Q: My agency hosts several highly productive independent contractors (ICs), and we do our best to keep them happy. Nevertheless, we lose some from time to time when another host offers a better deal, or something else happens that makes them want to change. A recurring problem arises when a departing IC tries to move pending bookings, such as cruises under deposit. The IC always claims that he or she is entitled to move the client bookings, but I really don't know if that's correct. Does it matter if the client was brought in by the IC? Does it matter if our IC agreement states that the client belongs to the IC? Does it matter if the client requests the transfer? Does it matter if the client cancels and rebooks?A:
None of the above matters. What matters is whether your IC agreement covers what happens when an IC requests or attempts to transfer bookings or to cancel and rebook at another host.
Unfortunately, the typical IC agreement doesn't cover these cases at all. As a result, there are often arguments and even costly litigation when an IC departs and then succeeds in moving bookings.
If your agreement is silent on the question of transfers, or if, as too often happens, you have no written agreement at all, it becomes a free-for-all: all parties are free to try to retain or move any client, as the case may be.
If your agreement merely states that clients brought in by the IC are the ICs property, it is still open season on the clients. Unless there is an express prohibition on soliciting or handling each other's clients, you are entitled to try to do business with the IC's clients, and the IC is entitled to try to take yours.
You are also free to try to retain the clients that have requested the transfer, although I am sure that you will generate ill-will all around if you continue to resist what the client wants.
If your agreement does contain a nonsolicitation or nonhandling clause, you cannot try to persuade the IC's clients to stay. Nor can you restrain the IC from inducing those clients to cancel and rebook with the new host.
Obviously, it is better to spell out each party's rights and obligations in the IC agreement. As I see it, your options are to prohibit all transfers, allow all transfers or allow them in certain cases.
If you flatly prohibit them, you may find that some ICs simply ignore the prohibition, leaving you with the very poor choice of doing nothing or suing. ICs often succeed because suppliers tend to cooperate if the IC, client and new host all agree to the transfer.
On the other hand, if you allow all transfers of clients that ICs bring in, you risk losing substantial revenue because many suppliers will erroneously (and sometimes purposely) send the commission to the new host even if your agency is legally entitled to the commission.
Under the "procuring cause" doctrine, the agency that procured the sale is entitled to the compensation for the sale. The sale is considered made when the deposit is taken, so you are entitled to the commission on the sale, even after a transfer.
I recommend a middle ground where you agree not to solicit the IC's clients but prohibit transfers of their bookings unless the IC agrees to remit what would have been your share of the commission if the supplier pays the new host. You can also provide that you may withhold what you owe the IC until all commissions are accounted for.