Back in the Fall I started to write about a legal case surrounding miles and points where I served as an expert witness. The case had concluded, and the attorney who engaged me gave me signoff to post about it, with my commitment not to include any names.
At the time we both thought it would be a good idea for people to know the risks involving small business program accounts, because I know there are plenty of people who have opened accounts in the name of their company out there.
Reader Jess asked me to come back to this, so I thought I’d lay out the story in broad strikes.
Full disclosure: as an expert witness I was compensated for my time advising defense counsel and also for my time in court.
A woman, who served as travel coordinator for her company, had been applying an airline small business account number to travelers’ reservations. The company hadn’t been aware of these programs or made use of the points in the past, so she thought she’d get the points. She viewed the points as hers, she says she was told by her boss that she could have them as a perk of the job although there wasn’t any documentation of this.
When she left her job and the company hired a new travel coordinator, that person went to sign up for small business rewards accounts. She found they already had an account with this airline, that it had accrued points, and that the points had been used.
The new travel manager brought this to the executives of the company, and they were furious — they viewed it as stealing from the company. And in what seems like there must have been an executive on very friendly terms with someone in the US attorney’s office, charges were brought. This wasn’t a state case for theft. These were federal charges. In what struck me as an extreme case of boot-strapping, the woman was charged with federal computer crimes (for accessing a computer account belonging to her company without authorization).
That’s when I got involved in the case, another blogger connected me with the federal public defender representing the woman facing charges for having used the points in a small business account that was in her employer’s name.
Who Do Small Business Programs Reward.. the Small Business, or the Decision-Maker?
Travel loyalty programs are all about conflicts of interest, and indeed about creating conflicts.
Frequent flyer programs are all about created a consumer preference for one carrier over another, and frequent guests programs one hotel chain over another — turning a commodity product like an economy airline seat flying from A to B into a differentiated product, and one that travelers have an incentive to choose and even spend more money to get. In the case of business travelers, the programs create an incentive for the traveler to spend their employer’s money for their own benefit.
An early airline loyalty program was Southwest’s Secretaries Program where assistants were rewarded with free travel for booking their bosses on the airline.
Travel rebates are meant to lock in travelers. Small business programs offer rewards to a business for choosing a carrier. Those rewards can be used to offset business travel expenses, but that’s tough to do because mostly you’re dealing with capacity controls which are a challenge when business travel demands being on specific flights and not wasting time or re-arranging meetings based on availability. They reward the travel manager, who divvies out the points (to employees or to themselves).
Hotel programs are usually even more blatant about rewarding the individual decision-maker rather than the company. Meeting planner programs reward the individual signing the contract (the meeting planner). Starwood recently got rid of points accumulating in a company account in favor of rewarding the individual decision-maker instead.
Airlines usually want to reward the decision maker who is often the travel manager, as well as the traveler themselves. With small business programs they do this in a roundabout way. Hotel meeting planner programs are more blatant. Starwood has shifted from the small business account to the more direct approach.
In some companies it’s customary for the travel manager or meeting planner to receive this perks, although it’s not always clear. And one of the uses some programs suggest in their marketing materials is to use the points for rewarding employees.
My own take is that the best approach is transparency, meeting planners and travel managers should make sure any perks are clearly disclosed to superiors and that an open discussion takes place. The suppliers rewarding an employee can be awkward, the key from an employer’s perspective I think is to make sure it doesn’t influence their decision-making and to make sure it doesn’t increase a company’s costs. And then a discussion can happen about what’s compensation versus what can be used to offset company expenses.
Do Points Have Value to the Company, and How Much Are They Worth?
Points don’t have accounting value. When a company buys a ticket for business travel, they’re going to write the expense off on their taxes. The points they receive aren’t then booked as offsetting income. The points aren’t held on the company’s balance sheet.
Points belong to the airline, not to the company. This has been one of the long held and awkward claims that frequent flyer programs make. But at that point, are they an asset of the company at all? Interestingly, despite terms and conditions to the contrary, the airline’s representative testified that the points do in fact belong to the company rather than the airline.
Points may be of limited use to companies. Some airline small business programs offer awards that book into revenue classes (Delta’s SkyBonus books low level awards into the lower revenue classes), and programs may offer more flexible tickets for more points as well. Where corporate awards have to be used in frequent flyer award classes, those are especially tough to use for business travel where passengers don’t have the same flexibility they may have when planning vacations about when to leave and when to return, or as much ability to plan in advance. A meeting is when it is, it may not come together until the last minute, and companies don’t generally force employees to spend significant extra time at a destination for the cheapest flight or an award flight home.
At issue in this particular case is whether the company, which didn’t know about the program, would have gotten value out of the points at all — or if the points would have expired in a dormant account if they hadn’t been redeemed.
The Outcome of the Case
Neither the company, the prosecutors, nor the public defender were especially familiar with the nuances of miles and points. (As it happens, the airline’s small business program fraud department that had gotten involved wasn’t especially familiar with the workings of some aspects of their program or airline as they provided incorrect information about the similarities and differences between the small business program and frequent flyer program.)
After the federal public defender provided my anticipating testimony to the prosecutors, the government offered a plea agreement that implied no jail time. For a variety of reasons, largely that the deal was ‘too good to pass up’, the defendant took the plea.
I did have to testify at the sentencing. The prosecutors sought sentencing enhancements stemming from their contention that the defendant abused a position of trust (the guidelines here are really for a doctor abusing a patient and the like, and the judge had none of this). There was also the issue of restitution as required by the plea. That meant the small business program points had to be valued. The government originally sought amounts based on the full fare equivalents of tickets redeemed for, and I explained inventory buckets, change policies, and availability and what I thought that implied for value. The ultimate amount agreed to was much, much lower than originally sought.
So, no jail time and an amount she paid back the company that she was able to afford. But a whole lot of heartache.
This isn’t the sort of case that usually winds up in federal court. It’s almost unimaginable that most companies could interest a federal prosecutor in pursuing it. But a cautionary tale nonetheless — especially for anyone out there is accruing miles in a small business account in the name of an employer who isn’t aware of this.