Mark Pestronk
Q: At our host agency, we are trying to formulate a new standard independent contractor (IC) agreement that avoids the most common controversies between hosts and ICs. Can you give us a list of the disputes that you see most often? Can you also tell us what we should do to avoid those disputes?
A: By far, the most common disputes deal with fallout from termination of the host-IC relationship. ICs expect compensation to continue for sales that were made before termination, and hosts expect the sale to stay with the host. Unless your IC agreement specifically addresses these issues, you are bound to have a dispute whenever a productive IC leaves.
There are various options for what the agreement should provide about these issues, and I covered them in my Sept. 15 Legal Briefs column ("Tightening up that IC agreement"). I noted that some host agencies always pay out post-termination compensation, some agencies never do and some will pay out under specific conditions. The key is to make sure your agreement is as clear as possible going into the relationship.
One reader questioned whether it is legal for a host to refuse to pay compensation just because the IC left. After all, everyone knows that ex-employees must be paid for work they did before they quit. However, you have to remember that the host-IC relationship is a B2B relationship, so whatever the contract says is what governs, unless there is a state law to the contrary.
For hosts, the big post-termination headaches arise when the ex-IC arranges to have suppliers transfer bookings to a new host. Although most suppliers will not transfer, some smaller ones and DMCs will do so. Some host contracts flatly prohibit all such transfers, but that is probably not a realistic approach because ex-ICs will try to transfer anyway, or they will get the client to cancel and rebook with the new host, paying you nothing.
A better approach may be to provide that you will cooperate with transfers if the ex-IC and the new host promise in writing to pay you what would have been your share of commissions on the transferred sale. Regardless of the policy you adopt, it has to be part of the contract.
Another frequent source of controversy is whether the IC may have two or even more hosts, or whether the host prohibits the IC from booking using another host. Contrary to popular belief, a host's exclusivity policy or contract term doesn't violate any law; nor will it cause a federal or state agency to reclassify the relationship as one of employment, except in California, where a valid IC relationship must allow the IC to do business with whoever the IC wants.
My advice for advisors who are thinking about signing up with a new host is this: If the host's contract doesn't deal with the problems covered here, you should ask for appropriate contract changes. If the host refuses to make any changes, you should avoid doing business with it.