In August 2021, a group of Black McDonald's franchisees filed a $1 billion racial discrimination lawsuit against the company, alleging that McDonald's systematically steered Black operators toward lower-volume, higher-risk locations while providing them with less support than their white counterparts.

Sources: Reuters, "McDonald's sued for $1 billion by Black franchisees alleging racial discrimination" (September 1, 2021); The New York Times, "Black McDonald's Franchisees Say the Company Pushed Them Out" (September 1, 2021).

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What the Lawsuit Alleged

The plaintiffs — approximately 52 Black franchisees and former franchisees — alleged that McDonald's:

• Assigned lower-revenue locations in predominantly Black neighborhoods with higher crime rates, lower foot traffic, and higher operating costs
• Provided less financial support for renovations and technology upgrades compared to white franchisees
• Applied stricter performance standards that made it easier to terminate Black-owned franchises
• Blocked transfers and sales that would have allowed Black franchisees to exit on favorable terms

The complaint cited internal McDonald's data showing that Black-owned franchises generated, on average, $700,000 less in annual revenue than the system average — a gap the plaintiffs attributed to deliberate placement decisions, not operator performance.

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McDonald's Response

McDonald's denied the allegations and moved to dismiss the lawsuit. The company argued that franchisee placement decisions are based on business factors, not race, and pointed to its stated commitments to diversity and inclusion.

In January 2023, a federal judge allowed the case to proceed, ruling that the plaintiffs had adequately alleged discriminatory intent. The litigation was ongoing as of 2024.

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Why This Matters for Every Franchise Buyer

This lawsuit is not just about McDonald's. It exposed structural dynamics that exist across the franchise industry — dynamics that affect buyers of all backgrounds.

1. Location Assignment Is Not Neutral

In many franchise systems, the franchisor controls which locations are available to which buyers. The criteria used to make those assignments are rarely disclosed in the FDD. The McDonald's lawsuit revealed that internal data on location performance existed — and that it was not shared with franchisees before they signed.

What to ask: Before signing, request historical revenue data for the specific location you are being offered. Compare it to the system average. If the franchisor cannot or will not provide this, that is a red flag.

2. Support Is Not Uniform

The FDD describes the support a franchisor promises to provide. It does not guarantee that support will be delivered equally across all franchisees. The McDonald's plaintiffs alleged that support — including field consultant visits, renovation financing, and technology rollouts — was distributed unequally.

What to ask: Talk to existing franchisees at locations similar to yours. Ask specifically about the quality and frequency of franchisor support. The FDD's Item 20 lists current franchisees — call them.

3. Termination Clauses Can Be Weaponized

The lawsuit alleged that McDonald's applied performance standards selectively to create grounds for terminating Black-owned franchises. This is possible in any franchise system where termination clauses are broadly written and performance metrics are subjectively applied.

What to review: Have a franchise attorney review the termination and default provisions in your franchise agreement before you sign. Look for clauses that give the franchisor broad discretion to terminate for "failure to meet standards" without objective benchmarks.

4. Brand Culture Is a Due Diligence Item

The McDonald's lawsuit raised questions about the company's internal culture — not just its legal compliance. Franchise buyers often focus on financial metrics and overlook the question of whether the franchisor's culture aligns with their own values and interests.

What to research: Search for franchisee advocacy groups, lawsuits, and regulatory actions involving the brand you are considering. The American Association of Franchisees and Dealers (AAFD) publishes franchise relationship ratings. Use them.

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The Broader Context

The McDonald's lawsuit was filed the same year that the International Franchise Association launched a diversity initiative pledging to increase minority franchise ownership. Critics noted the timing and questioned whether the initiative was substantive or reputational management.

Minority franchise ownership remains significantly below the overall minority share of the U.S. population. According to the SBA's 2021 Annual Survey of Entrepreneurs, minority-owned businesses represent approximately 29% of all U.S. businesses — but minority franchise ownership rates lag that figure in most major systems.

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What Smart Buyers Do

The McDonald's lawsuit is a case study in the information asymmetry that exists in franchising. The franchisor knows far more about location performance, support allocation, and termination patterns than the buyer does at the point of sale.

Closing that gap requires:

• Reading the full FDD — not just the summary
• Calling existing and former franchisees (Item 20 lists them)
• Hiring a franchisee-side attorney — not a broker who earns a commission on your purchase
• Using AI analysis tools like FDD Score™ to flag risk factors before you sign

The information exists. The question is whether you look for it.

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Sources: Reuters (September 1, 2021); The New York Times (September 1, 2021); U.S. District Court for the Northern District of Illinois, Case No. 1:21-cv-05076; SBA Annual Survey of Entrepreneurs 2021; American Association of Franchisees and Dealers (AAFD).