Guaranteed income cleaning franchises: how the offers work and what to check

• Earnings information given after the disclosure documents restarts the 14-day consideration period before the franchisor can sign (s23(6) of the Franchising Code).
• A projection must state its facts and assumptions, the period it covers and whether it includes depreciation, your salary and loan costs.
• In March 2015 the Federal Court ordered a Victorian cleaning franchisor to pay a $500,000 penalty after finding its income representations to two prospective franchisees were false or misleading.
• In April 2021 a courier franchisor was ordered to pay $1.9 million in penalties over promised guaranteed weekly payments and annual income.
• A guarantee is a contract term: what matters is what is guaranteed, for how long, on what conditions and who pays any shortfall.

Offers use different words for similar promises. These are the structures to look for, and several can appear in the same deal.

• Guaranteed work value: a promise of a set dollar value of cleaning work each week or month, such as a minimum weekly billing amount.
• Guaranteed income: a promise of a minimum payment to you, which may be measured before or after the franchisor's fees, chemicals and travel.
• Top-up payments: if your work falls below the promised level, the franchisor pays the difference, sometimes with a cap or only for a limited period.
• Replacement work: if a client cancels, the franchisor promises to find replacement work of similar value within a set time.
• Tiered packages: a higher upfront price buys a larger promised client book or a higher guaranteed amount.
• Conditions: minimum availability, quality audits, accepting jobs across a wide area or keeping every client for a set time. Missing one condition can end the guarantee.
• Money-back promises: a refund of part of the fee if the promised work isn't provided, which is only worth something if the franchisor can pay it.

Item 20 of Schedule 1 to the Franchising Code sets the rules for earnings information. The ACCC's model disclosure document guidance adds that an income guarantee may need to be disclosed as future earnings information.

• If the franchisor proposes to give earnings information, it must be in the disclosure document or a separate document attached to it.
• If it gives you earnings information before the disclosure document, it must also include that information in the disclosure document or an attachment.
• Earnings information includes historical earnings of the business or of another franchise in the system, with any differences explained, projected earnings with their assumptions, and anything else from which earnings can be assessed.
• Where earnings information is given, the document must include a statement that, to the best of the franchisor's knowledge, the information is accurate.
• If no earnings information is given, the document must say so, and state that earnings vary and the franchisor can't estimate them for a particular franchise.
• A projection or forecast must set out its facts and assumptions, the enquiries behind it, the period it covers and why, whether it includes depreciation, the franchisee's salary and loan costs, and its interest and tax assumptions.
• The franchisor must keep the documents that support claims in the disclosure document for at least 6 years.
• New earnings information given after the disclosure documents restarts the 14-day consideration period.

The ACCC has warned buyers about guaranteed income promises and taken franchisors to court over them. The businesses below are named as the ACCC named them.

• July 2012: the ACCC warned buyers about inflated franchise income claims after complaints from franchisees who said they were promised a minimum guaranteed income but earned little or nothing. Many of the complaints involved cleaning and home services franchisors.
• October 2014: the Federal Court declared that South East Melbourne Cleaning Pty Ltd, formerly Coverall Cleaning Concepts South East Melbourne Pty Ltd, made false or misleading representations to two prospective franchisees about the monthly amounts they would earn, without a reasonable basis.
• The court also found the company failed to pay those franchisees for cleaning work they had done while still demanding the initial franchise fee. It declared that conduct unconscionable and declared the two franchise agreements void.
• March 2015: the court ordered a $500,000 penalty against the company, which was in liquidation. Its former director had earlier been penalised $30,000 and disqualified from managing a corporation for 2 years.
• March 2021: Megasave Couriers Australia Pty Ltd admitted that from at least September 2019 to July 2020 it told prospective franchisees they would receive guaranteed minimum weekly payments, typically $2,000 a week, and a guaranteed annual income, usually $91,000, when it wasn't paying existing franchisees those amounts.
• April 2021: the Federal Court ordered Megasave to pay $1.9 million in penalties and its sole director $120,000, and ordered $500,000 in partial redress for affected franchisees.

1. What exactly is guaranteed: work value, hours, revenue, or money paid to you after fees?
2. How long does the guarantee last, and what happens to your income when it ends?
3. What conditions must you meet, and who decides whether you have met them?
4. How is a shortfall calculated and paid, how quickly, and is there a cap?
5. Is the guarantee written into the franchise agreement, or only in brochures, emails or conversations?
6. How many current franchisees received top-up payments in the last 3 years, and were they paid on time?
7. Which company gives the guarantee, and do its solvency statement and financial reports show it can pay?
8. What happens to the guarantee if a client cancels because of a complaint about your work?

• The disclosure document, with the item 20 earnings information and every assumption behind any projection.
• The exact clauses in the franchise agreement that create the guarantee, set its conditions and say how it ends.
• A schedule of the clients or contracts you are buying, with start dates, values and cancellation terms.
• Evidence of what current franchisees are actually paid, such as de-identified payment statements.
• The franchisor's solvency statement and financial reports, which the disclosure document must include.
• The list of former franchisees and their contact details from the disclosure document, so you can ask whether promises were kept.
• Written confirmation of anything promised verbally. The ACCC's 2012 advice to buyers was to ask for verbal claims in writing.

• The guarantee appears in advertising or sales conversations but not in the disclosure document or the agreement.
• The guaranteed figure is revenue before fees, chemicals, travel and tax, presented as if it were your income.
• You are asked for a large upfront payment for a client book you can't verify.
• Current franchisees say top-up payments were late, reduced or refused.
• The conditions let the franchisor decide on its own that you have lost the guarantee.
• The franchisor pushes you to commit before the 14-day consideration period ends. Any payment made in that period must be refunded within 14 days of your written request.
• The company giving the guarantee is new, has few assets or is a different entity from the franchisor you are dealing with.

• Rebuild the numbers yourself: the guaranteed amount minus fees, supplies, fuel, insurance and tax.
• Compare the guarantee with what current franchisees earn after their guarantee period has ended.
• Check that the Register profile, the disclosure document and the sales material tell the same story.
• Call at least three former franchisees and ask whether the promises made to them were kept.
• Have a franchise lawyer read the guarantee clauses and an accountant model your worst case.
• Keep copies of every document, email and message you receive during the sale.