Dunkin Donuts Faces Allegations of Franchise Discrimination

Dunkin’ Donuts, the massive sweet treat chain, has been hit with a lawsuit alleging minorities – and particularly African Americans – were discriminated against when the corporation pushed minority franchise owners to buy in poor areas that would be presumably less profitable. doughnuts.jpg

Our Boston business lawyers understand that of the 7,000 locations across the country (with several hundred of those in Massachusetts), only 50 – or less than 1 percent – are owned by African Americans.

Franchising is a unique form of business, and there are many legal complexities one must negotiate in order to establish such an agreement. For ownership of a franchise like Dunkin’ Donuts, for example, you can expect to pay anywhere from $500,000 to well over $1 million. If you’re going to put down that kind of cash, it’s important to thoroughly research the potential profits and pitfalls.

Franchises reportedly account for nearly $1.5 trillion in annual sales, according to the U.S. Census Bureau.

Owners of the franchises in question contend that because they were pushed into less-profitable areas, they lost a great deal of money, and some even went bankrupt.

This is not the first time corporations with franchises have been sued for discrimination. In fact, it’s happened before with IHOP, Denny’s, Quizno’s and 24 Hour Fitness.

Back in 1994, Denny’s Restaurants paid $54 million in a race bias suit in California. IHOP settled its racial discrimination suit recently for $65,000. Quizno’s was defeated in court with a $206 million verdict. The lawsuit against 24 Hour Fitness is still pending.

Each situation was different, but the basic claim remained the same: that these large entities violated the law by discriminating against minority employees or owners.

In this case, a minority couple alleges that the corporate offices of the Massachusetts-based doughnut company compelled them to set up shop in less profitable areas by falsely claiming that there was no availability in better locations. The couple said they sold their home for $750,000 in order to make the purchase, only to lose big when their locations ultimately failed. They were forced to file bankruptcy.

Another woman, a would-be owner, alleges she was told by the corporation that she was not “servile enough” to open her own franchise location.

Potential franchise owners would do well to consult with an experienced business attorney prior to signing on to any agreements or contracts. Some other tips for making a smart choice include:

  • Conduct a great deal of research. Personally visit the area and speak with other business owners nearby. Gauge whether the area seems ripe for your business model.
  • If you feel you are being pressured into opening in a particular area, take a step back and carefully consider why that might be. Corporations are vested in the brand name, but they’re not necessarily looking out for the best interests of the franchise owner.
  • Request real numbers. Get a determination for what you could reasonably expect the location to earn, and get a sense of how other franchises are doing in similarly-located areas.

The Brown Law Firm, LLC, has offices in Belmont and Boston. For a free and confidential consultation, call 617-489-0817 today or contact us online.

Additional Resources:
Dunkin Donuts in Hot Water with African Americans, By Matthew Lynch, Huffington Post

More Blog Entries:
Massachusetts Business Ownership Dispute Rocks Embattled Lobster Distributor, Aug. 9, 2012, Boston Business Lawyer Blog

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