US Labor Department alleges New Jersey cleaning company misclassified employees as franchisees, denied workers minimum wage and overtime

CLARK, N.J. — What appeared to be a franchise opportunity for professional cleaners in New Jersey turned out to be an employer scheme to circumvent the law, leaving cleaning workers making less than federal minimum wage.

A U.S. Department of Labor Wage and Hour Division investigation has led the department to file a lawsuit against Grammatico Enterprises Inc., doing business as Heits Building Services of Central and Northern New Jersey, and Giuseppe Grammatico, individually and as a corporate officer. The investigation found the company misclassified its cleaning employees as independent franchisees, leading to violations of the minimum wage, overtime and record-keeping provisions of the Fair Labor Standards Act. The department filed the lawsuit in the U.S. District Court for the District of New Jersey.

The lawsuit seeks to recover back wages, and an equal amount in liquidated damages, for affected workers. It also seeks an injunction to prevent future FLSA violations by Heits Building Services of Central and Northern New Jersey.

"Franchises are important to our economy, but companies cannot misuse these businesses to avoid legal responsibilities," said John Warner, director of the Wage and Hour Division's Northern New Jersey District Office. "Employee misclassification cheats workers of wages and benefits and leads to an unfair business advantage over competitors that abide by the law."

Investigators found that Heits contracted with customers to provide cleaning services for commercial properties in Northern and Central New Jersey and entered into fee-based franchise agreements with cleaners to service those customers. Despite Heits' contention that these individuals were independent business owners, the employer controlled most aspects of the business, and wages fell below the federal minimum wage. Investigators from the Wage and Hour Division found that Heits Building Services of Central and Northern New Jersey controlled the following aspects of the cleaners' supposed businesses:

• Cleaners paid Heits for work done for its customers. Cleaners agreed to pay a franchise fee to Heits and financed the amount at interest rates from 10 to 15 percent over a one- to three-year period. A cleaner wanting to work additional hours to earn more money had to pay Heits to obtain additional work.
• The company controlled how cleaners worked, including a requirement to buy cleaning products and equipment from Heits.
• Heits deducted wages from the cleaners for management, franchise and royalty fees, cleaning supplies and fines for customer complaints. These charges resulted in cleaners receiving less than minimum wage for hours worked during some workweeks.
• The company failed to pay cleaners additional wages for more than 40 hours of labor in a single workweek. Some cleaners labored at least 42 to 47 hours in a workweek.
• Heits provided the cleaners with specific job-site services.
• The company inspected work at job sites and could remove cleaners from accounts.

Under the FLSA, employers must distinguish employees from bona fide independent contractors. An employee — as distinguished from a person who is engaged in a business of his or her own — is one who, as a matter of economic reality, follows the usual path of an employee and is dependent on the business that he or she serves. For more information, visit http://www.dol.gov/whd/regs/compliance/whdfs13.htm.

The FLSA requires that covered, nonexempt employees be paid at least the federal minimum wage of $7.25 per hour for all hours worked, plus time and one-half their regular hourly rates for hours worked beyond 40 per week. The FLSA provides that employers who violate the law are, as a general rule, liable to employees for their back wages and an equal amount in liquidated damages. Liquidated damages are paid directly to the affected employees. Additionally, the law requires employers to maintain accurate time and payroll records and prohibits retaliation against employees who exercise their rights under the law.