Mark Pestronk
Q: In your two most recent Legal Briefs columns, you wrote about the verticalization of the retail travel industry, where there are now sub-ICs of ICs of hosts that are branches of large agencies that are franchisees of mega-agencies. I'm fairly new to the industry, and I guess you would classify me as a sub-IC. I make bookings under the name of the person who recruited me, who appears to be an IC. What rights do I have? What if I don't get paid my share of the commission? Who is responsible if I make a mistake? Do I need errors and omissions insurance?
A: Many new entrants into the travel business are like you -- at the very end of the pecking order. You have fewer rights than any other entity that you name in your question.
If, like so many sub-ICs, you have no written contract, you have no rights unless you can prove the terms of any oral contract between you and the IC, which is always hard to do.
Ideally, you would have a written contract that spells out exactly what commissions you are entitled to and when they would be paid. You would also have the right to a written breakdown of how the commissions were calculated, and you would have a right to audit the IC's revenue if you suspect an underpayment.
You would also want to specify that the IC's obligations to pay would continue even after termination of the agreement for bookings made before termination. You would also want to specify that the IC would cooperate in moving clients to a new agency after termination.
If your contract was written by the IC or the IC's host, it probably makes you responsible for all debit memos (i.e., supplier claims for money) pertaining to your bookings. Since you have no relationship with the host or the supplier, you are probably going to be stuck with paying the debit memo, or the IC can withhold the funds from your commission split.
If the IC breaches the contract by not paying you, it can be very hard for you to collect any unpaid commissions. If you and the IC are in the same state, you can sue in small claims court. If, as so often happens, you are in different states, you probably need to retain an attorney to sue on your behalf, but few attorneys will take such cases.
If you make a mistake and a client suffers a loss, only you are responsible. Unlike an employee-employer relationship, you, the IC, the host, the large agency, etc., are all independent businesses, and no one is legally responsible for the others' acts or omissions.
Errors and omissions insurance is not essential, but it is helpful, especially because it can cover your legal fees if you are sued by a client. Even if the IC has such insurance, it won't necessarily cover you unless your activities comply with the specific requirements of the insurance policy.