Mark Pestronk
Q: Our agency has been burned several times by independent contractors who defrauded us by, for example, charging tickets to credit cards without the cardholder's authorization. So our management team worked many hours to develop an independent contractor agreement that protects us from these kinds of fraud and abuse by them. We have also spent thousands of dollars in legal fees to sharpen up the agreement and ensure that it is enforceable against an independent contractor who abuses us. A prospective independent contractor said he was offended by these clauses and brought the agreement to his lawyer, who has requested several changes that would have the effect of rolling back most of those protections. We think we can trust the independent contractor, so do you think we can accept these rollbacks?
A: I would strongly advise against agreeing to delete any protections from your independent contractor (IC) agreement. If the prospective IC cannot live with the clauses that protect you, you should definitely consider declining to do business with that independent contractor.
I would go further and suggest that the mere fact that he is making these requests is a red flag. Although it is possible that the prospect simply does not understand the trouble that an IC can cause for the host, it is more likely that the IC wants these changes in order to be able to get away with something.
Fraud involving independent contractors is one of the biggest problems faced by the travel agency business. Even if the IC is trustworthy, he or she could still be defrauded by clients, in which case you need to ensure that the independent contractor is responsible for your loss.
As more agencies give up their ARC appointments and GDS contracts in order to affiliate with ARC-appointed hosts (which I define as an appointed agency with one or more ICs) that have better supplier deals, and as many new home-based agents enter the business by affiliating with hosts, the industry is becoming vertically integrated. Travel suppliers are on top, hosts are one layer down and hosted ICs are one layer below hosts.
Since suppliers don't generally have contracts with ICs, they hold host agencies responsible for liabilities such as debit memos for credit card chargebacks caused by ICs. Similarly, if an IC defrauds a client, the clients will undoubtedly look to the host agency for satisfaction.
As host agencies become bigger, they cannot possibly have personal knowledge of all their ICs, so it is really impossible for them to know whom they can trust. For example, a few of my clients have over 1,000 independent contractors each.
To protect themselves, hosts need to try to prevent their ICs from creating such liabilities in the first place. They also need to ensure that their ICs are legally responsible for whatever losses are caused by the ICs' acts or omissions that were not prevented. Finally, hosts need to have clear-cut ways of getting reimbursed by ICs for those losses.
The only way to provide for such protections is to have a written contract spelling out all of the IC's duties, responsibilities and liabilities. If you have such a contract, it really makes no sense to remove your protections from it in the interest of closing the deal with the IC.
If you don't have such a contract, you need to get one, unless you trust your ICs with your livelihood.