Q: My agency's independent contractors are
resisting our efforts to implement new and higher service fees. Can
we require them to adhere to our fee schedules? If so, why isn't
this illegal price fixing between each independent contractor and
us?
A: Ideally, the answer should be found in the
terms of the written contract between your agency and the
independent contractor. The contract should state that the
contractor must observe your agency's selling prices and
policies.
Such a provision would not destroy the independent contractor
status of the contractor and thereby make him or her your employee.
None of the IRS' tests for independent status involves freedom to
price as the contractor sees fit. Therefore, this is one way in
which you may control the contractor's activities without running
afoul of the tax laws.
Conversely, if the written contract expressly permits the
contractor to set his or her own prices or fees, then you cannot
impose your fees without terminating the contract, if you have the
right to do so without cause, and then negotiating a new one
requiring adherence to your fee policy.
If, as is usually the case, your written contract is silent on
this subject, or you have no written contract, you do have the
right to require your independent contractors to charge your fees.
Although this advice may be counterintuitive based on the fact that
contractors are "independent" of you, it is a corollary to the
contractor's status as your sales agent.
Independent contractors also can be agents. After all, your own
agency is the sales agent of each airline, and you are, of course,
also an independent contractor of each airline. As you know from
bitter experience, each airline can require you to sell at its
tariff prices and terms. You can require the same of your agent
contractors.
Furthermore, in the absence of an agreement to the contrary, you
also can debit your contractors for uncharged or uncollected fees.
This is the opposite of the case with your employees, whose
salaries you cannot debit without their express written
agreement.
Requiring independent contractors to charge the same fees as you
do is not illegal price fixing among two independent businesses. As
the famous Illinois Corporate Travel (McTravel) vs. American
Airlines case held, sales agents can be forced to sell at their
principals' prices if the latter decide to insist on uniform prices
and terms. You can require the same of your sales agents.
Mark Pestronk is a Fairfax, Va.-based attorney specializing
in travel law. He answers your questions in the Crossroads' Legal Issues Forum.