Mark Pestronk
Q: A former independent contractor (IC) of our travel agency wants to be paid compensation for trips where the commission came in after the IC left our agency. Our IC agreement states that the IC will be entitled to the IC's split on "all commissions earned up to the date of termination of the agreement." It doesn't say how or when a commission is "earned." In your opinion, is the ex-IC entitled to a split on those trips if and when we receive the commission from the supplier? Does it make any difference if we terminated the IC for cause versus a voluntary termination by us or the IC?
A: If your agency's IC agreement says nothing more than that the ex-IC is entitled to his or her percentage on "all commissions earned up to the date of termination of agreement," you have a terrible agreement because you don't state when a commission is earned. You are inviting disputes from any IC that leaves and expects to be paid on bookings made before termination.
Many ICs believe that their compensation is "earned" when the sale is made, regardless of when or why the IC leaves the agency. Although they understand that they cannot be paid until your agency is paid by the supplier, they expect their split when you get your commission from the supplier.
In a state court in Massachusetts earlier this year, an ex-IC sued for $134,000, representing her share of commissions on future trips. The court held in favor of the agency, reasoning that the plaintiff "was not unconditionally entitled to commission from future trips that had not occurred, because they were subject to cancellation, for which no commission would be paid. Therefore, the Court concludes that the only commissions due to the Plaintiff on her termination date were for commissions earned and received by [the ex-IC] up to her date of termination. For reservations that the Plaintiff booked for trips that had not yet occurred, no commissions [were] due because they were not yet due and payable, since it was possible the reservation could be canceled, resulting in no commission to the [ex-IC]."
The court's reasoning is not compelling, and the case could easily have gone the other way by reasoning that the compensation was earned when the sale was made but that the money was payable only after the agency received its commission. The case is therefore really an illustration of why your IC agreement needs to be much more specific than the one quoted here.
Some hosts' contracts expressly state that, after termination, no further compensation will be paid under any circumstances. Other hosts provide the opposite: Compensation will be paid after termination as long as the sale was made during the term of the agreement. Finally, at least a few hosts provide that compensation will only be paid up to a fixed number of days or months after termination, but no compensation will be paid if the agreement was terminated by the host for cause.
Regardless of your choice as a host, the important thing is to specify exactly what, if anything, you will pay after termination and under what circumstances.