The Franchise Memorandum

After ten years of litigation, the U.S. District Court for the Eastern District of Pennsylvania granted a motion for preliminary class action settlement approval in a case against the franchisor of the Jani-King janitorial system alleging violations of Pennsylvania’s Wage Payment and Collection Law. Myers v. Jani-King of Philadelphia, Inc., 2019 WL 2077719 (E.D. Pa. May 10, 2019). Two franchisees had initiated the lawsuit on behalf of themselves and others similarly situated claiming that Jani-King misclassified them as independent contractors and improperly deducted their wages. In 2015, the court certified a class of nearly 290 franchisees who had signed a Jani-King franchise agreement and performed cleaning services in Pennsylvania between March 20, 2006 and March 11, 2015.

Just two weeks before trial, the parties reached a settlement agreement pursuant to which Jani-King agreed to pay $3,700,000 in damages and to make changes to its business practices. Specifically, franchisees who wish to continue to do business with Jani-King will be offered a new franchise agreement that omits any post-termination noncompete provision, shortens the nonsolicitation period with respect to Jani-King accounts to 12 months, and allows the franchisee to contract with new clients without paying Jani-King a finder’s fee. Additionally, Jani-King agreed to make buy-out payments to franchisees with monthly revenues of less than $5,000, at the franchisees’ option. When class members submit their claim, they will collect their damages, as well as choose to either sign the updated franchise agreement or accept a buy-out offer from Jani-King. The court found that the proposed settlement was the result of arm’s length negotiations by experienced counsel with the help of an experienced mediator and that the class members will substantially benefit from the settlement terms. Accordingly, barring any exceptional testimony at the August fairness hearing, the parties will begin administering the settlement agreement.