Mark Pestronk
Mark Pestronk

Q: I am starting a travel company, and I have several questions for you. First, if we lead our own special-interest trips but buy the components from travel suppliers and sell directly to the public via the internet, are we a tour operator or a travel agency? What's the difference in regulatory requirements between those two kinds of businesses? What kinds of contracts should I have in order to protect my new company, and what should those contracts provide for?

A: The industry definition of tour operator is a company that puts together two or more trip elements that form a package, either with or without a leader or guide, and sells the package to individuals or groups either directly or through travel agencies. So your company will be a tour operator.
In the U.S., there is no difference in the regulatory requirements for tour operators and travel agencies. Further, there is almost no difference between their legal duties and liabilities.

I say "almost no difference" because court precedents have imposed slightly broader duties on tour operators, which have a duty always to select their suppliers with care. Although travel agencies have the same duties when counseling clients, they might not have such duties when they do nothing more than make arrangements already chosen by the clients.

To start your business and protect yourself to the maximum extent, you probably need four kinds of contracts. In order of importance, they are as follows:

1. Tour participant agreement: This is the contract that you should have with each individual age 18 and over. It is also called your "disclaimer," "terms and conditions" or "terms of use." It requires the participants to agree that your company is not responsible for the acts or omissions of travel suppliers or events beyond your control. It also contains your payment and cancellation terms and many other important disclosures, releases and the like. You can find a sample tour operator disclaimer here: www.pestronk.com/tourdisclaimer.html. Don't use the sample without obtaining legal advice to tailor it to your particular needs.

2. Host agency agreement: As a new company, you will probably want to use an established travel agency for your bookings in order to obtain higher commissions or better net rates than you can get on your own. In industry terminology, the established agency will become your host agency, and you will be an independent contractor (IC) of the host. Large hosts have their own standard IC agreements, and in my experience, all such contracts favor the host. However, all are negotiable, and you may even be asked to produce your own IC agreement.

3. Ground handler or destination management company (DMC) agreement: In addition to booking major tour elements such as air and lodging, you will be contracting with suppliers at destinations for services such as tour vehicles, group meals and local guides. Many such companies try to work without any formal contracts, but you should at least try to have them sign contracts that require the ground handler or DMC to indemnify and defend your company against claims related to their services.

4. Tour director contracts: Unless you are personally leading every tour, you will be retaining experienced guides who lead the tours or at least help out as a representative of your company. While the largest tour operators usually make these people employees in order to closely supervise how and when they work, you will probably want to start out with ICs who are retained on an ad hoc basis. A contract with each such tour director or guide is indispensable.

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