Travel agencies

Work unlikely to target travel agencies on CI status: Travel Weekly

A new Labor Department rule could make it harder for agencies to classify workers as independent contractors (ICs) as opposed to employees, but there are steps agencies can take to ensure their ducks are lined up when it’s about having ICs.

Furthermore, industry experts agree that even if the new rule is implemented as written, Labor is unlikely to audit employers in a sector like travel, where the employer-CI relationship is preferred by both parties.

“I would say the Biden administration is committed to avoiding the exploitation of workers who don’t work overtime and who don’t even earn minimum wage,” said industry attorney Mark Pestronk, who writes Travel Weekly’s Legal Briefs column. “I don’t know if they’re really interested in that kind of travel relationship where everyone’s happy.”

Peter Lobasso, general counsel for ASTA, agreed.

“The Labor Rule is in no way an existential threat to the viability of the IC business model.” –Peter Lobasso, ASTA

“To our knowledge, travel agencies have not been a particular target of Department of Labor enforcement efforts with respect to the misclassification of workers, and I see no reason why this would change if the rule were adopted as proposed,” he said.

Last month, Labor released a proposed contractor classification rule that uses an economic reality test to determine a worker’s status. Six factors are taken into account, including the investments made by the worker and the employer and the sustainability of the employment relationship.

Essentially, Lobasso said, the new rule takes Labor’s interpretation of the economic reality test back to what was in effect toward the end of the Obama administration. It gives equal weight to all factors, instead of the two proposed under the Trump administration to have more weight: control over the worker and the worker’s opportunity for profit and loss.

ASTA sees this as “a modest step backwards” in classifying workers at the federal level, “but by no means an existential threat to the continued viability of the IC business model,” Lobasso said. The Society also continues to advocate for harmonization of worker categorization at the federal level, as several tests are currently used by federal entities.

Pestronk said of the six criteria, “no one factor will be determinative.” Instead, all must be weighed to determine a worker’s status. Most problematic for travel agencies is whether a worker is “performing the same work that an employer is in business to provide”.

Better to be safe than sorry

Regardless of the likelihood of the proposed rule being enforced through an audit, the two attorneys advised agencies to consolidate agreements with ICs.

Lobasso encouraged agencies to look to “longstanding industry best practices” for hiring CIs: having a written contract, paying CIs based solely on sales and not hours worked, and hiring a CI in as an entity, such as an LLC.

Marc Pestronk

Marc Pestronk

Pestronk also emphasized engaging ICs as LLCs or corporations, because their own corporation is then responsible for paying minimum wage or overtime, not the host agency. Hosts who hire both ICs and employees must establish a separate accommodation company that may perform administrative duties related to IC accommodations, but does not sell travel itself.

IC contracts should give workers the ability to work with multiple host agencies, establishing that an IC relationship is less permanent, Pestronk said.

And no host agency should dictate when ICs can operate.

A potential issue is a factor in the rule that takes into account “skills and business initiative,” which would indicate whether a worker is in business for themselves and not an employer, by demonstrating independent business judgment. Pestronk said “beginners” might have problems being called IC under this factor, a problem that can be solved with training.

“But on the other hand,” he said, “all factors must be taken into account – no single factor is decisive.”

Comments on the Labor Party’s proposed rule will be accepted until mid-December. After that, the department will reflect on the contribution and possibly reveal its final rule. According to Pestronk, given the likelihood of an inevitable, but likely unsuccessful, trial, the new rule likely won’t go into effect until 2024.