Mark Pestronk
Q: If an independent contractor (IC) of our agency provides negligent advice, such as advising a client that it is not necessary for U.S. citizens to have a passport (or Nexus card) to catch an Alaska cruise departing from Vancouver, is our agency legally liable for the client's loss? I understand that, if the advisor were an employee, our agency would be liable, but is it different for an independent contractor?
A: The general rule is that your agency is not liable for the errors of ICs. The rule is the opposite for employees, where the employer is liable for an employee's negligence committed within the scope of the employee's duties.
To understand the distinction I am making, it is helpful to remember that the host-IC relationship is a B2B relationship between parties with theoretically equal contracting rights. It does not matter whether the host is a big business and the IC is small; nor does it matter whether the commissions are collected by the host and not the IC.
The general rule extends to all aspects of the agency business. For example, if an IC signs a group hotel contract in the IC's own name, the host is not liable for the IC's failure to pay for the rooms. If an IC mistakenly quotes a cruise group price per cabin instead of per person, the host isn't liable for the extra amount due to the cruise line.
Similarly, if an IC sexually harasses or discriminates against a client on the basis of race or religion, your agency is not liable either to a plaintiff in a lawsuit or to a government agency that enforces the civil rights laws.
The exception to the general rule in all these cases is the concept of "apparent authority," which is the situation that arises when a person or business such as the host indicates to a third party that a person such as an IC is authorized to act on its behalf and the third party relies in good faith on such indication, even if the person isn't really authorized.
In other words, if you allow your agency's IC to indicate to clients (or suppliers) that the IC is authorized to act for you, then you are liable for the IC's errors. For example, if you allow the IC's email signature to state, "Jane Jones, senior travel agent, ABC Travel" or even just "Jane Jones, ABC Travel," you probably indicate to clients (and suppliers) that she is your employee and is therefore authorized to act for your agency.
Since you don't want to be held liable, you can help ensure that these problems don't occur by having a written contract with your IC covering: a) a title for the IC that uses the word "independent," such as "independent travel advisor"; b) a total prohibition on signing contracts in your agency's name or for your agency without your written consent; and c) indemnification by the IC against all claims arising out of the IC's activities.