Mark Pestronk
Q: Now that over half of travel advisers are independent contractors, legal issues involving the IC-host relationship have become more important than ever. You have defined "host" as any agency that has one or more independent contractors, so that's just about every full-service agency. So what are the top IC-related questions that you get asked in your law practice, and what advice do you give in answer? Do you typically advise hosts or ICs?
A: I advise ICs as long as I don't represent their hosts, and I advise hosts as long as I don't represent their ICs.
Here are the eight most common questions that I am asked, ascending Letterman-style, with No. 1 being the most common:
8) ICs ask: Can my host require me to work exclusively with it (and no other agencies)?
A: Yes, your host can require exclusivity in your IC agreement. Exclusivity does not mean that the IRS will reclassify the relationship, nor does it invalidate the contract.
However, some states -- notably California -- will want to reclassify the relationship for this factor, among others.
7) Hosts ask: If my IC leaves and gets a booking transferred, am I still entitled to the commission?
A: Yes, the agency where the sale is made is entitled to the commission under the "procuring cause" doctrine, unless the supplier's agreement states otherwise. For example, Regent and Oceania's agreements state that the new host will be paid 30 days or more after the booking was made.
6) ICs ask: Am I exempt from having to register under the seller of travel laws?
A: There are five states with seller of travel laws: California, Florida, Hawaii, Iowa and Washington. Each state's seller of travel law is different. For example, under the Florida law, you can be exempt if you:
- Sell on behalf of a seller of travel registered in Florida.
- Have a written contract with the seller of travel.
- Do not receive a fee, commission or other valuable consideration directly from the client.
- Do not have the ability to issue tickets, lodging or vacation certificates, or other travel documents.
5) Hosts ask: Can I put my ICs on my E&O policy, or should they get their own?
A: It depends on the insurance company. Some insurers allow you to add ICs, but some don't. Also, some hosts require ICs to get their own policy as a way of protecting the host from IC negligence.
4) ICs ask: Can my host refuse to accept my client's bookings?
A: Yes, unless your agreement states otherwise.
3) Hosts ask: What's the best way to prevent reclassification of my ICs as employees by a federal or state taxing authority?
A: The three best steps to take are:
- Require every IC to set up his or her own corporation or LLC (this will avoid audits).
- Require every IC to obtain a business license.
- Bill for every little service (like a Regus business center).
2) ICs ask: When I leave, what can I do to get pending bookings and commissions?
A: Look at your agreement. If your agreement is silent on this point, you have no alternative but to negotiate a settlement or to leave and sue. Negotiation is better, so offer to pay the old host's split when the new host receives it. This requires a three-party agreement.
1) Hosts (and ICs) ask: Do you have a sample or model IC agreement?
A: For decades, the answer has been "No," but now "Yes!" Go to www.pestronk.com/sampleICA.html.