Janitorial Service Franchises
So you’re thinking about buying a franchise…
A franchise is a business where you, the franchisee, purchase the right to operate a business under a name and operating system that the franchisor has developed.
Before you purchase any type of franchise, you should thoroughly research the franchise and read the documents that the franchisor provides to you carefully. Franchisors are required by U.S. and California law to provide you with a Franchise Disclosure Document that details important information about the business and explains your and the franchisor’s rights and obligations. The franchisor must deliver the Franchise Disclosure Document to you at least 14 business days before you pay them any fees or legally commit to purchasing the franchise. The franchise agreement governs the terms of your relationship with the franchisor.
Talk to an attorney, accountant, or other advisor. Talk to existing franchisees. Do online research on the franchise and the franchisor. Search for reviews of the franchisor. There are many websites where franchisees and customers post reviews of their experiences. Consider other similar franchises that are available and compare them.
What is a janitorial service franchise?
In a typical janitorial service franchise, you pay an initial franchise fee to a janitorial services company to provide you with customers for cleaning jobs and to handle the marketing, billing, and collection services for you. You usually pay ongoing royalty and other fees in exchange for ongoing business support from the franchisor.
The initial franchise fee you pay usually buys you a “package” of cleaning “accounts” or customers to service. The amount of the initial franchise fee often varies based on how much the account is worth. The initial franchise fee is usually half of the gross income the accounts are supposed to generate. For example, you might pay $500 for accounts that are supposed to generate $1,000 in gross income a year or $10,000 for accounts that are supposed to generate $20,000 in gross income a year.
All of this may sound like a great opportunity to you but be cautious. Janitorial service franchise companies often target immigrants and non-English speaking communities.
What should you know about janitorial service franchises before you buy? What problems might you face?
The franchisor is supposed to offer you cleaning accounts or customers that generate gross income of a certain dollar amount. In other words, the franchisor is promising that you will earn a certain amount of money. However, be aware that you are not guaranteed to earn the promised amount for a variety of reasons.
For example, if the franchisor offers you an account but you reject it because it is too far away, the franchisor might not offer you a substitute account. Or, if you lose an account for any reason, the franchisor often does not have to replace that account, even if it was not your fault.
Also, the accounts might not be what you expect. For example, if you paid for accounts worth $10,000, you might receive ten small accounts worth $1,000 rather than one or two big accounts worth $5,000 or $10,000. Servicing many small jobs might be more time consuming and difficult.
You might not get the accounts right away. It may take months for the franchisor to offer you accounts up to what you are promised.
Most importantly, in most cases, the franchisor only promises you accounts for one year. That means that after the first year, they have no obligation to offer you more accounts. Many cleaning customers will sign a contract for only one year, and after that year is up, they may not renew. If they do not renew, you lose that account. You are usually not guaranteed any amount of income after the first year, even though the term of the franchise agreement can be several years.
Independent Contractor or Employee
The franchise agreement will typically state that you are an independent contractor. As an independent contractor, you are not entitled to protections such as minimum wage, overtime pay, rest breaks, unemployment insurance, or workers’ compensation if you are injured on the job. Companies often hire workers as independent contractors to avoid the expense and legal obligations of hiring employees. However, California recently passed Assembly Bill 5 (AB 5), which placed greater limits on who may be classified as an independent contractor.
Under AB 5, a person may be considered an independent contractor only if all the following conditions are met: (1) the person is free from the control and direction of the hiring entity regarding how the work is performed, (2) the work itself is not part of the hiring entity’s usual course of business, and (3) the person is engaged in an independently established trade, occupation, or business of the same type as the work being performed.
It is still unclear how AB 5 will impact the franchise industry, and particularly the janitorial services franchise industry. However, the amount of control that janitorial franchisors exert over their franchisees make them especially susceptible to employee misclassification claims under AB 5. If franchisees are found to be misclassified employees, they could be entitled to seek unpaid wages and reimbursement for business expenses, among other things. This question is currently being litigated in federal court in Vazquez v. Jan-Pro Franchising International, Inc., but the impact on California franchisees remains uncertain.
You may have to pay ongoing royalty fees, advertising fees, services fees, management fees, and other fees. The gross income you are promised is the amount you earn before the fees are deducted. Once the franchisor deducts these other ongoing fees, the amount you take home will likely be significantly less.
Billing and Collection
Usually, the customer does not pay you directly. Instead, franchisors will control the billing and collection of payment from your customers. If your customers don’t pay the franchisor, you don’t get paid. The franchisor usually has no obligation to force the customer to pay them or you directly.
In many cases, while you are a franchisee, you and your immediate family (including your spouse and children) will be prohibited from performing cleaning services outside of the franchise. That will limit your ability to find other work performing cleaning services if you are not earning enough to live through the franchise.
Get all promises in writing
Remember that only what is written in your franchise agreement controls your rights and obligations. If the franchisor or one of its salespeople tells you something that is different than what is in your franchise agreement, demand that the franchise agreement be changed before you sign it. If they do not agree, walk away from the deal. If the seller makes a claim about how much you will make and that claim is not in the Franchise Disclosure Document or is different than what is in the Franchise Disclosure Document, walk away from the deal and report it to the California Department of Financial Protection and Innovation and the Federal Trade Commission at the contact information provided below.
Where can you find more information? Where can you go if you have more questions or to file a complaint?
California Department of Financial Protection and Innovation
The California Department of Financial Protection and Innovation (DFPI) regulates the offer and sale of franchises in California. You can read more about what we do here: https://dfpi.ca.gov/franchise-investment-law/
If you have more questions about a franchise, you can contact us here:
- Toll-free (866) 275-2677 or (916) 327-7585
- Email: Ask.DFPI@dfpi.ca.gov
If you have a complaint about a franchisor, you can file it online on our File a Complaint page or contact us at the numbers and email address listed above.
United States Federal Trade Commission
The United States Federal Trade Commission (FTC) also regulates franchises. The FTC website has many resources on franchising, including information specifically about janitorial services franchises. Below is a list of resources you may find helpful.
If you have a complaint about a franchisor, you can also report them to the FTC here: https://reportfraud.ftc.gov/
Labor Commissioner’s Office
The Labor Commissioner’s Office enforces California labor laws. If you have questions or concerns about whether you are an independent contractor or an employee or want to file a claim or complaint, you can contact the Labor Commissioner’s Office by visiting their website here: https://www.dir.ca.gov/dlse/dlse.html
Below is a list of other resources that you may find helpful. These websites and organizations are not affiliated with the DFPI, and the DFPI does not endorse or approve any of their contents.