Lancer Leader Ally
Monday, June 27, 2022

BY MATT DAUS

The events of the past two years have revealed the inadequacies of many affiliate agreements in the industry. A strong agreement can facilitate and protect your growth after the pandemic as it dictates your company’s—and the network partner’s—rights and remedies against each other and the applicable standards of performance. The level of detail in such agreements varies widely, with some companies simply signing up affiliates by email or entering their information into a dispatch system, while others are too cumbersome that they scare potential affiliate partners away. You’re looking for that “just right” balance of detail and coverage.

Legal Ease Affiliate Agreements The pandemic has also highlighted a new issue: what happens if my company gets sued for the transmission of COVID due to the negligence of an affiliated company/chauffeur to adhere to health and safety protocols? This caused many of my law firm’s clients to take a fresh look at their affiliation agreements. A host of concerns presented themselves as we dug deeper, and we strengthened these documents on many levels, including customer service standards, risk mitigation and indemnity, and on prices and terms. It’s time to hit the reset button on your own affiliate agreements to reflect our current reality.

Establish Adequate Terms and Conditions
The terms and conditions control the relationship between your company (the network provider) and your network partner and its drivers (affiliate), so striking a balance between your interests and those of your affiliate is key. The terms and conditions should be easy to read by the average person. Disclaimers against illegal activity and use of the “affiliate network” should be obvious, and require an acknowledgment prior to agreeing to work for the network.

Reliance on digital platforms can leave your company increasingly vulnerable to bad actors who aim to use the network for nefarious purposes, such as transporting unaccompanied minors, facilitating underage drinking, permitting human trafficking, being vulnerable to data breaches and ransomware attacks, failing to guard against insurance or bank fraud, or unknowingly engaging other illegal activity. Having adequate terms and conditions will allow your network partner to perform while protecting your company and its assets from someone else’s civil and criminal liability.

In particular, compliance with local laws and regulations should be contained in your network partners’ agreements with drivers, which can be a material condition of performance (e.g., local requirements for the transport of unaccompanied minors). Without these tailored disclaimers, civil and criminal liability could implicate you and your company.

Business Terms: Precise and Simple
Your affiliate agreement may be airtight from a legal perspective, but without precise business terms, you may have nothing to enforce because of loopholes or poor drafting. Precision makes it more predictable, and predictability guards against risk.

Some key business terms to include: duration, pricing, payments, expenses, insurance, non-solicitation, confidentiality, termination, performance obligations during force majeure events, choice of law and venue, and limitations on liability. The more precise these terms are, the more predictable your affiliate agreement will be, allowing you to plan accordingly as your business grows or contracts.

For example, the duration of your affiliate agreement is known as the “term” of the agreement, and there are many questions that must be answered before drafting the clause: Would you prefer a one-year term? What happens after that? Are you seeking an automatic renewal, and for how long? Are renewal terms subject to termination in the same manner as the initial term? Having exact language in this section will provide a clear and predictable framework for expiration and renewal.

Example:
The initial term of this agreement shall commence on the date hereof and shall continue for a period of one (1) year, unless terminated prior thereto as provided in this agreement (the “Initial Term”); provided that, this agreement will be automatically extended for additional one (1) year terms (each, a “Renewal Term”) unless terminated prior thereto as provided in this agreement, or if either Party gives written notice to the other at least thirty (30) days’ prior to the end of the Initial Term or any Renewal Term that such Party does not wish to extend the agreement (the Initial Term and the Renewal Term, collectively, the “Term”).

Force Majeure Clauses
A force majeure event is generally defined as an unforeseeable circumstance that prevents a party from fulfilling a contract. Prior to COVID, these clauses were routinely overlooked as insignificant with boilerplate language. The pandemic highlighted the paradox where operators were contractually obligated to perform despite public health shutdowns, resulting in automatic cancellation or removal from the affiliate network for not meeting performance standards. Moving forward, having a tailored force majeure clause may allow affected operators to suspend performance without losing retention.

These clauses should include pandemics, epidemics, or any other public health crisis as qualified events, and or allow the parties to terminate the contract without penalty if the event continues for a specified period of time (we have typically seen 30 days).

More complex and serious issues can arise if other business terms are ambiguous or fail to anticipate future circumstances, such as the obligation of the network partner to collect and remit applicable taxes, surcharges, and fees or violating a confidentiality provisions by disclosing competitive pricing. All of the business terms discussed in this article are equally deserving of precision.

Health and Safety Requirements
Based on the lessons learned from the pandemic, it is paramount that transportation companies continue to follow health and safety requirements at all levels. The first line of defense against the non-compliance of an affiliate or affiliated driver is your agreement, which should include specific standards for cleaning and disinfecting protocols.

The standards should be based on the guidelines provided by local, state, and federal government, or the World Health Organization for global partners.

Examples include:
• Requiring complimentary surgical masks, hand sanitizer, gloves, and sanitizing wipes;
• Keeping bottled water in a separate compartment and available only on demand;
• Removing a vehicle from service for a specific period of time in the event of an infection traceable to that vehicle;
• Compliance with mandatory vaccine requirements.

The agreement can further indemnify the network provider from any liability arising out of a deviation from the standards. These standards should be updated periodically as new safety requirements become available.

Affiliate Driver Demand and Shortage
The short supply of drivers is putting pressure on networks to keep up with increasing demand, shifting leverage to chauffeurs. This issue requires a ground-level solution for the benefit of your top-down business model. Reframing the relationship from independent operator (IO) to affiliate driver can strengthen the relationship and the underlying agreement.

This simple change creates a different dynamic than the old-school relationship of owner and IO, and acknowledges that the affiliate driver is an asset to the network. Further, affiliates can be incentivized to provide an exclusive, steady supply of drivers to your network if you included milestone and performance-based bonuses, profit sharing, or other benefits.

Next Steps?
We have learned to expect the unexpected. Anticipating the current market dynamics, and drafting a strong affiliate agreement with specific language governing the performance of the respective parties can protect against future shutdowns triggered by variations or mutations. Strengthening your agreement will provide your company with the confidence necessary to scale and grow your network.

Now is a good time to review your existing contracts and rewrite key provisions or consider starting from scratch.   [CD1221]


Disclaimer: The foregoing is provided solely as general information, is not intended as legal advice, and may not be applicable within your jurisdiction or to your specific situation. You are advised to consult with your attorneys for guidance before relying upon any of the information presented herein.

Matt Daus is a partner with the law firm Windels Marx, president of IATR, and a leading authority on ridesharing apps. He can be reached at mdaus@windelsmarx.com.