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Dallas, Texas-based Jani-King International, Inc. has agreed to pay a $100,000 civil penalty as part of a settlement of Federal Trade Commission charges that it failed to provide poten- tial purchasers of its commercial cleaning services franchises with key information. The FTC alleged that Jani-King did not provide documentation to support its contract-based earnings claims, or information about the franchise's litigation history and current franchisees. These would be violations of the FTC's Franchise Rule, and the settlement also would require Jani-King to comply with the rule.

The FTC's Franchise Rule requires franchise sellers to give potential buyers a detailed disclosure document containing 20 categories of key information at least 10 days before the buyer legally commits to the purchase. The document includes informa- tion about the terms and conditions under which the franchise operates, audited financial information, the litigation history of the franchisor and its principals, and information about existing franchisees and the circumstances surrounding the termination of any franchisees. Further, if a franchisor makes earnings claims, it must provide franchisees with a disclosure document containing the substantiation for those claims.

Jani-King sells its commercial cleaning franchises through- out the United States, advertising in general circulation news- papers and distributing promotional material at franchise and business opportunity shows, according to the FTC complaint detailing the charges in this case. The fees for Jani-King's franchises range from $6,500 to $16,750, and Jani-King promises potential franchisees significant assistance in operating their businesses, including providing them with cleaning contracts that have specified levels of initial gross monthly billings.

The complaint alleges that Jani-King made earning claims but failed to provide the required substantiation for those claims. In addition, the FTC alleged that in numerous instances, Jani- King failed to provide prospective franchisees with information required by the Franchise Rule, including:

 

  • a complete and accurate disclosure of the franchisor's litigation history including any violations of franchise law, fraud or misrepresentation during the previous seven fiscal years; and
     
  • a disclosure of the names, addresses and telephone numbers of other existing franchisees.

The proposed consent judgment to settle these charges would require Jani-King to pay the $100,000 civil penalty within 10 days after the court enters the judgment. The settlement also would permanently prohibit the defendant from violating the Franchise Rule, and contains various reporting provisions designed to assist the FTC in monitoring Jani-King's compliance.

 

At the request of the FTC, the Department of Justice filed the complaint and proposed consent judgment in the U.S. District Court for the Northern District of Texas, in Dallas, on July 20. The Commission vote to authorize filing was 5-0.

NOTE: This consent judgment is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent judgments have the force of law when signed by a judge. The FTC has developed a free fact sheet for anyone interested in purchasing a franchise. The fact sheet, titled "Franchise and Business Opportunities," describes the requirements of the Franchise Rule and suggests questions to ask before deciding to invest

 

Copies of the fact sheet, the complaint and the proposed consent judgment are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest FTC news as it happens, call the FTCþs NewsPhone at 202-326-2710. FTC news releases, fact sheets and other information also are on the Internet at the FTCþs World Wide Web site at http://www.ftc.gov

(FTC File No. 932 3067)
(Civil Action No. 3-95-CV-1492-G)

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