Q: I have just found out that an independent contractor (IC) of my agency misused a credit card belonging to a client of the IC by fraudulently charging thousands of dollars in service fees without actually performing any services. Apparently, the misuse has been going on for many months. The client paid the unauthorized charges several months ago, so it may be too late for him to get the charges reversed. The credit card charges show my agency making the charge, so the client is blaming us and demanding reimbursement. Is my agency liable to the client?
A: Your agency is not liable for the acts or omissions of ICs. This is the opposite of the situation with employees, where the company is liable for the employees' acts or omissions in the scope of their duties.
Unfortunately, fraud by independent contractors, especially credit card fraud, is a major problem in the travel agency business. If you go to www.travelweekly.com and search "independent contractor fraud," you will see more than a dozen Legal Briefs columns between 2003 and 2018 on this subject. These columns are based on my clients' actual experience in being victimized by rogue independent contractors.
I realize that it may be difficult for you to persuade the IC's client that your agency is not liable, especially when your agency's name is on the credit card charges. However, the fact that your agency's name appears on the credit card bill is not proof that your agency is liable.
One exception to the rule of nonliability would exist if your agency knew that the IC was committing fraud and did nothing about it, and another exception would exist if the IC conspired with an agency employee to process the unauthorized charges. In your case, it sounds like no such exceptions exist.
Finally, in a lawsuit, the client could try to prove that your agency was negligent in retaining a fraudster. However, evidence of any such negligence would be extremely difficult and expensive to gather.
To make the client understand that your agency is not liable, it might help to show the client a copy of this column. If that is not successful, I recommend that you retain an attorney to draft a letter to the client explaining why you aren't liable.
Another useful step is to file a report with the local police in the jurisdiction where the IC lives. Although such a report would probably not result in prosecution if the cardholder is not also local, it would at least show the client that you are doing something to help.
You should certainly terminate your relationship with the fraudster if you haven't done so already. If your agreement requires you give a number of days' notice to terminate, you should suspend the IC's access to your GDS to prevent any further fraudulent transactions.
I know of no way to prevent such fraud in the future, so if any readers know of a way to do so, please let me know.