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Protect Your Group Sales Top of Page It is essential that agents working from home continually expand their marketing efforts to include group business because of the enhanced revenue that is available for selling such travel. However, selling travel to groups also raises some unique issues that you and your host agency need to address in order to protect both of the parties and your clients. In many instances, the only contact you will have with the group is through the leader, who can not sign a consumer disclosure notice (disclaimer) for the entire group. A disclaimer needs to be signed by each individual traveler, which may not be practical in many situations. Under these circumstances, it is essential that you and your host agency make certain that such disclosure notices are returned to you at the time each booking is processed. This is extremely important because of the requirement that travel insurance be purchased within a certain number of days from the time the reservation deposit is paid in order to avoid waiving any preexisting medical conditions as coverage under the policy. When you offer travel insurance to members of the group, the best possible consumer disclosure notice would include the price of the insurance in the trip with a request for the group members to deduct the amount if they do not want to purchase the insurance. If the group member deducts the insurance from the payment, they do not want the insurance; if they include it, they have accepted it. Under either of these circumstances, no signature would be necessary because the action or inaction by the traveler will indicate their preference. The only possible problem with this recommendation is that some state insurance commissioners do not allow insurance to be included in the price of trips. You will need to check with a representative of the travel insurance company to determine what is appropriate in your state. Another issue that is sometimes overlooked by an agent at home who is selling to a group located throughout the country, you may encounter state seller of travel licensing issues if the members of the group resides in states the register or license travel agents or promoters, such as California, Washington, Florida and Nevada. For example, if you and the group leader are located in Maryland, but other members of the group are located in Washington, California, or Florida, you may have licensing or registration issues with any of those states because you are trying to sell travel to a resident of those jurisdictions. If the group is traveling out of the country and includes children, you need to make certain that if only one of the children is traveling with a minor child, he or she has a notarized statement from the other parent and/or guardian that the traveling individual is authorized to take the child outside the United States. Without such a statement, it is likely that the passenger and the minor will be stopped before boarding a flight to leave the country. In addition, you and your host agency should include a provision in the group contract that you have the right to contact individuals who travel with the group in the future, even if the group fails to use your services again or travels as a group again. My clients find group travel to be an excellent source of future individual business. Some group travel leaders will try to prohibit this type of language in any agreement in order to restrict future contact with their members. You should also include language in your agreement with your host agency that if you switch your affiliation to another host, your previous host can not contact the group for a certain period of time. Obviously, the host agency may attempt to avoid this type of language. This is an issue that needs to be negotiated at the time you sign the contract in order to avoid future problems. If the group trip involves any high risk activities, such as white water rafting or even a substantial amount of physical activity, such as walking long distances as part of a tour, I usually recommend that the disclosure notice suggest that clients check with their medical providers to determine whether they have the physical capability to engage in such activity. Under no circumstances do I recommend that you ask for, receive or transmit medical reports between the client and a third-party, which could raise significant liability issues for you and your host. Finally, it is essential that you protect yourself when selling group travel in order to make certain the revenue generated is sufficient to offset any future potential liability that can arise from group sales. However, liability generally can be minimized or eliminated by following prudent business practices as suggested above. In the end, selling group travel can be a highly lucrative endeavor as long as you protect yourself.
A Guide to Legal Resources Top of Page In keeping with the theme of this issue, this column will provide resource information for host agencies and home-based agents. Host agencies and agents at home should have ample resources available to address any issues that arise regarding travel industry law, including liability, insurance, disclaimers, and numerous related issues that can arise on a daily basis. Interestingly, five or six years ago, it would have been extremely difficult for an agent at home to access this type of information because there were limited resources available to help agents who were not working in a “brick and mortar” travel agency. All of the major consortiums, co-ops and franchise operations have devoted significant resources to assist home-based agents as they attempt to actively recruit individuals with an established client base to their networks. Some consortiums, such as Virtuoso, aggressively advertise for independent contractors on behalf of the entire consortium and then put the agent in contact with individual agency members to negotiate their own agreements. The websites of agency groups such as Virtuoso, Ensemble, and Cruise Planners list resources available to home-based agents, including such topics as marketing, sales, insurance, liability, and prudent industry practices. The American Society of Travel Agents (ASTA) has numerous services available for its home-based agent members as do both the National Association of Commissioned Travel Agents (NACTA), and the Outside Sales Support Network (OSSN). OSSN indicates on its website that its “members only” section has 6,500 pages of information for its more than 7,800 members. While the number of trade show and industry conference meetings has been dramatically reduced over the last several years, the shows that are still presented include many valuable seminars for home-based agents which, in many instances, are their largest group of attendees. Cruise Planners recently launched Cruise Planners University, which provides extensive audio and written materials on a multitude of travel industry related topics, on both introductory and advanced levels. The topics include liability, client disclosures, marketing, personnel, business management, and tax issues. All of the travel insurance carriers provide information and assistance to home-based agents with regard to the sale of their products. In our experience, the ability of an at home agent to contact a travel insurance carrier is beneficial to both parties and eliminates potential liability issues if the advice is sought and followed. Information with regard to errors and omissions insurance is also available from the insurance carriers for agents interested in that coverage. We believe that most travel industry lawyers recommend errors and omissions insurance for every host agency and home-based agent. Many AAA clubs offer significant support networks for independent contractors, including agents at home, through ongoing educational programs and the extensive use of references available on proprietary websites. There are form books available, written by travel industry attorneys, including substantial information for home-based agents. Longtime travel industry attorney Al Anolik offers a form book for independent contractors and other resources through his San Francisco-based law firm and his website, www.travellaw.com. We also have a form book and other resources available through our website, Jmillerlaw.com. Houston-based travel industry attorney Rose Hache is widely considered an expert in issues relating to travel industry licensing and registration matters. Again, it is interesting to note that there are many available resources available today through various segments of the travel industry, all geared to educating and assisting home-based agents. Obviously, travel industry suppliers have finally recognized the value of home-based agents and their continually expanding role in the industry. Clearly, at-home agents have access to many valuable educational resources, many of which are available at no cost. Most travel industry suppliers also have proprietary websites directed to travel agents, including home-based agents that offer marketing and sales for their specific products and services. We recommend that agents at home utilize these various services to enhance their knowledge and professionalism to ultimately lead to more success and profit.
Room with a Contract Top of Page The most important issue with regard to at-home agents negotiating contracts for groups at hotels and resorts is who will sign the contract. We do not recommend that the at-home agent sign the contract on behalf of the group but, rather, the contract be between the hotel or resort and the group. The contract should include specific language as to the commission being earned by the at-home agent and the payment schedule for the commission. Some of our clients do not like to include this language, particularly if the at-home agent has “marked up” the pricing. However, the liability, in our opinion, far outweighs the potential additional revenue. Historically, hotels had standard agreements for meetings that were provided by the property’s corporate office and the group, meeting planner, or at-home agent signed the contract as it was presented. We do not believe that is the situation at the current time as the industry has undergone dramatic changes due to economic conditions. It is not unusual for specific clauses to be changed in the agreements, typically through the use of a standardized addendum that has been reviewed and approved by the hotel’s legal department and likely senior management. With group or meeting contracts, some of the issues typically covered in an addendum include cancellation provisions, food and beverage clauses, and topics such as fees, surcharges, payment terms and attrition penalties. Today is clearly a buyer’s market. A growing number of properties are willing to accept modified language, even if it conflicts with the language in the hotel’s standard agreement. The only way this can be resolved is to specify in the agreement which party’s language will override the other’s in the event of a conflict. As with any negotiations, market conditions influence the process, including whether it is a slow or peak season when the meeting will be held, or if the property has a significant number of unsold rooms during that timeframe. The key issue in negotiating these agreements is to avoid disputes that can lead to litigation. Therefore, it is extremely important that the terms and conditions of the contract and any addendum be reviewed and agreed to by both parties at the time the contract is signed. This includes the at-home agent making certain the group has had an opportunity to review the contract and, again, having a representative of the group sign the agreement, not the at-home agent. The at-home agent has to remember that if the group has members located across the country, they may encounter state Seller of Travel licensing issues if group members reside in states that license travel agents, such as California, Washington, Florida and Nevada. For example, if the agent and the group leader are located in Maryland, but other members of the group are located in Washington, California, or Florida, you and your host agency may have licensing issues with any of these states because you are trying to sell travel to a resident of those states. In our experience, at home agents typically do not review these types of situations. However, if there are a significant number of group participants residing in those states, it may become an important issue. In our opinion, that both the at-home agent and the host agency have a provision in the group contract that they have the right, in the future, to contact individuals who travel with the group, even if the group fails to use your services again or never travels as a group again. At-home agents realize that group travel is an excellent source of future individual business. It is not unusual for group travel leaders to try to prohibit this type of language in order to restrict future contact with members of the group. If the group involves a significant amount of room nights, it is probably worthwhile discussing the possibility of obtaining insurance to protect the group in the event penalties are incurred as a result of failure to meet the terms and conditions of the contract. We also recommend that there be language in the agreement that prohibits the hotel from contacting the group directly for some period of time in the future to avoid the possibility of the group returning to the hotel at a future date and the arrangements not being commissionable. We have seen circumstances where the at-home agent negotiated with the hotel but before any contract was signed, the group approached the hotel directly and negotiated a lower, non-commissionable rate. This situation can be avoided by having a written agreement between the at-home agent and the group indicating that a commission will be earned if the group books a hotel brought to the group by the at-home agent. Under these circumstances, even if the hotel did not pay a commission, the at-home agent would have the right to seek the value of the commission directly from the group. We believe that if the at-home agent follows the guidelines which we have set forth in this column, they will protect themselves from a liability standpoint as well as enhance their revenue potential.
A Question of Control Top of Page Many industry observers believe there are more travel agents at home, either employees or independent contractors, than working in brick and mortar travel agency locations. As the number of at-home independent contractors continues to increase, it is essential that the both host agency and the agent at home remain diligent to ensure they comply with the federal and state statutes governing the use of independent contractors. Under federal law, an independent contractor is someone who is not subject to any control by the person or business for which they are providing the service. The Internal Revenue Service has utilized a checklist of 20 different items that they review to make a determination as to whether a person is an employee or independent contractor. The most important of the 20 items is the issue of control. Generally, control would include the question of whether the person is required to comply with instructions about when, where, and how the work is to be done, whether the person is required to attend training sessions, whether the person is required to work fixed hours or days, and whether the person is required to work on the travel agency’s premises. As noted, there are additional guidelines issued by the IRS but the ones aforementioned are key, in our experience. It is important to remember that an independent contractor is not paid a salary and receives a 1099 tax form, as opposed to the W-2 form that is used for employees. The host agency is not responsible to pay such taxes as Medicare, FICA, and federal and statue unemployment as they are required to do so for employees. These taxes are generally collectively called “payroll taxes”. If the taxing authority proves that the at-home agent is an employee, the host agency will be responsible for payroll taxes and penalties for as long as the relationship existed. Unfortunately, many states have a different definition of an independent contractor than the definition utilized by the IRS. Further, many states have passed statutes which define certain categories of work as an independent contractor such as taxi cab drivers, insurance agents, or real estate brokers. To the best of our knowledge, no state has passed a statute which defines an agent at home as an independent contractor. Fortunately, most state statutes define the category of independent contractor much broader than the Internal Revenue Service. In Maryland, the state has concluded that in order to qualify a travel agent working at home as an independent contractor, they (1) have complete autonomy over the business of their business, (2) provide services to more than one company or person, and (3) work entirely outside the premises of the host agency or at-home independent contractor who has subcontractors. Under these criteria, it would be almost impossible for an at-home agent to qualify as an independent contractor because most agents generally affiliate with only one host agency. Under Maryland’s definition, an at-home agent would be disqualified as an independent contractor if they don’t work with multiple companies or persons and, thus, the host agency would be responsible for all of the payroll taxes set forth above. Please keep in mind that the at-home agent can also have independent contractors working with them. This would put the at-home agent in the same predicament as its host agency with regard to the relationship between the at-home agent and the host agency. In our experience, one way to ensure that both state and federal governments recognize an at-home agent as an independent contractor, rather than an employee, is to have the at-home agent establish an LLC or other corporate form of ownership. The relationship would then be between the LLC and the host agency and how the at-home agent takes the profit or loss out of the LLC would be between the agent and their CPA. The issue with forming an LLC or other form of corporate ownership is that generally this prevents the at-home agent from being added to the host agency’s errors and omissions insurance policy, a common practice among agencies. Thus, the at-home agent who has formed an LLC would be responsible for their own errors and insurance. They would also incur the costs of establishing and maintaining the LLC, which can range from minimal to more than$1,000 yearly, depending upon the state. We recommend that even host agencies that have used independent contractors for years review the current laws governing their state with their CPAs to make sure they are in compliance.
Get the Right Contract Top of Page One of the more difficult situations that arises for agents at home is when their existing host agency is sold and the purchaser wants the at-home agent to sign a new independent contractor agreement. In our experience, these proposed agreements can be onerous and one-sided, providing significant rights and benefits to the new owner and very little in the way of benefits to the at-home agent. We have compiled several of these agreements from different host agencies and are providing our comments and suggestions as to how the at-home agent should determine if the new agreement is beneficial for them to sign. Unfortunately, in our experience, there is very little negotiation and typically the contract is presented on a take-it or leave-it basis. Regardless of the prior financial arrangements, in our experience, the new host agency requires the independent contractor to pay all costs and expenses incurred in servicing their clients. Another typical provision allows the host agency the ability to terminate the agreement due to a willful breach by the independent contractor. However, this provision is generally not mutual, i.e., the host agency can breach the agreement but it could not be immediately terminable by the at-home agent. It is also not unusual for the new host agency to require the independent contactor to conform to certain procedures involving accounting, bookkeeping, and processing funds even though this may erode the independent contractor/employee relationship status with the host agency. Another interesting provision that we recently reviewed gave the host agency the right, jointly with the independent contractor, to determine whether the independent contractor’s work schedule would be “desirable or appropriate”. Again, we believe this provision begins to erode the independent contractor relationship and would typically be found in contract relative to an employer/employee relationship. It is also not unusual to have language in the new agreement in which the host agency agrees that the independent contractor’s clients belong to the at-home agent. However, there is also further language indicating that if the independent contractor is in default of the agreement in any manner, the host agency would have the right to solicit and/or serve the at-home agent’s clients. Some agreements include provisions in which the independent contractor personally guarantees the debts that are incurred to the host agency by the independent contractor. We recently reviewed one agreement where even the shareholders of the at-home agent (presuming incorporated) would have to personally guarantee any debts. We would virtually never recommend that a shareholder of any corporation personally guarantee debts for any reason. The major reason to form a corporation or LLC is to avoid personal liability. With regard to compensation, regardless of the commission level being paid, the host agency sometimes reserves the right to change a payment schedule so long as they do so across the board to all independent contractors and/or at-home agents. Again, we do not believe this language is reasonable and the at-home agent should attempt to have it removed from the agreement. The definition of revenues also is extremely important. Some host agencies include overrides in the definition and others do not. Further, we have seen some contracts where the host agency excludes any payment that is made to an affiliated company, even if the revenue was generated by the at-home agent. The independent contractor should receive a monthly accounting of all commissions earned even though many of the agreements generally state they will be provided periodically. It is not unusual to find a trade secret or “restrictive covenant” clause in these agreements. While a trade secret provision is probably enforceable, we do not believe a restrictive covenant would be because of the host agency/at-home agent relationship. The at-home agent should have the right to solicit and service any clients they brought to the agency as well as have the ability to service any clients provided by the host agency if the client seeks out the at-home agent after the relationship has been severed. It is unusual but not uncommon to have an indemnification provision in the agreement. However, it is onerous to have an indemnification agreement on behalf of the independent contractor to the host agency but not have one from the host agency to the independent contractor. We would recommend that any indemnification provisions be reciprocal for the parties. Regardless of where the host agency is located, the agreement should be interpreted under the laws of the state in which the independent contactor is located. Additionally, under no circumstances should the shareholders of an at-home agent, presuming they are incorporated, sign the agreement. It should be signed solely by the representative of the at-home agent, again assuming it is incorporated.
Your Legal Review Top of Page As we get further into the new year, we feel it is beneficial to outline some frequently asked questions and issues raised by our clients. This column provides some general advice in response to these inquiries. Home-based travel agents need to consider a number of options available regarding how their business is organized. There is no real “best approach” to selecting your business structure but each decision you make must take place with the guidance and advice of your agency’s tax and financial advisors. We strongly recommend that you meet with your tax and/or financial advisor at least on a yearly basis, if not more frequently, to determine if your corporate structure is appropriate for your ongoing business needs. Another key area that unfortunately is sometimes overlooked by at-home travel agents is the issue of state licensing and registration. More than a dozen states have some form of licensing requirements for sellers of travel. California is the most stringent of all states. Washington, Nevada and Florida also have licensing laws that encompass a great number of travel related industries. The remaining states have statutes that impact only certain segments of the industry. We recommend that you make certain your host agency is aware of what states in which your clients reside and ask that the host agency make certain it is licensed in that jurisdiction. Generally, an at-home agent is covered under the registration by the host agency. We are also continually asked why at-home agents need errors and omissions (malpractice) insurance. Although the at-home agent may be covered under the host agency’s policy, that needs to be confirmed, in writing, at the time you enter into an agreement with the host. Keep in mind that if your agency is incorporated, you can not be part of your host agency’s errors and omissions policy. You must have your own insurance coverage. We strongly recommend that home-based agents have a deductible of at least $1,000, which should cover nuisance-type claims. Also, keep in mind that errors and omissions insurance will not cover debit memos generated by an airline for ticketing mistakes nor does it cover fraud or theft by employees. Those types of claims may be covered under other types of insurance policies, but are not covered by errors and omissions insurance. Another important issue that is constantly raised by our clients working at home is how to protect themselves and their clients from supplier default. Fortunately, the number of supplier defaults has declined over the last several years but, as the industry is well aware, many well-known, well established suppliers are no longer in business. There are some travel insurance policies available to consumers that cover supplier default. However, these policies often include restrictions specifically excluding certain suppliers. Further, it is unlikely that an agency’s errors and omissions or general liability policy will cover a client’s claim a result of supplier default. The best protection for the agent working at home is to use common sense and maintain an awareness of industry developments when selling suppliers. A good resource for this information is the host agency’s consortium, if applicable. The issue that arises most frequently from our clients involves what needs to be in a written agreement defining the relationship between the host agency and an independent contractor, including the rights and obligations of each party. One of the unique features of an independent contractor relationship is that the agency (or principal) can not control what travel arrangements independent contractors sell nor can it require them to charge service fees. On the other hand, the host agency can structure the financial arrangements in such a way that the independent contractor earns a higher fee for selling preferred suppliers. Many of my host agency clients pay no commission if the independent contractor sells a non-preferred vendor. The key to the relationship between the host agency and the at-home agent is to make certain that the agreement, including all rights and obligations, is in writing. Again, it should be reviewed each year when the contract is up for renewal. In our experience, if at-home agents follow this advice, they will spend more time selling and earning revenue and less time dealing with issues that may dramatically impact their business operations.
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