Can a private company refuse to sell a franchise to someone solely based on being black?

Question

This question was a result of a recent conversation regarding Chick-fil-A only selling their franchises to Christians. I thought that was discriminatory, but was told a private company can do anything they want because they are privately owned. I find this very hard to believe is the case in 2021. Can anyone shed some light on this subject?

Answer 1

Can a private company refuse to sell a franchise to someone solely based on being black?

No.

Racial discrimination in franchising by a private company in the United States is prohibited by 42 U.S.C. § 1981 and also under many state laws such as Cal. Civil Code §§ 51, 51.8, and is further informed by the definitions of 42 U.S.C. § 2000e. See also, this commentary. 42 U.S.C. § 1981 provides in the pertinent part:

All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts . . . as is enjoyed by white citizens. . . . [T]he term ‘make and enforce contracts’ includes the making, performance, modification, and termination of contracts, and the enjoyment of all benefits, privileges, terms, and conditions of the contractual relationship.

Many cases have enforced this protection from racial discrimination in the franchising context. See, e.g., Int’l House of Pancakes, Inc. v. Albarghouthi, No. 04-cv02264-MSK-MEH, 2007 WL 2669117 (D. Colo. Sept. 6, 2007); Elkhatib v. Dunkin’ Donuts, Inc., 493 F.3d 827 (7th Cir. 2007); Harper v. BP Exploration & Oil, Inc., 134 F.3d 371 (6th Cir. 1998); Pointer v. Bldg. Stars Advantage, No. 4:03-cv-01237-HEA, Bus. Franchise Guide (CCH) ¶ 12, 960 (E.D. Mo. Apr. 26, 2004), aff’d, 115 F. App’x 321 (8th Cir. 2004); Home Repair, Inc. v. Paul W. Davis Sys., Inc., No. 98 C 4074, 1998 WL 721099 (N.D. Ill. Oct. 9, 1998) (motion to dismiss); 2000 WL 126905 (N.D. Ill. Feb. 1, 2000) (motion for summary judgment); Smith v. Molly Maid, Inc., 415 F. Supp. 2d 905 (N.D. Ill. 2006).

Employment law protections rarely apply to franchise relationships. See Adcock v. Chrysler Corp., 166 F.3d 1290, 1294 (9th Cir. 1999) (holding that because Chrysler did not control day-to-day operations of dealership, dealer would not be considered employee for sex discrimination claim); Mangram v. Gen. Motors Corp., 108 F.3d 61, 63 (4th Cir. 1997) (holding that General Motors dealers are not employees of General Motors and that plaintiff, at best, demonstrated that as a participant in General Motors’ Minority Dealership Development Program he was a trainee for a nonemployment relationship with General Motors for purposes of age discrimination claim).

This question was a result of a recent conversation regarding Chick Filet only selling their franchises to Christians. I thought that was discriminatory, but was told a private company can do anything they want because they are privately owned. I find this very hard to believe is the case in 2021. Can anyone shed some light on this subject?

Not all kinds of discrimination are prohibited by Section 1981 (which was enacted shortly after the adoption of the 14th Amendment in the post-U.S. Civil War context and is the only or primary federal non-discrimination law applicable to franchise contracts), although state law protections are often broader. See Saint Francis Coll. v. Al-Khazraji, 481 U.S. 604, 613 (1987)(holding that § 1981 does not address discrimination claims based on national origin); Runyon v. McCrary, 427 U.S. 160, 167 (1976) (noting that § 1981 does not cover discrimination based on gender or religion); Kodish v. United Air Lines, Inc., 628 F.2d 1301, 1303 (10th Cir. 1980) (finding age discrimination claim not addressed by § 1981).

In particular, discrimination on the basis of religion in franchising contracts is not prohibited by federal law, although it is prohibited by state law in some states.

But a franchisee in operating the franchise business must follow all state and federal non-discrimination laws that apply to public accommodations with respect to their customers, and must follow all state and federal non-discrimination laws that apply to employees with respect to their employees.

Answer 2

If they wished to be discriminatory they would refuse the franchisee and simply not give a reason. The US federal government has very little it can do to coerce private companies, which is why Chick-fil-a will never trade on the public stock market in the near future. Chick-fil-a would have to be very obvious in their discrimination and the best chance a plantiff would have is to show that their proferred contract did not match other franchisees. That would essentially take someone leaking information out of Chick-fil-a or any other privately-held company. It would be nice to think that this behavior could be punished in a court but realistically I think they could get away with it.