Mark Pestronk
Mark Pestronk
Q: My host agency appears to be in severe financial trouble. They have not paid my commission splits in several months and do not return my phone calls or emails. When I call their main number, I am placed on hold for a long time, which suggests that they are running with a skeleton crew. Clients have recently complained that they cannot get through to anyone, either. I want to transfer my existing bookings to a new host, keep my clients happy and recover the commissions due to me. What can I do? By the way, the host is in a state that is 2,000 miles away from my home office, and I don't know any lawyers in that state. One more thing: The last thing I heard was that all the money due to me and the other independent contractors was in an escrow account. Will that help me? If the host files for bankruptcy, will I have any priority over other creditors for payment?

A: When an independent contractor (IC) wants to switch hosts, I usually advise that you negotiate with the old host so that you can get cooperation to transfer the bookings. Here, however, it appears that cooperation and negotiation are out of the question, at least for the time being.

As you probably know, some suppliers will agree to transfer bookings merely because you and the client request the transfer, and some trips can be canceled without penalty and rebooked. However, those steps probably will not work for the majority of bookings and will not help you collect what is owed.

You need leverage with the host, but you have none now. So, here are the steps that I recommend:

First, sue the host in small claims court in your county. Be sure to use the host company's full, correct legal name. Do this right away.

Second, try to get a default judgment, which will give you leverage because a judgment creditor can seize a debtor's assets.

Third, hire a lawyer in the host's locality to threaten to seize the host's bank accounts and other assets. Since you don't know any such lawyers, call the bar association in the locality and ask for the names of lawyers who do collections or business litigation. If that doesn't work, Google "Collection lawyers in X County".

Fourth, threaten to tell your fellow hostees about what you are doing. The prospect of having hostees gang up will probably intimidate any host.

Fifth, use the threat of seizure as leverage to get the host's cooperation in working with the suppliers that require the host's permission for the transfer. If necessary, promise the host that you will remit the host's commission share when you get paid.

Sixth, negotiate a payment agreement for what the host owes you and get a promissory note.

One step that you should avoid is threatening criminal prosecution, as that is extortion, which is itself a crime. You should probably also avoid telling suppliers that the host is in financial trouble, as that might be opening yourself up to a suit for defamation or tortious interference.

An escrow account must be held by a third party. So, if the host did nothing more than merely set money aside in an account belonging to the host, there is no escrow account, and no reassurance for you.

If the host files for bankruptcy, you will probably get little or nothing of what the host owes you. An IC stands in the same position as any other general creditor such as a landlord.

Employees have a priority in bankruptcy, but ICs do not.
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