National Maintenance Contractors locks franchisees into deceptive contracts that often leave them earning less than minimum wage
SEATTLE — Attorney General Bob Ferguson today filed a consumer protection lawsuit against janitorial services company National Maintenance Contractors. National took advantage of immigrants with limited English proficiency and promised them the independence of business ownership. Unfortunately, in reality, National locked its franchisees into contracts that often left them earning less than minimum wage, paying exorbitant fees, and with little ability to advocate for themselves.
“These hardworking immigrants thought they were signing up for the American Dream,” Ferguson said. “Instead, National Maintenance Contractors deceived them into signing contracts that prevented them from ever realizing that dream. As the people’s law firm, it’s our job to ensure fair treatment for hardworking Washingtonians who clean our businesses and make our economy function.”
National provides cleaning services contracts. It then enters into franchise agreements with janitors — largely non-English-speaking immigrants — to do the work. Many of these franchisees are native Spanish and Russian speakers.
National tells these franchisees that they will be independent business owners, and earn a certain amount each month depending on the amount of money they invest up front. For example, to earn $1,000 per month, franchisees would buy one $5,000 “business unit.”
The lawsuit, filed today in King County Superior Court, asserts National violated the law in multiple ways. The following are examples of National’s unlawful conduct:
- National deceived franchisees about the amount of income franchisees would earn, in violation of Washington’s Consumer Protection Act. National promised — and its franchisees paid for — a certain level of earnings. However, in reality, National often did not provide access to enough accounts to meet that level, or deceived franchisees as to the amount of work required to obtain that level of promised earnings. Nationals unrealistic work demands and gross underbidding of contracts compounded these issues. National’s conduct left many workers earning less than minimum wage.
- National unlawfully withheld information from franchisees. For example, National did not disclose to franchisees the amount businesses were paying National for the services. Additionally, National did not disclose that the company kept as much as 30 percent of that amount. National’s failure to disclose information to franchisees violates the Franchise Investment Protection Act.
- National charged unreasonably excessive fees, in violation of the Consumer Protection Act. For example, National charged a 14 percent monthly fee for basic billing services. It also claimed the fee would cover collections services, although it rarely, if ever, actually provided them.
The lawsuit seeks restitution for National’s approximately 250 Washington franchisees, and civil penalties against National.
Deceived into working for less than minimum wage
Many franchisees were unaware that the work required to earn their desired gross revenue would mean that, in many instances, they would be earning less than the hourly minimum wage.
For example, National offered an account to franchisees to clean a 1,700-square-foot office space six times a week. After National took its fees, the franchisee earned approximately $6.59 per cleaning. At that time, Washington’s minimum wage was $9.32 per hour.
Unrealistic work demands
National’s practice of grossly underbidding for contracts created unrealistic demands on franchisees. For example, in some of its contract bids, National included the following item:
General Kitchen cleaning:
- Clean and disinfect all counters
- Clean and disinfect outside of all cabinets
- Clean and disinfect outside of all appliances
- Clean and disinfect sink and fixtures
- Clean and disinfect tables and counters in lunch room/eating area
- Dry mop/wet mop to remove all spills and stains on floor
In at least one instance, National estimated a total of 3 minutes for the janitor to perform all of these tasks. The contract required the franchisee to do this once per week.
One franchisee wrote to National that, even though an account would leave them earning less than minimum wage, “We are taking the account because our volume is very low and we have not [sic] choice.”
National misled its franchisees
National’s agents persuaded prospective franchisees to invest thousands of dollars to enroll in its system. National knew these franchisees spoke little to no English, had limited formal education, and no prior franchise experience. National promised that they would be their own boss and could build their own profitable franchise business. The reality was very different.
- National represented that franchisees could control their own work and hours. The reality is that many National clients require that cleaning work be performed during specific hours, sometimes in a specific two- to four-hour window.
- National requires its franchisees to remain on call and available to National and its clients every day, including their days off, and holidays.
- National explained that franchisees make an initial investment according to the gross monthly revenue level they wish to achieve. However, National failed to disclose how many client accounts the franchisee would need to service, or how many hours the franchisee would need to work, in order to earn the desired gross monthly revenue level.
National punished franchisees who declined accounts for any reason
National put enormous pressure on franchisees to accept accounts. If franchisees turned down a client account, National would count the value of that account toward the promised revenue the franchisee bought from National. This was true even though National would not pay the franchisee that amount.
For example, if a franchisee purchased one business unit of $1,000 per month from National, and National offered two accounts worth $500 each per month, National would consider its obligation fulfilled. If the franchisee had to decline one of the accounts, National still considered its obligation fulfilled. This would leave the franchisee with only $500 per month, minus National’s fees.
National penalized franchisees even when it would be impossible for the franchisee to perform the work at the time required due to conflicting contracts or religious obligations. In National’s system, if a franchisee declined an offered account for any reason, National considered itself under no obligation to offer or provide any other replacement accounts.
National failed to deliver promised revenue to franchisees
National knew it would not be able to meet the monthly revenue levels it promised franchisees. National would enroll new franchisees in the same territory, even with current franchisees earning less than promised.
For example, one franchisee worked with National for nine years. Despite this franchisee’s plea to National that “I need desperately new accounts,” the franchisee only earned the monthly revenue National promised three times during those nine years. At times, that individual earned as little as one-fifth of what National promised.
Despite National’s failure to meet the revenue levels they promised franchisees, National does not refund any of the fees paid by franchisees to purchase that revenue level.
In contrast, on the rare occasions National provides accounts that put a franchisee over their promised revenue levels, National demands franchisees pay additional fees to keep that account.
Concealing client contract amounts
National conceals from franchisees the amount of money it actually receives from clients. In fact, National essentially pays itself twice. It pockets as much as 30 percent of the amount it receives from a client for a contract. Then, it deducts fees and royalties from the portion of the contract that actually goes to franchisees.
For example, if a client paid National $1,500 for cleaning services, National might describe it to a franchisee as a $1,050 account. Then, National would charge its fees on the $1,050 it paid to franchisees.
It does not disclose this practice to franchisees.
This violates the Franchise Investment Protection Act, which makes it unlawful for franchisors to “[o]btain money, goods, services, anything of value, or any other benefit from any other person with whom the franchisee does business on account of such business unless such benefit is disclosed to the franchisee.”
Unreasonable and excessive ‘office fees’
One of the benefits National touts, and franchisees pay for, is National’s billing services. National tells franchisees that it will bill clients, collect payments and pursue non-paying clients. It charges franchisees 14 percent of their earnings for this service — more than half of franchisees’ monthly fees.
In reality, National rarely, if ever, pursues collection efforts if a client does not pay. Instead, National makes franchisees responsible for that money. If National already paid a franchisee, and the client does not pay National, National maintains it has the right to claw back what it paid the franchisee.
Buried in the fine print of National’s franchise agreement, is this admission: “In the event we are unable to collect on the amounts owed, you [the franchisee] are responsible for the risk of loss of nonpayment.” This is despite the fact that the franchisees are not parties to client contracts.
National also prohibits franchisees from discussing finances directly with clients. In other words, National prohibits its franchisees from learning the amounts at issue, or participating in the contract process, preventing them from pursuing collections.
Assistant Attorneys General Julia Doyle and Patricio Marquez are leading the case for Washington.
The Office of the Attorney General is the chief legal office for the state of Washington with attorneys and staff in 27 divisions across the state providing legal services to roughly 200 state agencies, boards and commissions. Visit www.atg.wa.gov to learn more.
Brionna Aho, Communications Director, (360) 753-2727; Brionna.email@example.com
General contacts: Click here