African American-owned fast-food chains are hotspots for criminal activity is uncertain, it is clear that these activities stem from years of residential segregation and government-enabled discrimination in the housing, education, and job markets.

The allegations are now twofold - that African American franchisees were given locations exclusively in their neighborhoods and that they are barred from owning franchisees in white neighborhoods. According to Operation PUSH, a civil rights organization, the locations made available to African American franchisees are also older and undesirable, making maintenance and renovation a hassle for the owners.

While fast-food restaurants across several brands took notice of this and made active changes to their policies concerning location and ownership, the franchisees of McDonald’s feel like not much has changed since the 1980s. A study conducted by Business Insider in 2021 found that, on average, McDonald’s franchises owned by African Americans netted $24,000 less per month compared to the ones owned by white individuals. In 8 years, the disparity has grown to an astronomical $68,000 per month.

The Herbert Washington Lawsuit

While any form of racial discrimination should find its place in our history books, McDonald’s has managed to be sued once again this year. In February of 2021, retired Major League Baseball player Herbert Washington filed a civil suit against the company.

His allegations were similar to ones that 52 other former wonders of a McDonald’s franchise who filed a suit against the company citing racial discrimination.

Herbert Washington has owned a McDonald’s franchise since 1980 and has said that the company has made it progressively difficult for him to succeed compared to his white counterparts. And when he flagged the discrimination, he said that the company even tried to drive him out.

From 1980, Herbert Washington kept adding more McDonald’s restaurants to his portfolio, increasing the total number of restaurants he owned to 13. In a statement, McDonald’s said that they have settled his racial discrimination lawsuit with $35.5 million and even purchased all 13 of his restaurants. They have even pulled Herbert Washington out of the McDonald’s “system” which means that he can no longer own any more franchises of the company. The company also said that the court did not find any violation of policy by McDonald’s. The executives of the company claim that discrimination has no place at McDonald’s and that the court’s finding that no laws were violated was in resolution with the company’s core values.

The company has said that no more than the fair value of all the 13 restaurants have been paid to Herbert Washington.

It makes you wonder what the value of 13 McDonald’s outlets owned by white individuals would be valued at, considering the dramatically increased footfall that it will receive. 

Apart from franchisees themselves, McDonald’s has also faced claims of racism by African American employees, including the top-level executives. When Don Thompson was replaced by Steve Easterbrook as CEO in 2015, the company was accused of purging African American employees and executives. But the claims were refused by McDonald’s which said that the executive panel of the company was simply downsizing and that the move was not targeted against African Americans.

Like most companies, McDonald’s has engaged in multiple advertisement campaigns that are in line with reaching out to minority communities. After the death of George Floyd when the ‘Black Lives Matter' campaigns were taken to newer heights, McDonald’s tweeted in support of the movement and said that people from the African American community are an integral part of their customer base, workforce, suppliers, and franchisees. 

They have also supposedly made changes to their policies to be more inclusive and hire from a diversified pool of candidates. However, when companies claim that they are allies of minorities yet still come under fire from lawsuits filed by the members of the same community they claim to support, it makes you wonder if the changes that are implemented are actually valuable to the community.

What’s your take on this? Let us know in the comments.