Insight: Cleaning Franchises - Business Opportunity or Dirty Business?

Franchises are often promoted as a great way to get into business with lots of back-up from a bigger company, but some argue that, in the cleaning industry, both workers and some owner-operators are losing out.

Workers say they are being pushed out of their jobs by the aggressive tactics of commercial cleaning companies and the law that should be protecting them isn't working.

At the same time, some smaller owner-operators further down the food chain complain the business model is putting such a squeeze on their earnings they are paying themselves less than the minimum wage.

Allanah Lawer is a cleaner. She is 64 and out of work.

As she organises her partner to take the dogs off for their morning walk, and makes me a cup of tea, she tells me the long history of all the cleaning companies she has worked for - at only one school. But towards the end of the long list she's hazy on who she was actually working for.

"I worked at Avalon Primary for 17 years, but then I was made redundant; it was a very very sad day because we were told we were no longer wanted, but just had to carry on with our work."

Ms Lawer worked at the school site in the Lower Hutt suburb not far from her home until the end of 2015, when the New Zealand arm of the multi-national Jani-King took over the cleaning contract from another company.

It gave the contract to its franchisee, Phagura Limited. Ms Lawer was later sacked.

"She said [Phagura's director] she no longer can keep us because she can't afford it, and her and her husband had to take the job over."

The Employment Relations Act has a special section often called the "vulnerable workers' clause".

It was designed to protect workers in industries like cleaning and food catering where contracts for service frequently change hands. It gives those vulnerable workers the right to transfer to the new owner-operator of the business on the same terms and conditions when their employer loses a contract to another company.

Ms Lawer acknowledged that under the law the small family-owned business had a right to make her redundant.

But an agreement for a redundancy payment was in her original contract, and Ms Lawer said that should have been passed along as contracts changed hands. She has never received one.

She wants either Jani-King or Phagura Limited to pay her out $6804, or the equivalent of 30 weeks' wages.

As is often the case, several companies are involved and following the trail of who is responsible for what becomes increasingly complicated, adding to the difficulties workers can face.

In this example, Jani-King was bought by JK Limited several months ago.

Its managing director, Roger Washbourne, declined to be interviewed by Insight until after the employment dispute was concluded, but in an email he said:

"As part of our due diligence this matter was disclosed to us by the previous owner and we are satisfied the matter has been dealt with properly and legally by the previous owner."

I also contacted one of the owners of the franchisee, Phagura Limited, that took over the cleaning contract at the school.

The Phagura Limited director said that she shouldn't have to pay the redundancy because Jani-King promised, when it gave her the contract, that her business would get to do the work itself, rather than have to pay someone else. She felt Jani-King had misrepresented the deal.  

The director said she had paid Jani-King more than $50,000 to be a franchisee and said, with a family and rent to pay, she was at a loss as to how the responsibility to pay the redundancy could ever fall at her feet.

The case is now with the Employment Relations Authority.

Financial distress

It's not just wage-earning cleaners who may believe they have missed out.

The E Tū union's assistant national secretary, John Ryall, said it had been approached by owner-operator franchisees who said they often made less than the equivalent of the minimum wage after costs.

Some parent companies appeared to just be collecting their fees and turning a blind eye to what their franchisees had to deal with, he said.

Insight has obtained documents that outline the financial distress faced by one franchisee.

They show the franchisee believed its parent company was under-quoting on jobs, so it could win contracts. But the quotes were so low the franchisee couldn't make a living because it took more time to do the cleaning than was promised.  

Several of the cleaners who Insight spoke to said they believed the franchisees they worked for were struggling.

Ms Lawer said skimping on cleaning products made it almost impossible to get the job done well.

"The products were watered down or we weren't allowed to have them, there were times when I was told 'just use the school's'."

The arrangement was that the franchisee should pay for equipment and not the school, Ms Lawer said.

Severe rationing of equipment often caused conflict between cleaners, companies and the clients they worked for, Insight was told, in the process of speaking to several cleaners. Some said they were upset that hygiene standards were not met and that they were sometimes blamed; they felt caught in the middle of a situation they could do nothing about.

E Tū industry coordinator Jill Ovens said she believed not providing proper equipment could be part of a strategy to undermine cleaners' work, garner complaints and make it easier to get rid of them and put in a franchisee, so that parent companies could then charge licensing fees and avoid the costs of having wage-earning employees.

Buyer beware

Lillian Small, the chief executive of commercial cleaning company lobby group Building Service Contractors, said its members had to sign up to an agreement to meet standards of minimum pay, and anyone abusing that would have their membership withdrawn.

"If a contract has changed hands at a significantly reduced price, it does bring cause for concern on pay rates and conditions. In a nutshell, if the price is too good to be true, then it probably is."

Business New Zealand chief executive Kirk Hope said anyone taking on a cleaning franchise should get serious about doing their homework and getting independent advice on whether it was a good business deal.

"If you're going to buy a cleaning franchise or any business, you need to be really clear about the value in that business, and how you're going to meet not just the expectations of your franchisor, but how you are going to make your minimum earnings requirement."

So are cleaning franchises a good business to get into?

For Mr Hope, the message was clear: you can't know if it's a good option until you do the checks on the business you want to buy.