State Regulations: Contractor complications
Previous articles in the State Regulations series:
o Cross-border issues
o Disclosure by the book
o Laws seen as fundraisers
o Enforcement is key
o Who requires what
The following is part of a series of articles that provides an in-depth look at state laws governing travel agents and the impact of those laws on the trade. See a sidebar story below on the pros and cons of dropping ARC.
By Nadine Godwin
Even without state registration laws, travel agents and their commissioned salespeople dance on a tightrope when they seek to maintain independent contractor status for outside sales personnel.
Two states -- Florida and Washington -- require lists of salaried staff and independent contractors. Another two states -- California and Nevada -- acknowledge them by exempting them from registration under certain conditions.
In general, regardless of the specifics of the laws, the states want independent contractors to register if they handle client money or accept service fees that are not forwarded to a host.
Some agents historically have placed all business with a host -- and may be extra careful to do so in states with registration laws -- while they have functioned as independent contractors under tax and insurance laws.
Is there a problem with this?
Can an agent be an independent for tax and insurance purposes but not obtain a separate registration number under a state regulatory law? Using someone else's registration number doesn't sound very independent.
Travel Weekly canvassed several trade attorneys and, to a man (and woman), they said it is possible to be an independent without getting a separate registration number.
Travel attorney Mark Pestronk said, "You are being too logical" if you try to "analogyze" in this situation. "The criteria under the tax laws don't have anything to do with registration laws."
Amy Hendricks, director in ASTA's legal department, said a host's listing of contractors does not necessarily take away a claim to be an independent. "It does not say there is control" over the salesperson; it just says the agency gets business from a specific source.
However, with reference to the California law, San Francisco attorney Alexander Anolik said, although it is possible to avoid registering while maintaining independent status, the independent must deliver all business and money through a host and must not have a business card with his or her own agency name. The card should carry the seller's personal name instead, and it can say the individual is "associated with" XYZ Registered Agency.
Also, Anolik said, the case for independent status is stronger if the agent is funneling business through several hosts.
In most cases, hosts and their independent contractors probably have not changed their relationships in light of state registration laws; some have cleaned up a few contracts, however.
In Hawaii, where the law does not mention independent contractors, agents are "kind of winging it," said ASTA chapter president Danny Casey. However, typically, he believes, they are following the kind of framework made explicit in other states: If the contractor handles the money, the contractor registers.
In Nevada, however, one agent, Bonnie McDaniel, owner/manager of A Quick Trip in Las Vegas, said she had had a raft of independent contractors before the Nevada law became effective last fall.
She lost eight independent sales outlets because they could not satisfy the law; she still has two independents who are registered separately and who place some business with suppliers direct; the rest of her outside staff are treated as employees these days.
Those moves may not have been necessary in the view of Doug Crosby, a Nevada attorney and agency owner; however, the Nevada law isn't even a year old and much remains to be determined.
To keep or not to keep ARC
There may be good reasons these days for certain agencies to drop ARC credentials, but in Nevada and Ohio, the requirement that non-ARC outlets provide a $50,000 bond may be reason enough too keep ARC. The minimum ARC bond is only $20,000.
Getting the replacement $50,000 bond would be costlier than ARC's smallest bonds and maybe harder; changing one's mind and reapplying to ARC later wouldn't be much fun either.
Even in states where the non-ARC bond requirement is as low as $10,000, going for a new bond in today's climate may be more than a little trying and not always less costly than the cheapest ARC bond.
In the case of Florida, there may be a pleasant surprise though. Under the law, companies that are subject to the bond can seek a waiver from the bond rule if they have been registered and kept a clean record for five years. Similarly, ARC agencies with a good record could seek the waiver if they drop ARC.
Lisa Steffens, a regulatory consultant for the state of Florida, said a lot of agents don't know they could qualify for the waiver because they never look at the law again after they register.
Aside from unique state regulations, dropping ARC may not be a good idea anyway, at least not according to travel attorney Rose Hache. She said the value of the agency goes down if there is no ARC.
Attorney Mark Pestronk offered his two cents, too, saying it is a "big mistake" to drop ARC. He believes agencies have a better chance to thrive if they keep air in the mix, convince customers they offer value and charge appropriate fees.