Freight Brokers: Licensing, Business Structure, and Employee Status

Federal and Local Regulations for Freight Brokers

Cargo transportation and logistics are incredibly complex industries, with various regulations specifying who can operate as a freight broker. Typically, freight brokers in the United States need to obtain a license to operate legally. These licenses are required by the Federal Motor Carrier Safety Administration (FMCSA), and brokers must apply for a broker authority and secure a surety bond or trust fund, usually amounting to $75,000.

Licensing Requirements for Freight Brokers

The process for obtaining a freight broker license involves several key steps:

Application: Brokers must apply through the FMCSA for a broker authority. Surety Bond or Trust Fund: A financial guarantee, typically in the form of a surety bond or trust fund, is required to ensure compliance with regulations. Compliance: Ensuring ongoing compliance with all federal laws and regulations.

It's important to note that licensing requirements can vary by state or local regulations, which can introduce additional complexities.

Business Structure for Freight Brokers

Freight brokers can choose from different business structures to operate their brokerage activities:

Independent Business: Many brokers establish their own companies to broker freight between shippers and carriers. This allows for more flexibility and control over their business operations. Employee of a Trucking Company: Some brokers work as employees within a trucking company or a logistics firm. In these cases, the trucking company itself may hold the necessary broker authority, reducing the need for the broker to obtain a separate license.

In both scenarios, the ability of a freight broker to operate without a license depends on the specific licensing arrangement within the trucking company and the state regulations in place.

Employment and Brokerage Activities

The distinction between a freight broker and a trucking company employee is crucial:

Employee of a Trucking Company: A freight broker who works as an employee of a trucking company typically handles brokerage activities on behalf of the company. The licensing responsibilities fall under the company's authority, meaning the broker would not need a separate license to perform these activities. Licensing Exceptions: If a trucking company wants to engage in freight brokerage activities, it must obtain its own brokerage authority from the FMCSA. Without this authority, even an employee of the company cannot perform brokerage activities legally.

For instance, a trucking company can have trucks operating under a lease contract under its authority to haul freight, but this is not considered brokering. Similarly, a trucking company can offer freight to another trucking company with its own authority, but this activity does not constitute freight brokerage.

However, a trucking company can hold both operating authority and brokerage authority. In this case, it can have employees who work on both the trucking side and the brokerage side, each requiring the appropriate licensing and authority.

State Regulations and Complexity

State regulations can significantly impact the licensing requirements for freight brokers. For example, California's Assembly Bill (A.B. 5) is still under court scrutiny and could redefine the regulation on 'contractors.' This bill aims to clarify whether individuals classified as independent contractors should be reclassified as employees under labor laws, which could have far-reaching implications for freight brokerage operations in the state.

Given the complexity of these regulations, it is essential for freight brokers to stay informed about both federal and state regulatory changes and to seek professional advice when necessary.