FMCSA seeking comments on "brokerage" definitions
The Federal Motor Carrier Safety Administration (FMCSA) is seeking responses to several questions that will inform future guidance on the topic of what is "brokerage" and "bona fide agents."
In a notice posted to the Federal Register on June 9, 2022, the agency noted its questions come in response to a Congressional directive (Infrastructure Investment and Jobs Act) to clarify the terms "broker" and "bona fide agents" by November 15, 2022. Specifically, FMCSA must, at minimum: FMCSA (1) examine the role of a dispatch service in the transportation industry; (2) examine the extent to which dispatch services could be considered brokers or bona fide agents; and (3) clarify the level of financial penalties for unauthorized brokerage activities under 49 U.S.C. 14916, applicable to a dispatch service.
For years, the term "broker" has been defined by federal statute to include a "person, other than a motor carrier or an employee or 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 by motor carrier for compensation.” For its part, the FMCSA defines the term in 49 CFR 371.2(a) as a “person who, for compensation, arranges, or offers to arrange, the transportation of property by an authorized motor carrier. Motor carriers, or persons who are employees or bona fide agents of carriers, are not brokers within the meaning of this section when they arrange or offer to arrange the transportation of shipments which they are authorized to transport and which they have accepted and legally bound themselves to transport.”
In that same section, "bona fide agents" are defined as “persons who are part of the normal organization of a motor carrier and perform duties under the carrier’s directions pursuant to a preexisting agreement which provides for a continuing relationship, precluding the exercise of discretion on the part of the agent in allocating traffic between the carrier and others.”
These terms are important, in part, because they dictate whether or not a person or company requires brokerage authority to perform their services--as opposed to conducting them under the auspices of a motor carrier's authority. In addition, Congress most recently cracked down on the problem of unauthorized brokerage (i.e., brokering without the necessary authority) in its MAP-21 legislation, requiring, among other things, that entities clearly identify in their transportation agreements under what authority they purport to be operating.
In its notice, the FMCSA notes it "has received numerous inquiries and several petitions related to the definition of a broker" and that it is "aware that there is significant stakeholder interest in FMCSA’s unauthorized brokerage enforcement."
The agency is seeking comments on the following questions:
What evaluation criteria should FMCSA use when determining whether a business model/entity meets the definition of a broker?
Provide examples of operations that meet the definition of broker in 49 CFR 371.2 and examples of operations that do not meet the definition in 49 CFR 371.2.
What role should the possession of money exchanged between shippers and motor carriers in a brokered transaction play in determining whether one is conducting brokerage or not?
How would you define the term dispatch service? Is there a commonly accepted definition? What role do dispatch services play in the transportation industry?
To the best of your knowledge, do dispatch services need to obtain a business license/Employer Identification Number from the State in which they primarily conduct business?
Some “dispatch services” cite 49 CFR 371.2(b) as the reason they do not obtain FMCSA brokerage authority registration in order to conduct their operations. As noted above, section 371.2(b) states that bona fide agents are “persons who are part of the normal organization of a motor carrier and perform duties under the carrier’s directions pursuant to a pre-existing agreement which provides for a continuing relationship, precluding the exercise of discretion on the part of the agent in allocating traffic between the carrier and others.” Some dispatch services interpret this regulation as allowing them to represent more than one carrier yet not obtain broker operating authority registration. Others interpret this regulation to argue that a dispatch service can only represent one carrier without obtaining broker authority. What should FMCSA consider when determining if a dispatch service needs to obtain broker operating authority?
If a dispatch service represents more than one carrier, does this in and of itself make it a broker operating without authority?
When should a dispatch service be considered a bona fide agent?
What role do bona fide agents play in the transportation of freight?
Electronic bulletin boards match shippers and carriers for a fee. The fee is a membership fee to have access to the bulletin board information. Should electronic bulletin boards be considered brokers and required to register with FMCSA to obtain broker operating authority? If so, when and why?
How has technology changed the nature of freight brokerage, and how should these changes be reflected, if at all, in FMCSA’s guidance?
Are there other business models/services, other than dispatch services and electronic bulletin boards, that should be considered when clarifying the definition of broker?
Are there other aspects of the freight transportation industry that FMCSA should consider in issuing guidance pertaining to the definitions of broker and bona fide agents?
Although not explicitly stated in the FMCSA's notice or Congress' legislation, it seems clear lawmakers intend to further crack down on unauthorized brokerage by focusing their attention on existing loopholes. It is also evident the agency intends to more actively enforce this requirement and potentially impose stiffer penalties. FMCSA's Acting Administrator Robin Hutcheson fielded questions on this topic during her recent Senate confirmation hearing.
If you have any questions about this notice or wish to discuss potential comments, feel free to contact us.