FOR RELEASE: MARCH 8, 1994
SELLER OF JANITORIAL FRANCHISES AGREES TO SETTLE FTC CHARGES
OF VIOLATING FRANCHISE RULE WITH $100,000 CIVIL PENALTY
Coverall North America, Inc., a seller of commercial
janitorial franchises, has agreed to pay a $100,000 civil penalty
to settle Federal Trade Commission charges that it violated the
Franchise Rule by failing to provide potential buyers with required
information, such as a document substantiating earnings claims.
The FTC also alleged that Coverall violated the rule by failing to
provide required information about the company's franchises in its
basic disclosure document and by not providing the disclosure
document within 10 business days before consumers purchased a
franchise. Under the proposed settlement, Coverall also would be
prohibited from engaging in any future violations of the FTC's
Franchise Rule.
Coverall is a Delaware corporation with offices throughout the
United States.
According to the FTC's complaint detailing the charges,
Coverall has been selling commercial janitorial and building
cleaning franchises in packages based on gross yearly income paid
by cleaning accounts that Coverall provided. For example, if a
consumer bought a franchise package for $14,000, Coverall claimed
that it would provide that particular franchise with cleaning
contracts that would pay that amount for janitorial services over a
year. Franchisees also pay management and royalty fees to
Coverall, the complaint states.
The FTC's Franchise Rule requires franchise sellers to give
potential buyers a detailed disclosure document containing infor-
mation about the business, including the cost of operating the
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Coverall North America--03/08/94)
franchise, the terms and conditions under which the franchise
operates, and the background and experience of the key franchise
executives. If franchise sellers choose to make claims about
earnings potential for franchisees, they must have a reasonable
basis for the claims, and must provide a document to potential
franchisees substantiating them.
The FTC charged that Coverall violated the Franchise Rule when
it made earnings claims but did not provide potential buyers with
an earnings claims substantiation document. The complaint also
alleges that Coverall failed to provide prospective franchisees
with a basic disclosure document within the time period required by
the rule, and with specific information such as information about
other franchises of the franchisor, as required by the rule.
Under the proposed consent decree settling these charges,
Coverall would be required to pay the $100,000 civil penalty within
five days of the date the court approves the settlement. The
consent also contains various reporting provisions to assist the
FTC in monitoring Coverall's compliance with the settlement.
The complaint was filed Feb. 25 in U.S. District Court for the
Northern District of Illinois in Chicago by the Department of
Justice on behalf of the FTC. The proposed settlement was filed
March 3, and requires the judge's approval.
The Commission vote to authorize the filing of the documents
was 5-0. The FTC's Chicago Regional Office handled the investi-
gation.
NOTE: This consent decree is for settlement purposes only and does
not constitute an admission by the defendant of a law violation.
Consent decrees have the force of law when signed by the judge.
Copies of the complaint and proposed consent decree, as well
"Franchise and Business Opportunities," -- a two-page brochure
containing helpful tips for consumers wishing to buy a franchise --
are available free 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.
# # #
MEDIA CONTACT: John Leslie III, Office of Public Affairs
202-326-2178
STAFF CONTACT: C. Steven Baker, or Mary Elizabeth Olson
Chicago Regional Office
55 East Monroe Street, Suite 1437
Chicago, Illinois 60603
312-353-8156
(FTC Matter No. 922 3134) (Civil Action No. 94C 1178) (Coverall)