Dive Brief:

• Rice Enterprises, an eight-unit McDonald’s franchisee operating in Pennsylvania, filed for Chapter 11 bankruptcy protections last week, according to court filings.
• The filing comes over a year after the operator and McDonald’s were sued by the family of a 14-year-old female employee, who claimed a manager raped and harassed her. The manager was a registered sex offender.
• Rice joins three other fast food franchisees to declare bankruptcy within the past few months as operators struggle with economic headwinds and traffic declines.

Dive Insight:

Rice Enterprises filed for bankruptcy to preserve its franchise agreements and leases as well as “to restructure its debt obligations, provide breathing space, time to reduce litigation expenses, and maximize the value of its estate for all creditors and interests,” owner/operator Michele Rice said in a court filing. 

The company has over $2 million in unsecured claims from creditors, including $1 million from McDonald’s, according to a court filing. It also lists its current lawsuit as “disputed” with an “unknown” unsecured claim. Rice expects to file a plan to pay all claims in full. 

The lawsuit against Rice claims that the operator hired a manager, who has been a registered sex offender since 2004 following indecent assault in July 1999, and should have known that the manager had pled guilty to this incident involving a 10-year-old. The lawsuit also claims the employee was repeatedly harassed and eventually raped in a bathroom.

"The allegations made in the lawsuit are deeply disturbing – my organization has no tolerance for sexual harassment, and we terminated the employee in question as soon as we learned about a complaint against him,” Rice said in a statement in 2021. “While all of our employees undergo safe and respectful workplace training upon hire, we’ve recently expanded our training to be bi-annual, in addition to adding enhanced security measures at our restaurants. We have offered our full support to the impacted employee and are fully cooperating with the police investigation into these allegations."

Rice Enterprises, which currently employs about 435 people, has been operating since 1987 when Michele Rice’s parents, James and Edith Rice, purchased their first restaurant in Boston, Massachusetts. Michele Rice has been working with McDonald’s and her family for over 35 years, and has been an owner/operator since 2003.

Restaurant bankruptcies have ticked up in the last couple of weeks, with three Restaurant Brands International franchisees filing for Chapter 11, including two Burger King operators and one Popeyes owner. The Burger King operators cited financial distress amid increased costs, while the Popeyes franchisee said operations became unstable following the owner’s untimely death.