Event Recap: Carrier Rights & Responsibilities, Broker Agreements
On Thursday, February 22, we were delighted to be joined by David J. Jencks of Jencks Law, P.C. for an hour-long talk and Q&A session about the carriers’ rights and responsibilities regarding broker agreements.
Jencks is an expert in transportation and corporate finance law and a member of the Transportation Lawyers Association with over 20 years of experience.
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Find the recording of the event here:
Here’s a summary of what we learned during the session:
The gap between the law and the real world
What is arguable in a courtroom and what happens in the real world of the trucking industry are often two very different things.
Depending on market conditions, carriers, particularly owner-operators and small carriers, don’t often have enough leverage with their customers to request changes to the broker agreement or fight claims.
However, it is extremely important to understand the basics of the broker agreements you sign.
The most important aspects of a broker agreement
Here are three questions to consider when reviewing a broker agreement:
What does it say about claims?
When a broker claims a load, it puts the carrier in a difficult position. Not only is the payment for that load in question but the payments for any other pending load could be held until the claim is resolved.
Regardless of whether or not the claim is legitimate, this can tie up funds for months.
What does it say about offset?
In the same vein, brokers may include a clause referred to as “offset” or “unilateral offset”. This means that in the event of a claim, the broker can refuse to make payments on previously delivered loads to offset the costs of the current claim.
Say you have $10,000 in loads you’ve already hauled for a broker. If they assert a claim for $50,000, they may apply the $10,000 to the $50,000 claim of what they believe is owed.
What does it say about a waiver of rights?
Some broker agreements include a clause where the carrier waives any and all rights under federal or state law that aren’t specifically laid out in the broker-carrier agreement. Sometimes this is referred to as a blanket waiver.
This means the carrier loses any statutory, administrative, or otherwise protections. If this language is in the document, you and the broker are bound only by what appears in the agreement.
If you have a good relationship with the broker and have the leverage to negotiate the terms, you may be able to convince them to remove or change the language regarding claims, offsets, or waivers. However, refrain from threatening the broker with legal action. Instead, you may be able to simply ask them to remove one or two sentences.
Skipping the broker agreement
We don’t want to make it sound like this is always going to be possible – it may never be. Most of the time, a broker will want to protect their business with a broker-carrier agreement.
However, if you do come across a broker who simply allows the bill of lading to control, this could be the safest position to be in as a carrier, as it allows both parties to maintain their legal rights.
What is broker transparency?
You may have seen this issue in the headlines over the last few months. Broker transparency refers to the idea that carriers have a right to documentation about the loads they haul, including compensation details and payer information.
Of course, carriers would like to know what percentage of the price they are being paid for their work. Unfortunately, in reality, there is very little a broker is required to share with a carrier regarding a load. The broker may need to provide a rate confirmation and bill of lading, but this is the extent of the information carriers receive from brokers.
OOIDA, representing owner-operators, and the Transportation Intermediaries Association, representing brokers, have been lobbying on Capitol Hill in Washington regarding this issue. OOIDA supports a legal enforcement mechanism that would make broker transparency more commonplace. TIA generally opposes the enforcement of broker transparency.
The FMCSA will allow the parties until October 21st of this year (2024) to submit comments, after which they will only then take up the issue and start making rulings. We likely won’t see a final ruling for at least another year.
What can a carrier do if a broker doesn’t pay?
The unfortunate reality is that carriers have very little power when a broker asserts a claim. The carrier is immediately put on the defensive and any loads pending payment are thrown into question.
When insurance information is gathered and lawyers get involved, it can be a very stressful situation.
Under these circumstances, generally, you have these courses of action:
Negotiate with the broker
Depending on your relationship with the broker, you may be able to negotiate with them directly if there is some kind of dispute. Business relationships have conflicts just like any relationship. It’s important to give your customers the benefit of the doubt and handle these situations calmly and professionally.
Unfortunately, dealing directly with the broker is not always enough.
Work with your factor
If you have a factoring service, you may be able to get support from them to guide you through your collections options.
At Bobtail, we work hard to get carriers paid under difficult situations. But be cautious: not all factoring companies help customers with collections support. This is an important aspect to consider when deciding on a factoring company.
Learn more from our article, Freight Factoring: A Complete Guide for Trucking Companies.
Try collecting from the shipper
This is a conflicting area of transportation law. There is no concrete federal law regarding the carrier’s right to collect from a shipper.
Even so, it is generally recommended that the carrier attempt to collect from a shipper if a broker refuses to pay, especially if the shipper hasn’t yet paid the broker.
However, if the broker has already been paid or there is a dispute over the load, it will be much more difficult to collect from the shipper.
File a claim on the broker’s bond
It’s important to understand that the broker’s surety bond will only pay out a claim if the broker is unable to pay for the load. If the broker disappears or files for bankruptcy, only then will the bond company pay. The fact that a broker has yet to pay for a load doesn’t necessarily mean you will be able to make a legitimate claim.
Engage with a collections agency
Like a factoring company, a collections agency is in the business of buying invoices or debt from one company and collecting from the debtors.
Unlike factoring, though, a collections agency will typically charge a much higher rate, between 15% and 50%, depending on the case. Still, this may be worth it if you’ve exhausted other options.
Hire a lawyer
This is likely the most costly option and is normally only worth the investment if you’re looking to collect a minimum of $40,000-$50,000. However, firms may take clients on a case-by-case basis, so it’s worth a phone call if you think you have a solid case to make.
When looking for a lawyer to represent you in a collections case against a customer, it’s important to select a firm or attorney with specialized expertise in transportation and corporate finance law. For example, you wouldn’t want a personal injury attorney representing you in a collections case.
Factoring is about more than fast cash.
There are many reasons to sign up for a factoring service. Cash flow is a challenge in trucking, where customers can take months to pay for invoices. It can also be useful to organize all your invoices in one place.
But the most underrated value a factoring company can provide is a level of collections protection that you wouldn’t have without a factoring service. To be clear, a factoring company is not the same as a collections agency. However, a factoring company working with thousands of carriers oftentimes has more leverage to collect from a freight brokerage than a single small carrier.If you want to learn more about Bobtail’s factoring service, sign up here to get in touch with a representative who can answer your questions.
