A 37-unit McDonald’s operator is suing his franchisor, claiming the fast food giant is trying to drive him from the system.
The suit, filed May 9 in the Eastern District of New York, said McDonald’s reported decision to not renew five of George Michell’s franchises was done so in “bad faith.”
Michell is a franchisee with 37 McDonald’s stores in New Jersey, New York, Connecticut and Massachusetts. He also owns eight non-McDonald’s restaurants and bars in Hartford, Connecticut’s Bradley International Airport. He subleases the space from McDonald’s. Last year, his McDonald’s units did $158 million in revenue.
The franchise is allegedly discriminating against Michell and his daughter, Larisa Michell, by not qualifying her as a “Next Generation” owner able to join the system until George Michell “waves the white flag of surrender and allows McDonald’s to steal the value of his businesses from him,” the lawsuit states. The Next Generation program helps children of McDonald’s operators become owners in the system.
Michell also alleges the brand is discriminating against him because he is Mexican American, according to the lawsuit. He’s been in the McDonald’s system since 1990.
McDonald’s in a statement called the claims in the lawsuit “meritless.”
“We have a long history of supporting our franchisees with resources and tools to succeed in running great restaurants,” a McDonald’s spokesperson said in a statement. “Their success is our success, and we’re deeply committed to that. But we won’t compromise on ensuring that our organization’s values and high standards are consistently met. The assertions made in this case are meritless and do not reflect McDonald’s commitment to empowering diversity of talent and ownership in our franchisee community.”
In 2022, the Department of Consumer and Worker Protections ordered Michell to pay $1 million to 511 employees at his seven Brooklyn stores for violating the Fair Workweek law. Michell reportedly required employees to “clopen,” or work a closing shift and report back for opening in the morning, without their consent. Scheduling these shifts requires employers to pay a $100 premium and employees must sign a written agreement to do so.
He also violated the New York City Paid Safe and Sick Leave law by preventing employee’s from using paid sick time. Michell fired two employees who tried to exercise their rights under these laws.
Michell in his suit said media reporting of these cases didn’t cause a revenue decline for his stores. McDonald’s, though, claims Michell violated its revised National Franchising Standards, according to the filing, as it seeks to retroactively apply new standards that took effect January 1, 2023, to 2021 and 2022 operating years. Michell’s suit claims there’s “no basis” to implement the new rules retroactively.
The new standards set last year increase the risk of franchisees facing “arbitrary, capricious, subjective, inconsistent, abusive and discriminatory decision making,” according to the lawsuit. One of the new standards allows field officers to determine if a franchisee is breaking “subjective” rules, including, among other items, keeping a “mutually beneficial” relationship with McDonald’s corporate staff.
“By McDonald’s intent and design, McDonald’s has purported to empower itself and its local field officers to be judge, jury and executioner of an owner/operator’s career with McDonald’s and the equity in his or her McDonald’s restaurants,” the suit states.
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The new standards, announced in June 2022, signs 20-year franchise agreements based on a higher performance standard, which it states is for owners to earn their agreements, rather than have them given, according to the company. McDonald’s also made stricter the standards to have family members approved as franchisees. The update caused strain on the franchisor-franchisee relationship, in some cases, as owners adjust to these rules.
In November 2022 the Michells met with McDonald’s Field Vice Presidents Joe Chiczewski and John Cronan, who work in Stamford, Connecticut, and Long Beach, California, respectively.
Chiczewski allegedly told Michell he wants him out of the franchise system, so Michell needs to sell his stores. Michell claims Chiczewski offered to buy all his stores “at a price far less than fair market value.” Michell reportedly countered with an offer to sell some, but not all, of his restaurants, which Chiczewski rejected.
“On multiple occasions after November 29, 2022, continuing into 2024, Chiczewski and/or Cronan confirmed that McDonald’s demand is that Michell leave the McDonald’s system completely before Larisa Michell is allowed to become an owner/operator; and that Chiczewski will continue to deny new franchise terms to Michell for as long as he remains in charge of the Stamford Field Office.”
Last year, Chiczewski allegedly sent Michell a “change of status” letter that claimed he had a history of not communicating to corporate, which violates the new standards.
Michell’s attorney, Michael Einbinder, declined to provide comment.
In April 2022, McDonald’s corporate allegedly told Michell he was eligible for “growth and rewrite,” or new terms for a franchise agreement, according to the suit.
Michell seeks monetary damages on multiple counts.