Mark Pestronk
Mark Pestronk

Q: I am a home-based independent contractor (IC) of a host agency (that I will call Host) whose ARC number is actually owned by a huge agency (that I will call Mega) with high commission levels. One of my clients defrauded me by charging tickets to a credit card whose owner has disputed the charges, resulting in $50,000 in debit memos that were sent to Mega, which sent them to Host, which sent them to me like a hot potato. The carrier has no idea who I am or what role I play, as it recognizes only Mega. What can I do about the debit memos?

A: You put your finger on one of the biggest problems related to the evolving structure of the travel agency business: You are at the bottom of a chain on which each of the other links is concerned only with protecting itself and not you.

My June 25 column ("Multilevel agreement can create liability for agency at the top") covered this vertical arrangement from the top-most player's point of view. Now, looking from the bottom up, I see that this structure has a major problem for you, too.

If you were Mega, you could deal directly with the carrier to try to negotiate a reduction in the debit memos or, at worst, an installment payment plan. You could even argue that the allegedly unauthorized charges were in fact authorized if the cardholder himself used the tickets.

In any case, Mega undoubtedly has a contract with Host under which the latter must reimburse Mega for the debit memos. Similarly, Host undoubtedly has a contract with you under which you must indemnify it for all claims arising from your acts or omissions.

If you try to contact the carrier directly, you will probably be rebuffed and told to work with Mega and have Mega deal with the carrier. Of course, Mega will probably refuse to deal with you and tell you to work with Host, which cannot help you anyway.

If you ask Host's permission to deal with Mega, you will probably also be told "no" because Host does not want to take the risk of your interfering with its relationship to Mega.

The only course of action that I can suggest is to write a business letter (not an email because emails are too informal) to Host that carefully and coolly explains any defenses that you may have and asks Host to contact Mega on your behalf. If you would rather go out of business than pay, or if paying would put you out of business, then mention these points because Host doesn't want you to go out of business.

If Host follows up and contacts Mega on your behalf, follow up with a business letter to Mega explaining your defenses and asking Mega to contact the carrier. Once Mega realizes that there are defenses, it may be motivated to follow up with the carrier.

Unfortunately, the odds of both Host and Mega agreeing to go to bat on your behalf are low. For the future, I suggest two steps:

First, avoid credit card sales with the high-risk and medium-risk red flags listed by ARC here.

Second, when you renegotiate your independent contractor agreement with Host, try to add a provision stating that, if you are responsible for a debit memo or other supplier claim under the agreement, Host must review your defenses, if any, and present them to Mega on your behalf. Such a clause does not require Mega to do anything, but the odds of Mega's helping you will be higher if Host contacts Mega.

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