Since starting his ISO in 2009, Michael Hass has recruited more than 200 sales agents, but only one has sent a contract to an attorney for review. Only about a quarter of agents ask specific questions about contracts.
Ive seen it where we send our agent agreement to somebody at one oclock in the afternoon, and it comes back signed, with no comments, questions or concerns, less than an hour later, says Hass, president of Priority Payment Systems PDX, an ISO based in the Portland, Ore., area. We try to do the best we can for our agents, but some agents are either too trusting or theyre not doing their due diligence.
Instead of pleasing Hass, those trends surprise him and even cause him some concern.
Historically speaking, I find that when people are taking their time and doing their due diligence on us, on the agreement, that we have a longer-term relationship with them, and that theyre not hopscotching from one ISO to another, Hass says.
Many new sales agents skip having a lawyer review their first contract, says Holli Targan, partner at Jaffe Raitt Heuer & Weiss in Southfield, Mich. and past president of the Electronic Transactions Association.
Typically, agents are so happy to just be able to do business in the industry that they figure, This all looks like boilerplate, and Im not going to question anything. They wont change anything anyway. I dont have any negotiating leverage. Therefore, Im just going to sign whatever is put in front of me. And then they realize thats probably not the wisest course of action, she says.
More experienced agents, or those who have suffered the consequences of a one-sided or vaguely worded contract are more likely to seek legal counsel, she says.
But Targan doesnt recommend waiting: she advises all agents have their agreements reviewed.
There are certain contract clauses that, if youre not experienced, you dont realize that you should be wary of, she says. A knowledgeable lawyer will also be able to suggest things that the sales representative has probably never thought of. In other words, its not only whats in the contract; its also whats missing from the contract that you have to be cognizant of.
For instance, the contract may fail to state that the sales agent is entitled to residuals for as long as the ISO receives revenue from those merchants, Targan says. Agents whose contracts dont adequately protect their rights to residuals could spend years building a portfolio, only to forfeit that income.
Sometimes whats missing is not a clause but a contract altogether, says Adam Atlas, founder of Adam Atlas Attorney at Law, a firm based in Montreal, that serves Canadian and U.S. clients. Atlas is licensed to practice law in both Canada and the state of New York.
No written contract? That most often occurs when friends or relatives are working together, he says.
And the parties never think to sign a contract because they trust each other. First of all, that is a breach of the Visa and MasterCard rules, so even if they continue to trust each other forever, they would still be creating liability for themselves vis a vis the card associations, Atlas says.
If a misunderstanding or falling out does occur, neither party has anything to point to that defines the terms of the relationship, he says, which exposes them to disputes over their rights and obligations.
When a contract is in place, agents should think carefully about how it addresses exclusivity, Atlas says. Contracts may prohibit agents from soliciting merchants on behalf of other ISOs.
And there may be circumstances where, commercially, that is an agreeable outcome, where the agent is being trained, compensated or assisted in such a way that an exclusive relationship makes sense, Atlas says. However, maybe there arent, and the agent shouldnt have become exclusive.
Targan advises against ever signing an exclusive arrangement; that way, if the agent-ISO relationship sours, the agent has access to other sources of revenue.
ISOs may think they are better off with agents working under exclusivity arrangements, Atlas says, but thats not necessarily the case. Regardless of the language in a contract, state labor commissions or taxing authorities may find such agents are not independent contractors but are actually employees. Then the ISO would be responsible for taxes and deductions it would not have to deal with for an independent contractor.