FMCSA again declines to tackle double brokerage
In a notice to be published in the Federal Register in the next couple of days, the FMCSA issued its "final guidance" on its regulatory definitions of the terms "broker" and "bona fide agent." This final guidance comes on the heels of the agency's "interim guidance" on this same topic, which it published in November of 2022 and which we discussed in detail in this article.
The FMCSA's brokerage guidance is a response to Congress' mandate in its Infrastructure Investment and Jobs Act (IIJA). Specifically, the IIJA instructs the FMCSA to inform the public and regulated entities about FMCSA’s interpretation of the definitions of ‘‘broker’’ and ‘‘bona fide agents’’ as it relates to all brokers of transportation by motor vehicle.
In its earlier interim guidance, the agency took aim at certain "dispatch services" that claim to qualify as "bona fide agents" of motor carriers. The agency clarified at the time that such services which accept or handle monetary transactions between carriers and brokers/shippers or that allocate shipments between two or more carriers are likely to be engaged in unauthorized brokerage under this guidance.
Since November, the FMCSA has held listening sessions and accepted additional public comments on its interim guidance and is now revising that guidance in light of the feedback it received. Notably, despite receiving many comments requesting the agency to take a tougher stance on so-called double brokerage, the FMCSA is once again refusing to do so.
FMCSA notes that “double brokering” is not a term defined by statute or regulation, and commenters use the term to refer to several different activities. However, it appears most commenters concerned with double brokering are referring to ways in which some entities act as brokers without proper authority...While the guidance contained in this notice is limited to the issues Congress required FMCSA to examine with the enactment of IIJA, FMCSA nevertheless recognizes that its guidance is operating in a broader context and has impacts beyond the immediate focus of this guidance.
The term "broker"
That said, the final guidance does make some modifications to the topics addressed in the interim guidance. First, with respect to the regulatory definition of the term "broker," the agency's final guidance reads: "FMCSA has determined that the definition of “broker” at 49 CFR 371.2(a) is adequate. Handling money exchanged between shippers and motor carriers is one factor that strongly suggests the need for broker authority, but it is not an essential requirement for one to be considered a broker."
In discussing this area, the agency makes one additional note pertaining to internet load boards and whether or not they qualify as "brokers" and therefore require broker authority. "FMCSA has determined that merely making information about potential shippers publicly available, regardless of whether a fee is charged, does not require an entity to obtain broker authority as long as the entity making the leads available is not otherwise involved in any transaction between the shipper and a motor carrier."
The term "bona fide agent"
Next, with respect to the term "bona fide agent," the agency's final guidance reads: "A bona fide agent may be either an employee of a motor carrier or a contractor but must perform its duties as specified in a preexisting agreement between the parties. While FMCSA has determined that the definition of 'bona fide agent' in 49 CFR 371.2(b) is adequate, FMCSA clarifies that the term 'allocating traffic,' which appears in the definition, means any exercise of discretion on an agent’s part when assigning a load to a motor carrier. If an entity representing more than one carrier exercises such discretion, it would not meet the definition of 'bona fide agent.'"
The agency went on to explain that "if a bona fide agent represents only one motor carrier, it will assign all loads it sources to that particular carrier and thus, no exercise of discretion is necessary, and there is no dispute that the agent is not a broker. However, an agent representing multiple carriers should be careful to structure its agreements to avoid the possibility of allocating traffic. The scope of these agreements and the agent’s compliance with the terms of the agreements are key factors in the analysis of whether such an agent may qualify as a bona fide agent under the regulatory definition at 49 CFR 371.2(b)."
To illustrate, FMCSA provided two examples of situations where a bona fide agent may be able to represent multiple motor carriers without engaging in allocation of traffic.
The first example is where a bona fide agent represents motor carriers that require the agent to source loads originating in different geographic areas and selected motor carriers will not pick up freight in the other carriers’ locations. For instance, if the agreement between the bona fide agent and Carrier A requires the agent to source loads originating only in Maine, New Hampshire, Vermont, or Massachusetts, and its agreement with Carrier B requires it to source loads originating only in Florida, Georgia, or Alabama, the entity would not need to exercise discretion because all loads originating in a particular geographic location would necessarily be assigned to the relevant carrier.
A second example is if the bona fide agent has agreements with multiple carriers to source specific types of loads and these services do not overlap. For instance, if the agent’s agreement with Carrier A requires the agent to source only hazardous materials loads, and the agreement with Carrier B requires it to exclude hazardous material loads, the agent would not have to exercise discretion as to which carrier to assign a load to, because the carriers are not willing or able to haul the same loads if sourced by the bona fide agent. Similarly, if Carrier A operates refrigerated trucks while Carrier B operates flatbed trucks, a bona fide agent may be able to represent both carriers without engaging in allocation of traffic. However, if the agent’s agreements require it to source the same type of loads for both carriers without geographic restrictions as described above, it could not represent both carriers without registering for broker authority, because any load assignments would necessarily require the entity to choose between carriers and would therefore constitute an allocation of traffic.
The FMCSA's final guidance also addresses the issue of household goods agents and how they factor into this analysis. To that point, the agency clarifies that "entities operating in the household goods transportation industry are subject to additional regulations. 'Household goods broker' is defined in 49 CFR 371.103 as 'a person, other than a motor carrier or an employee or bona fide agent of a motor carrier, that as a principal or agent sells, offers for sale, negotiates for, or holds itself out by solicitation, advertisement, or otherwise as selling, providing, or arranging for, transportation of household goods by motor carrier for compensation.' Moreover, 49 CFR 375.205 permits household goods motor carriers engaged in interstate transportation of household goods to have agents and provides that a 'prime agent,' a type of household good agent, 'does not include a household goods broker or freight forwarder.' Thus, to the extent a person or company is operating as a prime agent in the household goods sector, this guidance would not be applicable to such person or company."
Dispatch Services
As it did in its interim guidance, the FMCSA spends the bulk of its notice addressing so-called "dispatch services." Its final guidance on this topic reads: "There is no statutory or regulatory definition of a dispatch service, nor is there a commonly accepted definition of such a service. Some features of dispatch services include working exclusively for motor carriers, not for shippers; sourcing loads for motor carriers; and performing additional services for motor carriers that are unrelated to sourcing shipments. FMCSA does not have statutory authority to regulate dispatch services unless such entities also meet the criteria for registration as brokers, freight forwarders, and/or motor carriers."
It goes on to say: "Dispatch services may be classified as either brokers or bona fide agents, depending on the nature and scope of their activities. This requires a fact-specific analysis of whether the dispatch service’s activities meet the criteria set out in the statutory and regulatory definitions of 'broker' or 'bona fide agent.' While no single factor is paramount in assessing the business relationship between a dispatch service and a motor carrier, the extent of a motor carrier’s control is relevant because the greater control a carrier has over a dispatcher’s actions, the less likely the dispatcher is to exercise independent discretion in sourcing and allocating loads and hence need broker authority."
As it had done in its interim guidance, the agency lists several factors to use in determining whether a dispatch service qualifies as a broker or not:
A dispatch service that meets the following criteria would generally be considered a bona fide agent and would not require broker authority. This list is not exclusive, and a dispatch service does not necessarily have to meet every listed factor, depending on its specific activities.
(1) The dispatch service has a written legal contractual relationship with a motor carrier that clearly reflects the motor carrier is appointing the dispatch service as a licensed agent for the motor carrier. This is often a long-term contractual relationship. The written legal contract should specify the insurance and liability responsibilities of the dispatch service and motor carrier. (2) The dispatch service complies with all state licensing requirements, if applicable. (3) The dispatch service goes through a broker to arrange for the transportation of shipments for the motor carrier and does not seek or solicit shippers for freight. (4) The dispatch service does not provide billing or accept compensation from the broker, third-party logistics company, or factoring company, but instead receives compensation from the motor carrier(s) based on the pre-determined written legal contractual agreement. (5) The dispatch service is not an intermediary or involved in the financial transaction between a broker and motor carrier.
(6) The dispatch service is an IRS 1099 recipient from the motor carrier, or a W2 employee of the motor carrier as specified in the legal written contract agreement.
(7) The dispatch service discloses that they are a dispatch service operating under an agreement with a specific motor carrier, and the shipment is arranged for that motor carrier only.
(8) The dispatch service does not subsequently assign or arrange for the load to be carried/moved by another motor carrier.
(9) A dispatch service does not provide their “services” for a motor carrier unless that motor carrier specifically appointed the dispatch service as their agent in accordance with the aforementioned requirements.
The following factors indicate the dispatch service should obtain broker authority. This list is not exclusive, and a dispatch service does not necessarily have to meet every listed factor, depending on its specific activities.
(1) The dispatch service interacts with or negotiates any shipment of freight directly with the shipper, or a representative of the shipper. (2) The dispatch service accepts or takes compensation for a load from the broker or factoring company or is involved in any part of the monetary transaction between any of those entities. (3) The dispatch service arranges for a shipment of freight for a motor carrier and there is no written legal contract with the motor carrier that meets Section IV.E.1 of the Guidance above. (4) The dispatch service accepts a shipment without a truck/carrier, then attempts to find a truck/carrier to move the shipment. (5) The dispatch service engages in allocation of traffic by accepting a shipment that could be transported by more than one carrier with which it has agreements and assigns it to one of those carriers. (6) The dispatch service is a named party on the shipping contract.
(7) The dispatch service is soliciting to the open market of carriers for the purposes of transporting a freight shipment.
Conclusion
The FMCSA's final guidance, while not technically legally binding, again takes aim at certain dispatch services that claim to qualify as "bona fide agents" of motor carriers. At the same time, the agency is declining to address what many consider to be a bigger problem, which is double brokering.
For more information about this guidance and its potential ramifications, please feel free to contact us.
About Trucksafe Consulting, LLC: Trucksafe Consulting is a full-service DOT regulatory compliance consulting and training service. We help carriers develop, implement, and improve their safety programs, through personalized services, industry-leading training, and a library of educational content. Trucksafe also hosts a monthly live show on its various social media channels called Trucksafe LIVE! to discuss hot-button issues impacting highway transportation. Trucksafe is owned and operated by Brandon Wiseman and Jerad Childress, transportation attorneys who have assisted some of the nation’s leading fleets to develop and maintain cutting-edge safety programs. You can learn more about Trucksafe online at www.trucksafe.com and by following Trucksafe on LinkedIn, Facebook, Twitter, and YouTube.