Top 10 Legal Issues Facing Travel Agents

Problems caused by fraudulent independent contractors, employee mistakes or deceptive clients can cost travel agencies huge sums of money, warns travel industry attorney Mark Pestronk.

Travel Market Report asked Pestronk to outline the top legal issues facing travel agencies today and provide quick tips on how to identify and avoid costly legal pitfalls. Here’s what he said.

1. Fraud by independent contractors (ICs).
“This is the biggest problem agencies face, as suppliers and clients hold you responsible when a rogue contractor commits fraud by, for example, charging tickets to a phony credit card or taking the client’s money and embezzling it,” Pestronk said.

TIP: Screen ICs carefully, including the following: 1) conduct in-person interviews; 2) check at least two references; 3) ask suppliers about the contractor’s reputation, and 4) check credit and criminal records.

2. Airline- debit memos on chargebacks for allegedly unauthorized card charges.
“These are especially dangerous because of ARC’s power to declare you in default by deeming a sale that results in such a chargeback to be an improperly reported sale,” said Pestronk.

While often caused by fraudulent ICs, debit memos can also result from an employee’s mistake, employee fraud or client deception, he added.

TIP: To prevent credit card chargebacks, require employees and ICs to follow the rules outlined in ARC’s Industry Agents’ Handbook.

3. Airline-issued debit memos for reservation rule violations.
These can add up to hundreds of thousands of dollars when clients knowingly book back-to-backs or hidden cities without the agent’s knowledge or when agency employees or ICs make such bookings in order to get lower fares, Pestronk said.

TIP: Educate agents about reservation violations for which suppliers could hold the agency responsible.

4. Agency loses the right to sell an important supplier’s services.
“Every supplier contract, including your contract with each airline under the ARC agreement, allows the supplier to cease doing business [with your agency] for no reason,” Pestronk said. “Too often, suppliers exercise their rights because they believe that you have done something wrong, even though you are guilty of no wrongdoing.”

TIP: If a supplier blocks your agency from selling it, Pestronk offered a work-around: “Book the supplier through another travel agency. However it must be done very carefully, with no record of your agency’s name; otherwise the supplier may drop the other agency as well.

5. Signing supplier-inventory contracts in your agency’s name and then having the client back out.
TIP: “Make sure you sign hotel, tour and cruise group contracts as an agent for the client. Otherwise, the supplier could sue your agency if the client fails to perform.”

6. Signing of long-term contracts by unauthorized employees.
Although this problem applies mainly to large agencies with multiple locations, Pestronk said owners of agencies of all sizes have had situations where employees signed contracts, such as phone system or copier-maintenance contracts, without having been authorized to do so.

TIP: Prohibit ICs and employees from signing vendor contracts without your express written permission.

7. An unknown person makes a fraudulent transaction in your agency’s name on a supplier website or by phone.
“This fraud has become quite popular, especially targeting Southwest,” Pestronk said.

TIP: Make sure employees understand that emails soliciting their GDS logins or containing a link to a login are always fraudulent phishing attempts to break into your GDS and issue tickets in your agency’s name.

8. A client confuses the agent’s responsibility with the supplier’s responsibility.
This confusion is the source of the majority of lawsuits and claims by clients, according to Pestronk.

TIPS: Require employees and ICs to use disclaimers in all transactions (except those for corporate clients) that involve signed contracts. Also, offer cancellation and medical insurance to every leisure traveler; a client who suffers a financial loss is less likely to blame the agency if insurance was offered.

9. Getting sued for violations of labor laws or civil rights.
“Even if you are held not liable, your legal fees could be hefty,” Pestronk said.
Tip: Be aware of the regulations regarding these issues in the state or states where you do business.

10. Fines for failing to register under a ‘seller of travel’ law.
Agencies who do business in one of six states that have such laws will face fines if they do not register, Pestronk said.

TIP: Be sure to stay up to date on – and comply with – the laws governing travel sellers in your state.