New Regulations by FMCSA for Truck Brokerage Definitions Take Full Effect

The latest ruling from the Federal Motor Carrier Safety Administration (FMCSA) has provided regulatory guidance aimed at clearly defining the terms “broker” and “bona fide agents.”

This ruling, which was issued on June 16, seeks to combat the operations of illegal brokers and dispatchers.

The FMCSA’s guidance comes as a response to a mandate outlined in the Bipartisan Infrastructure Law and the Fiscal Year 2023 Appropriations Act. The objective is to enhance efficiency and establish financial responsibilities by clarifying the definitions within the Code of Federal Regulations. The FMCSA had previously released interim guidance in November 2022.

FMCSA Administrator Speaks on New Changes

Robin Hutcheson, the Administrator of the FMCSA, stated, “This final guidance equips freight brokers and entities operating as bona fide agents or dispatch services in the trucking industry with the necessary information to make informed decisions for their operations. It also helps regulated carriers determine whether they should engage with entities lacking broker authority and the corresponding financial responsibility.”

The FMCSA’s guidance provides clarity not only for brokers and dispatch services but also for trade associations and other stakeholders in the trucking industry.

The FMCSA conducted a thorough review of over 130 comments submitted during multiple comment periods, considering them as part of the agency’s decision-making process. Additionally, the FMCSA sought input on the guidance during a broker listening session conducted earlier this year at a major trucking show.

New Guidelines Target Unlicensed Brokers

James Lamb, President of The Small Business in Transportation Coalition (SBTC), expressed support for the FMCSA’s final guidance in reining in unlicensed brokers. Lamb mentioned that the clarification effectively undermines the dispatcher industry by establishing that entities using the term “dispatchers” cannot lawfully evade the broker license as bona fide agents unless they separate their motor carrier principals based on geographic area or commodity type. He further added that although FMCSA lacks an effective enforcement mechanism to police these distinctions, the guidance enables complaints to be lodged with the DOT IG (Department of Transportation Inspector General) and facilitates private right of actions against dispatchers operating outside the scope of the FMCSA guidance. Lamb urged Congress to consider this as an appeal from the agency to define dispatchers in the law, which aligns with SBTC’s proposed Transportation Intermediaries Accountability Act.

Lamb emphasized that the FMCSA’s ruling essentially deals a significant blow to unlicensed brokers referring to themselves as dispatchers. He advised dispatchers to obtain broker licenses promptly or face legal action for engaging in illegal brokerage activities.

The Owner-Operator Independent Drivers Association expressed encouragement regarding the FMCSA’s guidance, seeing it as a step in the right direction. However, they reiterated their commitment to pursuing additional changes to foster better business practices in brokering and transportation.

Key details of the final guidance include:

Definition of Broker

FMCSA confirms that the current definition of “broker” is satisfactory. Although handling financial transactions between shippers and motor carriers is a strong indicator of the need for broker authority, it is not the sole requirement for an entity to be classified as a broker.

Definition of Bona Fide Agent

The FMCSA clarifies that a bona fide agent can be an employee or a contractor of a motor carrier but must fulfill their duties as stipulated in a preexisting agreement. While FMCSA affirms the adequacy of the current definition of “bona fide agent,” it specifies that the term “allocating traffic” within the definition encompasses any discretionary action taken by an agent when assigning a load to a motor carrier. If an entity representing multiple carriers exercises such discretion, it would not meet the definition of a “bona fide agent.”

Role of Dispatch Services

According to FMCSA, there is no statutory or regulatory definition for a dispatch service, nor is there a widely accepted definition within the industry. Dispatch services generally work exclusively for motor carriers (not shippers), source loads for motor carriers, and provide additional services unrelated to sourcing shipments. FMCSA lacks statutory authority to regulate dispatch services unless these entities also meet the criteria for registration as brokers, freight forwarders, and/or motor carriers.

Dispatch Service: Broker or Bona Fide Agent

FMCSA categorizes dispatch services as either brokers or bona fide agents based on the nature and scope of their activities. This classification necessitates a detailed analysis to determine if the dispatch service’s activities align with the criteria defined in statutory and regulatory definitions of “broker” or “bona fide agent.” While no single factor holds absolute importance in assessing the business relationship between a dispatch service and a motor carrier, the level of control exerted by the carrier plays a significant role. Greater control by the carrier diminishes the dispatcher’s independent discretion in sourcing and allocating loads, reducing the need for broker authority.

Factors Indicating Broker Authority is Not Required

A dispatch service that satisfies the following criteria would generally be considered a bona fide agent and would not need broker authority. It’s important to note that this list is not exhaustive, and a dispatch service does not have to meet every factor, as it depends on their specific activities:

  1. The dispatch service maintains a written legal contractual relationship with a motor carrier that explicitly designates the dispatch service as a licensed agent for the motor carrier. Typically, this contractual relationship is long-term and clearly outlines the insurance and liability responsibilities of both the dispatch service and the motor carrier.
  2. If applicable, the dispatch service complies with all state licensing requirements.
  3. The dispatch service works through a broker to arrange transportation for the motor carrier’s shipments and does not actively seek or solicit shippers for freight.
  4. The dispatch service does not handle billing or accept compensation from brokers, third-party logistics companies, or factoring companies. Instead, they receive compensation directly from the motor carrier(s) based on a predetermined written contractual agreement.
  5. The dispatch service does not act as an intermediary or participate in the financial transactions between a broker and a motor carrier.
  6. The dispatch service receives IRS 1099 forms as an independent contractor from the motor carrier, or they are classified as W2 employees of the motor carrier, as specified in the contractual agreement.
  7. The dispatch service discloses its status as a dispatch service operating under an agreement with a specific motor carrier and arranges shipments exclusively for that motor carrier.
  8. The dispatch service does not subsequently assign or arrange for the load to be transported by another motor carrier.
  9. The dispatch service only provides services to a motor carrier if the carrier has specifically appointed them as their agent, complying with the aforementioned requirements.

Factors Indicating Broker Authority is Required

The following factors suggest that a dispatch service should obtain broker authority. Again, this list is not exhaustive, and the relevance of each factor depends on the specific activities of the dispatch service:

  1. The dispatch service directly interacts or negotiates shipments of freight with the shipper or their representative.
  2. The dispatch service accepts or receives compensation for loads from brokers, factoring companies, or any party involved in the monetary transaction.
  3. The dispatch service arranges shipments for a motor carrier without a written legal contract that fulfills Section IV.E.1 of the guidance.
  4. The dispatch service accepts a shipment without a carrier and subsequently attempts to find a carrier to transport the shipment.
  5. The dispatch service exercises discretion in allocating traffic by accepting a shipment that multiple carriers, with which they have agreements, could transport and assigning it to one of those carriers.
  6. The dispatch service is explicitly named as a party on the shipping contract.
  7. The dispatch service solicits carriers in the open market for the purpose of transporting freight shipments.

These guidelines provided by the FMCSA aim to bring clarity to the roles and responsibilities of brokers, bona fide agents, and dispatch services in the trucking industry.

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