Q: I am thinking of expanding my agency's independent-contractor program by adding experienced and possibly even inexperienced agents in my area and perhaps nationwide. Will such a program make me a host agency? What exactly does that term mean? What's the difference between a host agency and a franchise program? I notice that some mega-agencies have a lengthy franchise disclosure document for their hosted agencies. Why do they have such a document?
A: A host agency is just an agency with an organized program for its independent contractors (ICs). Your ICs use your agency's supplier appointments, special rates, technology and perhaps office space in return for a commission split and fees.
There is no formal accreditation for host agencies. Although there is a trade association of host agencies called the Professional Association of Travel Hosts, it is not necessary to belong to the association.
A franchise is really quite similar to a host-hostee relationship in the agency business, so I can see where you might wonder about the difference. Although franchisees almost always have their own ARC appointments, while hosted agents almost never do, that is not the key legal distinction, as you can be a franchiser even if your ICs do not have their own supplier appointments.
Under the Federal Travel Commission's (FTC) regulation, a franchise means a contract under which, in return for fees of $500 or more for the first six months, you get the right to operate a business that is associated with the franchiser's name, and either: 1) the franchiser can exert a "significant degree of control over the franchisee's method of operation," or 2) "provide significant assistance in the franchisee's method of operation."
Both hostees and franchisees can use the host or franchiser's name, although hosted agencies often need to be careful to hold themselves out under an independent business name, as well. Both hostees and franchisees can be required to pay $500 or more during the first six months, so the fees are not really what distinguishes a hostee from a franchisee, either.
The important distinctions are found in the quoted phrases "significant degree of control over the franchisee's method of operation" or "significant assistance in the franchisee's method of operation." If a host agency provides either or both of these, it is a franchiser under the law.
If your host program falls within the definition of a franchise program, then you must comply with the FTC's 31 pages of franchise rules as well as those of the 24 states that regulate franchises, including 14 that require filing and approval of the franchise documents. The cost of compliance runs in the tens of thousands of dollars of legal, accounting and filing fees each year.
Therefore, make sure that your hosting program does not give you the power to exert "significant degree of control over the franchisee's method of operation" or "significant assistance in the franchisee's method of operation." To complicate matters, some states' franchise laws have different definitions.
Some mega-agencies' representative or associate programs are quite similar to host agency relationships, but their documents comply with the franchise laws out of an abundance of caution. If you are in doubt about whether your program might fall within the definitions of franchising, consult an experienced franchise attorney.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at [email protected].