Q: One of our most important suppliers provides our agency with free trips based on our sales volumes. If we sell X number of room nights, we earn Y number of trips that can be used for our staff's vacations. On Jan. 1, the supplier arbitrarily and vastly raised the number of room nights required so that if we sell the same number as last year, we earn only about one-quarter as many trips as we did last year. I recognize that suppliers have discretion to change their compensation plans as they choose, but here is the galling part: The supplier is applying the new plan to sales that we made last year. Such retroactive application is obviously unfair, but is it legal?
A: The answer can probably be found in any contract between you and the supplier. For example, if the contract says that the supplier may change the plan at any time and may apply the new plan to sales already made, then that would be conclusive, regardless of whether such application is fair, and regardless of what you expected when you made the sales.
To take another example, such a contract might provide that changes to compensation levels may apply to any sales for which you have not yet collected final payment. Alternatively, the contract could provide that the current plan would apply only to trips departing during the calendar year of the agreement.
Even if there were no signed paper covering your compensation with the supplier, you could still have a contract, if the compensation terms were found on a written notice to you, and if you made bookings after you got the notice. Even if your agency received no written notice, you could still have a contract if you booked online at a supplier website containing the supplier's compensation terms.
So I suspect that there is a contract of one of these types (signed paper, written notice before booking or website terms) that addresses the retroactivity question. Courts will not substitute their opinions about what is fair for the express wording of a contract, especially in business-to-business dealings such as these.
On the other hand, if there is no contract, or if the contract is silent on the issue of retroactivity, or if the contract states that the compensation that is in effect when the sale is made will govern, then you would be entitled to the old compensation.
The legal principle is that an agent's compensation accrues when the sale is made and cannot be undone, in the absence of a contract to the contrary.
You can see the principle clearly by analogizing to real estate. If a real estate agent and a seller agree that the seller will pay a 6% commission, and if the buyer and seller sign a contract of sale, the seller obviously can't turn around and say, "Now I am unilaterally lowering the commission because we had no contract stating that I couldn't lower the commission."
If you are certain that there is no contract allowing the retroactive cut, then write a business letter (not an email or informal note, nor a phone call) explaining that, under the law, the new plan cannot apply retroactively to sales made last year because you earned the free trips under last year's plan.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at [email protected].