GS Logo
The Green Sheet, Inc

Please Log in

A Thing

Send an Email to:

ISO Liability for Agent Actions

By Adam Atlas

Like it or not, ISOs are generally liable for the actions of their agents, or merchant level salespeople (MLSs). If you are an ISO with liability, this means a lot more to you than you might have thought.

Whether your salespeople are employees working under 1099s or independent contractors working under independent contractor agreements, as an ISO, you are generally liable for acts and omissions by your salespeople undertaken in the course of carrying out their duties for your business.

I'm sure many readers have given this issue thought in relation to the most obvious sources of liability, such as salespeople causing damage to company property.

However, I am often surprised by ISOs that have not given enough thought to their own liability under their own main ISO agreements on account of actions taken by salespeople working under 1099s or independent contractor agreements.

The following points should be taken into consideration by all ISOs when hiring salespeople:

Vital Liability Language

No MLS agreement is complete without language to the following general effect:

"The MLS shall indemnify and hold the ISO harmless for any and all losses, penalties, fines or other losses incurred by the ISO under its agreements with processors and or banks on account of any actions or omissions by the MLS."

The language above is crude, and should not be used in an agreement without first consulting a lawyer, but the general intent of it is to make MLSs liable for ISO losses they caused under the ISO agreement.

Know Your Exposure

Give a lot of thought to how MLSs might engage ISO liability by their actions during and following their relationship with the ISO. Perhaps the worst scenario for an ISO is that one of its former salespeople moves the ISO's merchants to another processor in possible violation of the ISO's agreement with the outgoing processor.

ISOs usually do not give this scenario much thought; however, they should. A lot of ISO agreements are drafted in a way that makes the ISO liable for breaches of its non-compete obligations by MLSs, even after MLSs have been terminated.

It's hard enough to police existing salespeople; it's even harder to police former salespeople.

Monitor Sales Reps

Salespeople are more than just people who send paper to the ISO or processor. They are often alert, intelligent individuals who develop relationships with merchants that form an integral part of the stability of the ISO residual stream.

Be aware of what your salespeople are doing, and engage in frequent and active communication with them both during and after the end of their relationship with you.

Carrot Versus Stick

Every ISO has its own individual way of motivating MLSs. If you are an ISO that is very strict in withholding amounts from MLSs, I advise you do so with great care. Don't forget, every MLS you let go is someone who goes out into the world with things to say about you and your business.

They also leave with an intimate knowledge of your merchant base—not to mention the relationships they may have with your merchants.

I'm not recommending being lax with MLSs, but rather just and fair. Consider, for example, an ISO that terminates an MLS for a minor rule violation. Also consider that this terminated MLS might take the ISO's merchants following termination and trigger a violation of the ISO agreement by the ISO.

No ISO in its right mind would wish to terminate an MLS for a minor infraction if this might risk its entire business.

In my experience (which is confirmed by management textbooks and studies), most high-ranking business people have high levels of empathy. Ironically, it's the less aggressive trait of empathy that might propel someone to a higher level of success.

Because of the relationship between MLSs and merchants, they can "give as good as they get" when they are wrongly terminated and take to migrating merchants as a response.


In order to protect an ISO against potential losses incurred as a result of an MLS action, the ISO could consider a reserve or hold back on certain payments to the MLS.

In my experience, this is not the industry standard, and the ISO that does this might scare away some otherwise productive reps.

In any case, this is an option to consider. Also think about holding the reserve following termination of the MLS. This time period is especially crucial because it will expose the MLS as being either friendly or unfriendly in regard to post-termination non-competition and non-solicitation obligations.

Post-termination Rights and Obligations

Everyone in the card business knows that termination of an agreement, in the custom of the industry, is not the end of the relationship between an ISO and a processor or bank, or between an ISO and its MLSs.

First of all, there are post-termination residual payments. Secondly, there are often post-termination non-competition obligations. When winding down an MLS relationship, look closely at these post-termination rights and obligations.

You might be surprised that a lot of the ideas presented in this column are not specifically law-related, but rather common sense, interpersonal matters. I would rather give easy-to- understand, practical advice to help you avoid problems than bore you with legal mumbo jumbo.

In my experience in this industry, common sense, fairness and interpersonal skills make up 95% of the value in any business relationship during and after termination thereof.

In publishing The Green Sheet, neither the author nor the publisher is engaged in rendering legal, accounting or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought. For further information on this article, please contact Adam Atlas, Attorney at Law by e-mail: or by phone: 514-842-0886.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.
Back Next Index © 2004, The Green Sheet, Inc.