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Law Alert: FMCSA Announces Guidance on Definition of “Broker” and “Bona Fide Agent” as well as on Role of Dispatch Services

by Nathaniel G. Saylor, Prasad Sharma

November 15, 2022

On November 16, 2022, FMCSA will issue guidance regarding the definition of what constitutes a “broker” and a “bona fide agent” of a broker. The guidance is not a rulemaking and will be effective immediately. However, FMCSA has nevertheless requested comment on the guidance and may issue updated guidance based on comments received. The comment period will be open for 60 days.

The guidance is issued pursuant to a mandate of the Infrastructure Investment and Jobs Act (“IIJA”), which directed FMCSA to consider the role of so-called “dispatch services” in transportation and whether such services, which often purport to “represent” multiple motor carriers, can be considered a “bona fide agent” of a motor carrier. The question of whether a dispatch service can be a bona fide agent of a motor carrier is important because bona fide agents of motor carriers are not required to hold broker authority when acting in the capacity of an agent of the motor carrier. 

Under existing regulations, a bona fide agent of a motor carrier is 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.” 49 C.F.R. 371.2(b). 

Moving to the actual guidance proffered by the FMCSA, one issue that was apparently raised by numerous commenters, with comment on both sides, was whether and to what extent handling of monies paid by shippers for motor carrier transportation is determinative of whether one acts as a broker. According to FMCSA, “handling money exchanged between shippers and motor carriers is a factor that strongly suggests the need for broker authority, but it is not an absolute requirement for one to be considered a broker.”  Electronic load boards that do more than match loads may want to assess their status. 

As to the question of whether one can represent multiple motor carriers and still operate as a bona fide agent, the FMCSA was less clear. The FMCSA did not adopt an interpretation that a bona fide agent may only represent a single carrier. Rather, FMCSA stated: “Any determination will be highly fact specific and will entail determining whether the person or company is engaged in the allocation of traffic between motor carriers.” We take this conclusion to mean that FMCSA believes one could represent multiple motor carriers without having discretion as to how to allocate freight between motor carriers. For instance, it may be possible that a party is appointed as an agent of multiple motor carriers, but only one of the carriers has a contract to service a specific shipper. In that instance, the agent would presumably not have discretion in allocating freight amongst the motor carriers. 

Regarding dispatch services, FMCSA acknowledged that the term is poorly defined, but identified three features that appeared to be common amongst the various proposed descriptions. 

First, they work exclusively for motor carriers, not for shippers. Second, they source loads for motor carriers. And third, they perform additional services for motor carriers that are unrelated to sourcing shipments.

Given the generality of the description, it is not surprising that FMCSA then proposed a fact-specific approach to answering the question of whether a dispatch service is required to hold broker authority or whether it is a bona fide agent, but did offer some guidance:

When a dispatch service does not participate in the arrangement of freight, or when it represents only one motor carrier, it is not a broker. If a dispatch service arranges transportation on behalf of multiple motor carriers and engages in the allocation of traffic, however, then pursuant to 49 C.F.R. 371.2, it is not a bona fide agent and must obtain broker operating authority registration. . . Regarding whether a dispatch service is a bona fide agent, one must analyze whether the services fall within the definition of bona fide agent in 49 C.F.R. 371.2(b). However, if the dispatch service allocates traffic between two motor carriers, it cannot be a bona fide agent by definition.

This guidance begs multiple questions, including what does FMCSA mean by “participate in the arrangement of freight.” For instance, would the FMCSA consider identifying a load, negotiating the rate, and communicating regarding pick-up and delivery times as participating in the arrangement of freight? It also begs the question of what is meant by “engages in the allocation of traffic.” Say, for instance, a dispatch service identifies a load that would be a good fit for multiple motor carriers that it represents, and either carrier would be required to enter into a new contract with the shipper to move the freight- is the dispatch service allocating freight by communicating its existence to each carrier? 

The FMCSA did provide additional guidance. Specifically, the following would be factors indicating that a dispatch service does not require broker authority.

Generally, the factors relevant to whether a dispatch service is not required to obtain broker authority are stated below:

(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;

(2) The written legal contract specifies the insurance and liability responsibilities of the dispatch service and motor carrier. The dispatch service must also meet all state licensing requirements;

(3) The dispatch service goes through a broker to arrange for the transportation of shipments for the motor carrier. The dispatch service may not seek or solicit shippers for freight;

(4) The dispatch service does not provide billing nor accept compensation from the broker, 3PL (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 the authority of 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; or

(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 would indicate the dispatch service should obtain broker authority:

(1) The dispatch service interacts or negotiates a 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, with which there is no written legal contract with the motor carrier that meets the aforementioned criteria;

(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 is a named party on the shipping contract; or

(6) The dispatch service is soliciting to the open market of carriers for the purposes of transporting a freight shipment.

It is clear, based on feedback from the industry, that there is a need and desire for dispatch services among large and small motor carriers. A beneficial role that a dispatch service may provide is the outsourcing of resources for small motor carriers who cannot afford a full-time employee to perform these functions. The dispatch service can help to ensure the motor carrier has a steady stream of shipments while allowing the motor carrier to focus on its core business of safely transporting freight. FMCSA does not believe it is the intent of Congress to eliminate the services that dispatch services provide.

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 over the individual(s) performing the dispatch services is highly significant, i.e., the dispatch service works on behalf of the motor carrier and makes decisions based on the motor carrier’s guidance and direction. As noted, FMCSA determines whether a dispatcher is conducting broker operations on a case-by-case basis, utilizing factors including those above.

If you have questions or want to discuss potentially drafting follow-up comments, please contact Nathaniel Saylor or Prasad Sharma.