Independent Travel Agent Contracts: 10 Things to Consider Before You Sign
⭐️ HAR Article Highlights: ⭐️
- An overview of independent travel agent contracts
- Provisions to look for in independent travel agent contracts
- Red flags in IC travel agent contracts
- Additional legal resources for travel agents
- A free downloadable sample contract (courtesy of Mark Pestronk)
You’re probably here because you’re a travel agent. Not because you’re an aspiring lawyer. If you aren’t fluent in legalese, knowing what to look for in an independent travel agent contract is probably not second nature to you. After all, how could you know what to look for in a contract if you don’t know what to expect in the first place?
Well I’m here to make it a heckuva lot easier. I consulted with a few industry professionals; primarily Peter Lobasso, General Counsel for American Society of Travel Advisors (ASTA), and Jackie Friedman, Director of Professional Association of Travel Hosts (PATH) and President of Nexion host agency. With their insights, you’ll know what you can expect in an IC/ host agency contract.
Disclaimer: I hope it goes without saying that I am about as far from a lawyer as you can possibly get. But in the spirit of writing about contracts, nothing that's not in writing goes without saying! So just in case, I’ll say it: “I am not a lawyer.”
Have I completed law school and passed a Bar Exam? Heck no. I haven’t even watched an entire season of Law and Order for cripes sake! In that vein, this article is not in any way, on any planet, intended to serve as legal counsel.
Before we go into the deep dive, here's the crib notes:
Independent Travel Agent Contracts: Big Picture Stuff
Peter Lobasso with ASTA shared a ton of great info on independent travel agent contracts. But I want to be extra clear that this article refers to contracts between independent contractor (IC) travel agents and host agencies. Not agency contracts with suppliers. Not contracts between agencies and consortia. Not contracts between travel agencies and their employees. So if your an IC or a host agency that’s curious to learn more about these kinds of travel agent contracts, you’re in the right place!
Not all independent travel agent contracts are created equal. Just like any business, host agencies vary in size and amount of resources at their disposal. They may not be spending the majority of their time creating the perfect contract for their ICs. Independent travel agent contracts aren’t a one-size-fits-all kind of deal (just like hosts!).
This means it’s up to you to do your due diligence . . . and that’s what we’re here for. To kick it off, here's four big picture things to consider about your contract:
1. First Things First: Yes. You Need a Contract!
Maybe it seems obvious that you should have a contract with your host agency. But if you’ve never sold travel as an independent contractor (IC) how would you know? Well now you do because you’re here!
Jackie Friedman’s advice? “First and foremost, it is very important for both the IC and the “host” they affiliate with to have a mutually acceptable written agreement. As surprising as it sounds, I come across agents that have nothing in writing, and it can create issues down the road.”
Even if the host agency is owned by your best friend, you want to make sure there is a contract between your agency and the host agency (want to know who all these host agencies are? Look no further.)
2. What Is the Term of Your Contract?
There are two primary types of contracts when it comes to term agreements1:
- Fixed Term: A fixed term contract has a set duration. Six months? A year? Two years? Depends on the contract . . . and that’s something you’ll definitely want to know!
- Indefinite Term: Indefinite term contracts have no term. They can go on forever. An object in motion stays in motion unless acted upon by an outside force. Indefinite term contracts are the same way––they keep going until someone (the host or the IC) takes action to terminate (or amend) the contract.
The term of your contract should be abundantly clear. One type of contract term isn’t necessarily better than the other—it depends on what you’re looking for. For example, if it’s the first time you’re working with this particular host and you’re not very familiar with them, Peter Lobasso suggested you consider starting with a shorter fixed term independent travel agent contract (for example, one year or less). That way, if you have a bad experience, there will be a hard stop to your contractual obligation.
3. Is the Right to Terminate Bilateral?
When considering independent contractor travel agent contracts, you have to look past the honeymoon period and think about what will happen if you want to break up with your host agency (or if you host wants to break up with you).
If things go south, do you, the IC, have the same right to terminate the contract as the host? For your sake, the answer to this should be yes. But more than that, it needs to be clearly written in your contract.
There are two kinds of terminations:
- For cause: This means that the contract terminates because one of contract parties (for our purposes, the IC or the host agency) violated the terms of the contract . . . pretty much a fancy way of saying that someone broke the rules.
- Without cause: This means there’s no “cause” except someone put in their notice to the other party.
4. You’re an IC (Not an Employee)
Repeat after me: “I am an independent contractor, not an employee.” In legal speak, this distinction is considered defining “The Relationship of the Parties.” Is it abundantly clear in your contract that you're an IC . . . not an employee?
On this topic, Friedman stated, “An IC is not an employee of the company and should not receive any benefits that the company may pay employees.” To elaborate, Friedman pointed out the contract should be clear on the following details:
- There should be no taxes of any type withheld from an ICs compensation. The company must provide a form 1099 and any applicable state income reporting forms
- The contract should clearly indicate that both parties are able to contract with other business entities or individuals.
- There should be language that indicates that the IC is responsible for all business expenses. Many agreements outline some of these expenses.
- Duties of IC - cannot include requirements as to when and where the IC must work
In order to protect the autonomy of your business, make sure the language of the contract recognizes you (or your agency) as an independent contractor. If you’re considered an employee in the eyes of the IRS, there may be trouble for you down the road.
10 Provisions to Look for in an IC Travel Agent Contract
A few years back, travel attorney Mark Pestronk wrote an article for Travel Weekly that outlines 12 contract issues to watch for in independent travel agent contracts with host agencies. This info still stands the test of time!
Pestronk went the extra mile for HAR and provided us with a sample independent travel agent/ host agency contract!
Our article will help decipher the contract's legalese, so if you're more a visual learner, you can download it and go through the sample contract as you read the article!
Thanks a million, Mark!
We’re gonna throw a few more into the mix: Here’s a list of topics to consider and questions you should be able to answer after looking at your independent travel agent contract:
1. Commissions (in 3 parts):
Clarity on commissions is a pretty big deal. There are three main categories you want to keep in mind with commissions when it comes to your independent contractor travel agent contract:
1. Commission Payment Structure: How will you get paid? Your contract should tell you:
- What is your commission split?
- What is the schedule for/ frequency of commission payments?
- How are commissions paid? (Check, automatic deposit, carrier pigeon?)
- When will commissions be paid? What steps need to occur before payment is disbursed (i.e. vendor pays host, invoice is received etc.)? When steps are complete, how many days after can you expect your payment?
- If you use a lead program, does that impact your commission split, and do the leads belong to you? (You can read more on lead programs here.)
2. Commission Payment upon Contract Termination: What happens if you or your host terminate the contract? The contract should address that hypothetical scenario:
- Will you still be paid commissions for bookings that haven’t traveled if the contract is terminated (for or without cause)?
- If so, how far out will the host continue to pay the commissions?
- Can you transfer bookings if you leave your host?
3. Offsets to Commissions: According to Friedman, “The agreement should include a list of any offsets to compensation. This list would include debit memos, commission recall, customer refund, chargebacks.” When it comes to deducting commission payments can you answer these questions:
- Can the host deduct fees from scheduled payments?
- If so, what for?
- How long do you have to pay back the charges if your commissions do not cover the charges?
The compensation should be very clear in your contract. How do you know if it’s clear enough? Lobasso’s tip is to, “Ask someone who knows nothing about how your business operates to review the commission plan and then explain how it works and how much the contractor would earn given a sale of a certain amount . . . If the commission can’t be calculated based solely on what appears on the printed page, that’s a pretty good indication that the structure as drafted is not sufficiently clear and revisions are in order.”
Why does it need to be so clear? Because if things go sour and you need to litigate or bring in an arbitrator, that judge or arbitrator will do just that: attempt to easily understand what is owed to you per what’s written in the contract.
Yep. It’s so important I’m bringing ‘em up again. When it comes to terms you should be able to answer:
- What is the term of the agreement?
- How much notice do you (or the host) need to give if you want to terminate the contract with or without cause?
- Is the right to terminate bilateral?
3. Dual Affiliation Disclosure:
Some contracts may require dual affiliation disclosure, which can be particularly important if you consider switching hosts or going with more than one host agency at the same time.
!Read up on what you need to consider with switching host agencies!
- Do you need to disclose when/if you decide to work under an additional host agency?
- Are there contractual restrictions if you choose to work with host B while you’re still contracted with host A?
4. E & O (Errors and Omission) Insurance Requirements:
In short, Errors and Omissions insurance is a policy for travel agents if a client sues you for negligence. It does not cover things like bookings error and debit memos (confusing, considering the name). Some travel agents prefer to assume the risk instead of getting E&O insurance. It’s not mandatory, but it’s important thing to consider.
While some hosts may provide E&O coverage, others might require that you purchase your own E&O insurance. Still others may not provide or require E&O insurance. One isn’t necessarily better than the other, but you need to know the contractual requirements surrounding E&O insurance. From your contract you should know:
- Is it necessary for you to have your own E & O insurance?
- If so, how much coverage is required?
- If the host provides E&O insurance, what is your coverage?
5. SOT (Seller of Travel) Compliance:
Five states have Seller of Travel (SOT) are state laws that regulate people who sell travel (yep, that's you!). These laws offer protections for consumers, and a lot of red tape for advisors. SOT laws are complicated . . . and if you live in or sell to clients in FL, WA, IA, HI or CA, it’s imperative that you’re adhering to their respective SOT requirements.
From your contract you should know:
- Are you subject to seller of travel compliance for any of the 5 states with such regulations?
- Are you subject to compliance of any other local laws/regulations?
6. State of Jurisdiction:
It’s not uncommon for agents to engage with host agencies outside their state of residence. For this reason, it is important to understand what your contract provides for with respect to which state will have jurisdiction over any controversies that arise from the contract. Oftentimes (but not always, the state of jurisdiction will be where the host is located since the host is the one drafting the contract. This means if you need to pursue legal recourse against the host agency (or vice versa), the host may have the home court advantage.
According to Lobasso, “Litigating a case in another state is inconvenient burdensome, time consuming, and costly, especially if multiple court appearances are necessary. You’ll also more than likely need to get an out-of-state attorney to represent you, all of which create in one party—but not the other—a serious disincentive to assert his or her rights under the contract in court. Imagine for example, that the host is in New York and the IC is in California and a dispute arises. It goes without saying that the party that needs to travel cross-country to sue or defend a suit will be disproportionately burdened by the litigation.”
Long story short? If you feel your host has defaulted on commissions, the cost to pursue litigation (lost time, travel expenses, hiring an out of state lawyer) may very well exceed the amount of restitution you (may or may not) be awarded if the jurisdiction is out of state.
7. ADR (Alternative Dispute Resolution) or Arbitration Clauses:
Some contracts may stipulate an ADR/ arbitration clause in order to avoid court altogether. If there is an arbitration clause, it means that both parties are giving up their right to sue. However, this doesn’t mean that arbitration isn’t costly.
Through arbitration you will have to hire an a arbitrator (usually a retired judge) and possibly a lawyer to represent you or your agency. An arbitration clause—if included in your contract—should outline who’s responsible for the cost of arbitration.
Wondering what to do if your host isn’t paying commissions? Check out this article here.
8. Schedule of Rental Fees for Office Space or Equipment:
This may not apply to many home based agents. But if you are the exception, not the rule (you rebel, you), the rental rate should be clearly outlined in your contract with a breakdown of equipment (desk, chair, etc.) and services (i.e. internet) included.
Lobasso mentioned that this provision is primarily a concern for the host since, “charging the IC for these items supports a finding that the worker is not an employee.”
9. ICs Risk of Loss:
Starting a travel agency is like starting any business—there is financial risk involved. Your independent travel agency contract with host agency will indicate that the IC assumes this risk. As Friedman state, “the agreement should outline the relationship of the parties and the IC’s risk of loss in the event that commissions do not cover expenses incurred.”
Red Flags to Look for in Travel Agent Contracts
Now, what you can expect in an IC travel agent contract. There are also a few things you do not want to see in a contract . . . a few qualities that should put your spidey senses on high alert. Here’s a few red flags to look out for, according to Lobasso:
1. Unclear or indefinite terms
Are certain terms used that are not defined in the agreement? Are the timeframes for performance of the parties obligations clearly stated? (For example, when the IC receives a commission.)
For our purposes, Lobasso describes ambiguity as, “Any inexactness in the drafting that leaves a provision of the contract open to more than one reasonable interpretation. In my experience, this sort of thing is one of the primary reasons why parties end up in court, and more often than not it’s completely avoidable.”
If something isn’t clear to you, ask your host. But it’s not enough for the host to explain or define terms to you verbally—any clarification should be reflected in the contract.
3. Compensation structures that are overly complicated.
Lobasso warns agents against complicated compensation structures, “It’s in both parties’ interest that the compensation structure be as simple and clear as possible . . . Disputes often arise because the commission terms were unnecessarily complicated or practically indecipherable. In some cases it’s intentionally drafted that way in order to induce the contractor to sign it without really understanding just how unfavorable the terms were.”
4. Non Compete Clauses
As an independent contractor, you should be exactly that . . . independent. So if there is a non-compete clause in your contract, that could be cause for some surprise.
Lobasso explained non-compete clauses in IC/host contracts like this, "While often seen in employment agreements, non-compete clauses typically don’t (and shouldn’t) appear in IC agreements. While inclusion of such a provision could be warranted under certain circumstances, generally speaking the IC, by virtue of its status as an independent business, is free to render services to whomever it wishes. "
For a little more information on non-compete clauses (and restrictive IC/host contracts in general), you can read Mark Pestronk's article here.
More Resources for IC Travel Agent Contracts
Still a little nervous about putting your John Hancock at the bottom of a host agency contract? There’s more support for you. If something is unclear in your contract, you can ask the host agency to clarify and amend the contract.
Wonder if a host is legit? Well, if the reviews on our site aren’t enough, there are organizations such as PATH (Professional Association of Travel Hosts) that have pretty stringent requirements for membership. One of those requirements is to provide a contract to ICs.
According to PATH president, Anita Pagliasso, “As far as what PATH requires in an IC agreement, there are sample contracts that have been published by ASTA with guidelines, which includes terms, conditions and commission details clearly stated. We have made a copy of ASTA's recommended agreement available to PATH members.”
You can also look to see if the host agency is a member of ASTA, who holds their members to a high standard. On that note, ASTA also provides significant support to ICs through their “Member Advantage Program.” According to the ASTA site, “As an ASTA member you will receive a free 15 minute initial consultation, a written estimate subject to the attorney's qualifications, and fifteen percent (15%) off each attorney's regular fees. Our attorneys can provide counsel on issues such as sale, merger or acquisition of travel agencies, employment and supplier contracts, CRS negotiations, etc.”
Not too shabby, eh? Membership is $199 for independent agents who sell less than 1M in travel annually and $345 for members selling above that threshold. And if you're looking to dig into more legal resources on the site you can take a detour here.
Phew. If you made it this far, not only am I frankly impressed by your attention span, but I’m also confident that you’ll be well-equipped to face a host agency - independent travel agent contract.
Like I said earlier, I’m a far cry from lawyer. I want to extend my sincere thanks and appreciate to Peter Lobasso (an actual lawyer) and Jackie Friedman (president of Nexion Travel Group) who liberally offered their industry expertise! Also a special thank you to Mark Pestronk for providing us with a sample contract that you can use for your own purposes! Thank you three for sharing trade secrets (and for making me seem 100x smarter than I really am when it comes to travel agent contracts).
Do you have thoughts? Want to share your experiences with independent travel agent contracts? Share your insights in the comments below!
- “Term agreement” refers to the duration of the contract ↩