Q: A recent Travel Weekly article ("As IC Numbers Grow, 'Hybrid Hosts' Emerge," Feb. 26) covered retail travel agencies that are setting up independent contractor (IC) programs to attract experienced at-home agents, newcomers and even other retailers that want the supplier access and services that hosts offer. My agency is thinking of starting such a program. What legal tips would you give us in order to avoid liability?
There are five potential areas of legal problems for new hosts. From most common to least, they are: IC fraud, IC negligence, IC contract liability, reclassification and seller of travel law registration.
Some ICs commit fraud on suppliers, clients and their hosts. At least once a month, I hear from a host that is suffering because of such fraud.
IC fraud ranges from the simple, such as collecting cash and embezzling it, to the complex, such as setting up a corporate frequent-flyer program in the name of a company controlled by the IC or a friend, and then using the account number on all reservations for all of the IC's clients.
To prevent such fraud, you need to screen ICs carefully. Do background checks and reference checks. Have your IC agreement signed either in front of you or a notary, and then check the notary's identity.
Other steps to take include closely monitoring the IC's reservations and tickets for suspicious patterns, especially if the IC works at night and on weekends; refraining from issuing tickets until after the check clears; and requiring the IC to follow ARC's credit card acceptance rules on all transactions.
IC contract liability is less common but also potentially devastating. In a typical case, an IC signs a group contract with a resort or cruise line using your agency's name.
Your agency is liable for the contract debt if you did anything to give the supplier the impression that the IC was authorized to sign, such as providing a title like "vice president" or "director." So, you need to forbid ICs from adding your agency's name to any contract and make sure that the IC's title always includes the word "independent" if the IC uses your agency's name on business cards or email signatures.
IC negligence commonly occurs when a new IC gives erroneous advice or mixes up the client's requested travel dates. In theory, your agency is not liable for IC negligence because the IC is not selling as your agent, but clients and judges tend to ignore the distinction.
In a host agency, it is probably impossible to prevent all liability for bad advice or booking errors, but training new ICs and requiring ICs to obtain signed disclaimers will probably prevent most claims.
The reclassification problem arises when a federal or state government agency claims that your ICs are really employees and that you are therefore liable for unpaid withholding taxes or overtime. While there are many steps you can take to prevent such claims, the best step for a new host starting from scratch is to set up a separate corporation or LLC to be the host that contracts with the ICs.
With such a structure, your host company is not a travel agency but rather a supplier of business services, such as desk space, that then contracts with your agency for supplier access and technology.
Last, issues related to a few states' seller of travel laws can be a problem. Your ICs can be exempt from registration if they meet the criteria, but if they don't, they must register as sellers themselves.
Not every one of these solutions is suitable for every would-be host, so be sure to get knowledgeable legal advice about your particular situation.