Q: I want to make sure that our agency doesn't get into any major legal trouble in the years ahead. What are the top legal dangers that agencies face, and what can we do to lessen our risks?
A: In order of potential severity, here are the top 10 legal problems:
1. Fraud by independent contractors: This is the biggest problem agencies face, as suppliers and clients hold you responsible when a rogue contractor commits fraud by, for example, charging tickets to a phony credit card or taking the client's money and embezzling it.
2. Debit memo for chargebacks for allegedly unauthorized card charges: These are especially dangerous because of ARC's power to declare you in default by deeming a sale that results in such a chargeback to be an "improperly reported sale." Although this problem is related to No. 1 above, the debit memos can also result from employee fraud or mistake or client deception.
3. Debit memos for reservation rule violations: These can add up to hundreds of thousands of dollars when clients knowingly book back-to-backs or hidden cities without your employees' knowledge, or when employees or independent contractors make such bookings (and others) in order to get lower fares.
4. You lose the right to sell an important supplier's services: Every supplier contract, including your contract with each airline under the ARC agreement, allows the supplier to cease doing business with you for no reason. Too often, suppliers exercise their rights because they believe that you have done something wrong, even though you are guilty of no wrongdoing.
Although these first four problems all involve airlines, do not conclude that the lesson is to refrain from selling airline tickets. Rather, you should pursue these opportunities for profit, but you do so with caution by implementing preventive measures.
5. Signing of supplier-inventory contracts in your agency's name and then having the client back out: Make sure you sign hotel, tour and cruise-group contracts as agent for the client. Otherwise, the supplier could sue your agency if the client fails to perform.
6. Signing of long-term contracts by unauthorized employees: Although this problem applies mainly to large agencies with multiple locations, owners of agencies of all sizes have found that employees had signed contracts, such as phone system or copier-maintenance contracts, without having been authorized to do so.
7. An unknown person makes a fraudulent transaction in your agency's name on a supplier website or by phone: This fraud has become quite popular, especially targeting Southwest.
8. A client confuses your responsibility with the supplier's responsibility: This confusion is the source of the majority of claims and lawsuits by clients. When something goes wrong on a trip, the client says, "I dealt with you, so you are responsible for what went wrong."
9. Getting sued for violations of labor laws or civil rights: Even if you are held not liable, your legal fees could be hefty.
10. Fines for failing to register under a "seller of travel law": One of the six states with such laws tries to fine your agency for failing to register.
In my next column, I will cover ways to prevent these things from happening.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at [email protected].