TORONTO — It can be tough enough to make it as a home-based travel agent without running up against a non-compete clause in a host agency contract.
Difficult to enforce and highly subjective – but still legally binding – non-competes have become a contentious issue particularly for home-based agents looking to switch host agencies, but finding themselves in a legal quagmire instead.
The problem has escalated as more new host agencies come on the scene, giving agents more options – and on the flip side, more likelihood of running afoul of a non-compete clause.
Non-competes have been around for years and they’re a reality of doing business, but often a tricky one.
A travel agent who goes into business for herself, signs a contract with a host agency and then wants to switch to a different agency that’s a better fit for her business needs and client base, could trigger the non-compete clause. What happens when the original host agency withholds commissions owed, in retaliation?
In some cases the battle can only be resolved in court. Faced with the daunting prospect of legal costs, many agents simply give up, both the case and their commissions.
A dispute is more likely to arise if the agent breaks out of her contract early. But it’s not as though that’s the only time a problem can arise, according to one lawyer familiar with non-compete cases in the travel industry. “On occasion an agency will go after a departed Independent Contractor (IC) who left at the end of the contractual term, alleging that the departing IC took with her clients, files, etc. to which she was not entitled. This is especially true if there is a written non-compete, and it refers not only to the duration of the relationship but also refers to X months thereafter,” he said.
Most home-based counsellors are styled as Independent Contractors under contract to the agency, as opposed to employees of the agency, he adds. By and large, the IC designation is the way both the counsellor and agency prefer it. “At least while the relationship is good,” he notes.
“When things sour, it is not uncommon for the individual to take a different tack, and claim to be an employee who was deprived of vacation time, overtime protection, notice of termination, and other benefits that accrue legally to employees.”
And on occasion it might be the agency that makes that claim of employee status, “in order to restrict to a greater degree the ability of the ex-staff member to compete, as opposed to the situation if she was an IC,” he adds.
With a growing number of these cases going before the courts, a third designation is emerging: the Dependent Contractor (DC). “The main characteristic of DC status is exclusivity … the person will be seen as entirely dependent on that one company for income [and] the Court will try to protect her by characterizing her as a dependent contractor and therefore entitled to reasonable notice of termination, such as would be available to an employee.”
More protection is good for the agent, right? In some aspects, yes. But signing a contract as a DC could have the opposite effect when it comes to non-competes. “If a DC is to be treated like an employee, there would be stricter non-compete obligations,” he said.
The issue of non-competes is very much tied up with the issue of client ownership, he adds. “It seems clear that an IC who brings a client list with her to a new agency retains ownership of the goodwill associated with the business reflected by people on that list, and that the agency retains ownership of a pre-existing client, even if that client is on occasion serviced by the IC.
“But questions can arise with respect to a client who comes to the agency afresh, and is serviced by the IC. To whom does that client ‘belong’?”
The good news is, the majority of host agencies in Canada do not have non-compete clauses in their home-based agent contracts, and offer short contract durations. “We do not have a non-compete,” says Mike Foster, President, Nexion Canada. “The only thing we restrict is IC agents contacting other IC agents’ clients. ICs bring clients and build with new clients, but they are the ICs clients.”
Flight Centre Associates doesn’t have a non-compete clause either. “From a client perspective, an outside contractor brings their book of clients to us and we claim no ownership over this client base,” says Flight Centre Associates Brand Leader, Lee Zanello. “Secondly I feel that not having a clause like this to rely on simply makes us a better host. We have an extremely flexible contract with no fixed terms and our view is that if we are not doing everything we can to be the support you need for your business, then an Associate should seek out the best fit for them.”
Zanello said he’s dealt with several situations where other host agencies have gone so far as to send multiple threatening letters to agents, accusing them of non-compete violations.
That’s the situation one Halifax-based travel agent finds herself in. Deciding that her host agency wasn’t a good fit, she made the decision to leave. “I paid out my contract and told them I was leaving. I didn’t tell them I was going to a new host agency. They got word and sent me a cease-and-desist order. They said they were going to withhold commissions owing.”
So far she hasn’t pursued legal action. Not because she’s not angry, but because legal costs and transportation costs have made it near impossible. Meanwhile the lost commission is impacting not just her financial situation but her family life too. “It’s $4,000. My husband and I talk about it all the time. It makes him so mad. But I can’t afford to fly out there, back and forth, for a court case.”
It’s “crazy” for a host agency to put non-compete clauses into their agreements, says Flemming Friisdahl, President and Founder, The Travel Agent Next Door. “These people are not employees, they are actually contractors. Also the customer belongs to the agent, not the host agency. What this means is that there is no loss to the host agency as the agent is not taking the host agency’s customers. It is a clause that some host agencies put into their agreement as a fear factor, more than something they can actually enforce.”
The Destination Experts is one of the few host agencies that has a non-compete clause in its contract. But with good reason, says President Deanna Byrne.
“The Destination Experts’ primary platform is to bring individuals into the business that have little or no experience. Because of this template we do have a non-compete clause due to the intensive training, support and services we offer them,” says Byrne. “For the most part, yes, agents realize and value the importance of this. They appreciate that clients see value in working with travel professionals that maintain the same head office representation for extended periods of time.”
Byrne said she is often contacted by agents wanting to transfer from other agencies, “however this is not our business model. We respect the time and effort that goes into building agents and therefore do not try to recruit from our competitors.”
That said, she does look at individual cases with experienced agents and non-competes. “Many are ‘testing the waters’ and prefer to not have that in their agreement. We respect their concerns and find solutions that are a win/win for all parties involved.”
Just about every host agency urges agents to read their contract, carefully, and preferably with a lawyer. Contract duration (i.e. short term and not multi-year) is a key point to look for. And find out if there’s a non-compete clause. Otherwise, you could find yourself signing up for a lot more than you bargained for. And paying the price.