Mark Pestronk
Q: Apropos of your Oct. 14 column about ICs who commit fraud on their hosts ("How a host can prevent IC fraud"), what about vice versa? With so many advisors depending on hosts for their livelihoods, what happens when a host collects the commission from the supplier but fails to pay the agreed split to the IC? Is that fraud, too? Does the host have a duty to segregate what an IC is owed from the host's own funds? What remedies are available to the IC?
A: The host business is highly competitive. There are 283 host agencies listed on the Host Agency Reviews website, and almost all of them are looking for new ICs all the time.
Most hosts work hard to maintain their reputations. Late payment seems to be unusual, and complete nonpayment is quite rare.
If your host fails to pay on time or fails to pay at all, it is usually a sign that the host is in financial trouble. Inability to pay is not fraud; it is just a breach of contract, and the host has no duty to segregate funds owed to you from its own money.
With most commercial relationships, you can sue the other party for nonpayment or late payment and eventually force it to pay its debts. However, with the host-IC relationship, the IC often ends up stuck in what I call the "trailing commission dilemma."
At any given time, a successful IC has pending bookings for future travel. Disrupting the host-IC relationship by filing suit may well disrupt both the affected clients' travel plans and future commissions for their travel, so ICs can often feel that they are helpless.
You should probably stop booking through the host and start up with a new host. Eventually, you will have no more future bookings with the old host, and then you can enforce your rights to get paid what you are owed.
Once you are free from the trailing commission dilemma, you can sue without repercussions. Just be sure to file before the applicable statute of limitations runs out.
In many cases, you and the old host will be in different parts of the country, and that means you will need to retain a lawyer to sue the host in its home city. Few lawyers take breach-of-contract cases on a contingency-fee basis, so you may end up paying the lawyer more than you collect from the old host.
You could try to get the old host to agree to mediation or arbitration instead of court litigation, which could be cheaper than court litigation. Unless your contract with the old host provides for these alternative procedures, the old host does not have to agree, and it probably will not do so.
For the future, when negotiating your new host agreement, try to get a right to audit its records of sales and commission collections. The prospect of an audit will be daunting to any host, so merely having the audit right is powerful leverage to get the host to pay you if a similar situation ever arises.