Company or Workers: Who Owns Rebates and Frequent Flyer Mile Rewards?

One of the more contentious issues that has arisen in the last few years involves the question of who owns frequent flyer miles (“FFM”) rewards for airplane trips flown for company business and paid for with the company credit card. A similar issue arises with “points” when the company card is used and with respect to construction and other material-supply contracts where rebates might exist. (The Internal Revenue Service considers FFM rewards to be a form of rebate.) For example, if you — as a homeowner — make a contract with a construction company to build a small storage shed and the builder obtains a 10% rebate for supplies from a certain supplier, who is entitled to the rebate?

The answer depends on what is written in the contracts. This is yet another example of the importance of written contracts. Ownership and use of FFM rewards and other forms of rebates should be considered and specified as part of the contract. With respect to employment, rewards and points should be the subject of company policies and set out in the employee handbook. A good corporate lawyer can help you draft the needed agreements, policies, and handbooks. Here is a quick look at some of the legal issues.

San Diego Corporate Law: The Need for Comprehensive Written Contracts

Continuing the construction example, many contracts will specifically deal with the issue of rebates — allocating ownership to the builder or the owner or some combination. The ethical and monetary issues are these:

• Are prices higher because of the rebate?
• Are the higher prices passed along to the homeowner?
• Does the builder buy more expensive supplies in order to obtain a higher rebate?
• Do rebates result in lower quality goods in that, because of the rebates, the builder uses supplier X who offers rebates rather than supplier Y who has better quality goods

In the absence of a specific contractual provision, who “owns” the rebate is likely a function of other provisions in the contract. If, for example, the contract is flat-fee, likely any rebate will be deemed owned by the builder. By contrast, if the contract says that materials will be invoiced to the homeowner “at cost,” then likely the rebate will be deemed owned by the homeowner. Legally speaking, the best practice is to have a good contract in place that covers the issue. In general, it is best not to leave to the courts the resolution of these types of issues.

San Diego Corporate Law: Employment Contracts and Company Policies

Likewise, with respect to employee FFM rewards and “points” that are earned on company credit cards and through company-reimbursed expenses, ownership and use should be set out clearly in employment contracts, company policies, and in the company’s employee handbook. Similar ethical and monetary issues exist here.

• Does the employee choose a more expensive flight (or hotel) to earn more points?
• Is the employee spending more time on some task — being less productive — because of some aspect of the reward structure — such as choosing a hotel far from the meeting place because of the extra rewards?

For worker morale reasons, many San Diego and California businesses consider the FFM rewards and similar types of rewards to belong to the employee. However, some do not. Either way, firm and clear policies should be in place.

Contact San Diego Corporate Law Today

If you would like more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email. Mr. Leonard has been named a “Rising Star” three years running by SuperLawyers.com and “Best of the Bar” by the San Diego Business Journal.

You Might Also Like:

Executive Employee Agreements

A Checklist for Hiring Your First Employee

San Diego Businesses: Tips for Avoiding Litigation

The Importance of Written Contracts: Avoiding Vague and Uncertain Terms