Issue Briefs
Rate Intrusion – CFR 371.3
BACKGROUND: In the 1980s, the Interstate Commerce Commission (ICC) promulgated a regulation, CFR 371.3 (c), that requires all parties to a brokered transaction to have the right to view certain information relevant to the load, including financial information. The regulation was put in place following the transportation deregulation period where free market principles started determining rates rather than rates decided by government mandate, and brokers operated off commissions paid by the motor carrier. The ICC was concerned about an issue called “freight rebating” where a shipper and broker could have common ownership and essentially double dip, hence the reason for the transparency in a commission-based marketplace. Today, there are two separate transactions between the shipper and broker, and the broker and the carrier – where the broker gets paid by the shipper directly and no longer receives a commission from the motor carrier. TIA has been an advocate of the elimination of 371.3c altogether, but the Owner Operators Independent Driver Association (OOIDA) has asked the FMCSA to expand upon this regulation by proposing the following changes:
- Bar brokers from including contract language that waives a carrier’s right to having access to rates.
- Require an electronic copy of all transactions be electronically transmitted to the carrier within 48 hours after delivery of the load.
WHAT THIS MEANS FOR YOU: This regulation is dangerous to the industry as it threatens to expand on exposing proprietary information in the name of “transparency” in contract negotiations between a broker and a shipper. It could also mean a broker violating trade secret laws by revealing proprietary information of the shipper. Furthermore, this expansion of the current regulation could lead to re-regulation of freight rates and the possibility of motor carriers back soliciting our shipper customers.
ISSUE: The FMCSA is overstepping its authority in trying to influence private contract negotiations between two independent parties. FMCSA should focus on keeping our highways safer – its sole mission and purpose of existence – and not meddling in private disputes between two parties.
WHAT’S NEXT: TIA and its members continue to lobby against this invasive rulemaking. The FMCSA continues to delay going forward with the rule making. Should the agency eventually make this regulation, TIA is prepared to go to Congress and/or the court system to combat this.
TAKE ACTION: On Nov. 19, the FMCSA released its Notice on Proposed Rulemaking on Rate Transparency. The industry has 60 days to file comments against this proposed rule. TIA asks every member to file comments. Click here for help on filing comments. Comments are due by Jan. 21, 2025.
Household Goods Shipping Consumer Protection Act
BACKGROUND: The freight brokerage industry and the supply chain are being plagued by rampant fraud that is costing the industry around $1 billion annually. The rise in criminal activity in the supply chain exacerbated during the global pandemic because of the massive increase in freight volumes. The type of fraud takes many forms including:
- Cargo theft
- Identity theft
- Financial theft
- Internal theft
- Data/information theft
- Loads held hostage
- Unlawful brokerage scams
- Spoofing
WHAT THIS MEANS FOR YOU: Because of an antiquated registration system and bureaucratic red tape, FMCSA has been slow to adapt to the changing landscape, creating an environment ripe for fraudulent actors and criminals. This leaves legitimate brokers vulnerable to fraud with little recourse or help from authorities.
ISSUE: The impact of fraud extends beyond just the immediate financial burden. The average gross cost of fraud reported by industry members is over $400,000. This rise in fraudulent activities not only disrupts the supply chain but also drives up the cost of goods, ultimately affecting consumers across the country. This legislation, fully supported by TIA, aims to combat the rampant fraud plaguing the supply chain by reinforcing existing regulations and restoring the Federal Motor Carrier Safety Administration’s authority to take civil actions against fraudulent criminals.
WHAT’S NEXT: H.R. 8505 was introduced in the House Transportation & Infrastructure Committee in May. The bill passed out of the House T&I Committee on Sept. 18 and will now be sent to the House floor for consideration. TIA will continue to lobby for the passing of H.R. 8505.
Preserving the Independent Contractor Model
BACKGROUND: The Department of Labor issued a notice of proposed rulemaking (NPRM) in late 2022 aiming to modify Wage and Hour Division (WHD) regulations related to classifying employees and independent contractors under the Fair Labor Standards Act (FLSA). The NPRM intends to align the regulations with judicial precedent and the original purpose of the FLSA.
Previously, the DOL and courts used an economic reality test, considering various factors to determine worker status. In 2021, a rule identified five core factors, narrowing the analysis. Challenges and delays followed, but ultimately the rule took effect. However, the Biden DOL now seeks to rescind the 2021 rule through the NPRM and return to the totality-of-the-circumstances analysis, proposing a non-exhaustive six-factor test. These factors include profit or loss opportunity, investments by both worker and employer, relationship permanence, control, work integration, and skill and initiative. Additional factors may be considered, and the control factor will undergo further analysis.
WHAT THIS MEANS FOR YOU: Misclassifying employees as independent contractors can result in significant consequences for businesses. They may be liable for employment taxes and face various penalties. Willful misclassification can lead to even more severe penalties, including potential prison time. State-level penalties may also apply, and the misclassified worker may be entitled to back wages, overtime, breaks, retirement benefits, and more.
To address this issue, the IRS offers the Voluntary Classification Settlement Program (VCSP), allowing businesses to reclassify their workers as employees for future employment tax purposes. Eligible businesses can receive partial relief from federal employment taxes by agreeing to treat their workers as employees going forward. To participate, businesses must meet specific eligibility criteria and apply by submitting Form 8952, the Application for VCSP. Successful applicants will enter into a closing agreement with the IRS, helping them rectify misclassifications and avoid some of the associated penalties.
ISSUE: The issue at hand is how to classify workers as either employees or independent contractors, and how that classification would suggest appropriate benefits via the employer for the worker. Misclassifying someone can mean liability and hefty fines for you or your business, and ultimately, disrupt the brokerage marketplace.
WHAT’S NEXT: TIA will continue to advocate for the Trump-era rule, which was far more black and white, and simplified the process in determining worker classification. For more information, TIA has developed a robust Fair Labor Standards Act that delves much deeper into this topic and discussion.
Predatory Towing on Brokers
BACKGROUND: Predatory towing is an unethical practice where towing companies, without authorization, tow vehicles—such as large commercial trucks involved in accidents or parked in private lots—often with the goal of charging excessive fees. In the case of truck accidents, these towing companies frequently seize not only the damaged truck but also the trailer and its freight, holding them until substantial payments are made for towing and storage. This practice disrupts the supply chain, delays deliveries, and can result in significant financial losses.
WHAT THIS MEANS FOR YOU: For freight brokers, predatory towing can have a direct and detrimental impact. When a carrier transporting a broker’s customer’s freight is involved in an accident, the towing company may seize the truck and cargo without consent, leaving the freight in storage until payments are made. We have heard from members who have been presented with bills for towing services at over $130k. Sometimes the towing service cannot legally hold the tractor and therefore the trailer is often held hostage. Furthermore, insurance companies often deny claims for freight being held hostage unless the freight itself is damaged, placing the financial burden on the carrier and, in some cases, on the broker.
ISSUE For smaller carriers, the financial strain caused by such towing practices can be devastating, sometimes threatening their ability to stay in business. When carriers are unable or unwilling to pay the exorbitant fees, the broker is left to cover the costs, putting their business relationships with shippers at risk.
WHAT’S NEXT: TIA is closely monitoring FMCSA’s action on this subject, state legislation and remains committed to working with coalitions to combat these predatory towing practices that harm brokers, carriers, and the broader supply chain.
