Mark Pestronk
Q: Many of our agency's contracts expire without being renewed, yet the parties continue to perform their duties as though the contracts were still in effect. For example, our GDS contract ran out months ago, but we are still receiving segment incentive payments for bookings we made during months after expiration. If the GDS vendor were to try to stop paying us incentives for those months, could we successfully argue that we have a right to be paid? If so, for how long would we have such rights? Similarly, would the GDS vendor have the right to penalize us for violating the booking quota clause under the contract?
A: The travel agency business is full of so-called zombie contracts; i.e., contracts whose express terms of months or years have run out yet the parties are still performing as though they were still in effect. The GDS contract issue that you cite is a common one, but the same questions apply to airline, hotel, car rental and cruise line commission agreements, as some suppliers never seem to get around to renewing until well after expiration of the old contract.
Your rights and duties under these expired contracts depend on the exact terms of each contract, the parties' intentions and conduct after the contract ends and the state law that applies.
For example, your GDS contract probably specifies exactly what happens after the typical five-year term. The standard
Travelport contract states: "After the Initial Term, this Agreement will continue in full force and effect unless and until terminated by either party on 90 days' written notice (the Initial Term plus any continuation thereof will collectively be referred to as the 'Term')." So as long as no party gives notice of termination, your rights and obligations would continue indefinitely.
However, once a party gives the 90-day notice, and once the 90 days run out, you can no longer claim a right to receive segment incentives for bookings after the 90-day period, and Travelport can no longer penalize you for failing to meet a quota after the 90 days. The express language of the contract is clear in this case.
On the other hand, many commission contracts have a definite cutoff but say nothing about renewal, yet the parties certainly intend that, if all goes well, it will be superseded by another contract for the following year. An Aeromexico commission contract in my files states, "This Agreement shall be effective for all sales flown within the period 1/1/2025 through and including 12/31/2025."
If there are "flown sales" during January 2026 but a new contract does not get signed until February 2026, the parties probably intend that those sales should count retroactively.
Finally, here is an example of how the law of each state can affect the continuation issue. If a New York travel agency has a multiyear contract with an employee but is silent about renewal, the law in New York is that, on expiration, if the employee continues to work there is a presumption that there is a one-year renewal term.