Non-competes & Freight Broker Financial Liability | Final Mile #41

Speaker 1: 0:20

All right, welcome back for another edition of the Final Mile. We're going to answer your questions. Today we got three good questions. We're going to be talking about non-competes, we're going to be talking about driver paperwork and we're going to be talking about financial liability as an employee of a brokerage. That'll be an interesting one. That'll be an interesting one, but first, please take a moment to check out the sponsors in the description box to help support this channel. Make sure to share us with all of your friends and hit the subscribe button, like, leave comments, reviews, all that good stuff. And if you want your question answered on the show, you can continue to be an active participant in our Facebook group. Or go to Freight360.net and hit the contact button and, while you're over there, check out the Freight Broker Basics course. That is our full-length educational bit on how to launch and grow a successful freight brokerage. Okay, let's get right into it.

Speaker 1: 1:53

Ben, with the recent FTC ruling on non-competes, a question was posted saying's the Federal Trade Commission that non-competes can no longer be created for new employees and there's a timeline, a deadline in like four months, for existing non-competes to be phased out. All right, what does that mean? What does that mean? Non-compete is a restrictive covenant in an employment contract which states you cannot go work for a competitor. In layman's terms, so if I work for TQL I couldn't quit and go work for CH Robinson, or I couldn't go be an agent for Pierce Worldwide Logistics or whatever pierced worldwide logistics or whatever right. Not the same as a non-solicit, which means you can't take customers or employees. Not the same as a confidentiality agreement which protects trade secrets. And not the same as a works made for hire clause which protects any products or processes you may have designed or created during your employment. Now back to our question Back, solicitation of a broker's customer.

Speaker 1: 2:46

So a lot I would say probably 99% of broker carrier contracts and I believe the TI's model contract would surely have this clause states that broker is contracting motor carrier to haul this load. But you cannot, motor carrier cannot go and try to solicit the broker's shipper to try and get the business directly. It's going to keep intact the broker's relationship with that customer and that makes sense, right? I'm not. I don't want you to. I'm giving you business. I don't want you to go buy my bag and steal it from me.

Speaker 1: 3:20

Um, but here here's the other part. Like um, non-competes, are employment clauses. All right, a um, a motor carrier, is not an employee of a brokerage. They're contracted for hire on a per load basis in most cases, um in the spot market. Um, so no, it would not apply to you as a as a motor carrier. And no, you cannot back solicit because that's separate from the non-compete. Where might that change or where might this impact carriers is? Let's say, a carrier is growing and they want to hire a sales rep to come in and get direct customers. You can now go hire someone that maybe worked at a big brokerage or a successful brokerage. They can't bring those accounts over, but they sure as hell can come over and use their experience and their knowledge to help you solicit business directly, now that they no longer would have a non-compete clause that would restrict them for a certain period of time from going to work for you. Am I missing anything here or anything you want to add in Ben?

Speaker 2: 4:33

No, I'm just going to make like very I don't know simple explanation for like what solicit means? Right, just soliciting. Right is the definition to ask for or try to obtain something from someone. Right? Ask for something? Solicitation is the act of offering or attempting to purchase goods or services, right? So a non-solicit is you aren't able to contact any of the customers that exist at this company. You can leave, and if you don't have a non-compete, you can go work for anybody in this industry, even if they do the exact same business. What you cannot do is solicit or contact any of the customers that this business had when you were there, right?

Speaker 1: 5:16

And it also depends on how it's spelled out in your contract. Yeah, it might say. It could say companies that we do business with, companies that you specifically did business with, companies that you learned of from being here, and it could have a. It's going to likely have a timeframe on it of how long that's going to last for, etc.

Speaker 2: 5:37

That's also going to be interesting because I didn't really think about that until you just said that and I'm like you know what.

Speaker 2: 5:42

There's probably an argument to be made from these very large brokerages that have most of the shippers at one point or time who are a customer of theirs. There's going to be a need to be a time frame because they always kind of circle through them. But I mean, there's probably an argument to be made that most of the big brokers have worked with almost every shipper at some point or time, outside of the new ones that come into business, and they might be able to make an argument that like, yeah, you can go work for any brokerage you want, but you can't work for any of these 42,000 shippers that we've worked with and we considered customers, even though you didn't know them and didn't have the relationship. And I think that's going to likely have to either be spelled out or litigated, because there's probably an argument to be made that a non-solicit could be as strong as a non-compete in some ways, because they have such large customer bases. It is interesting.

Speaker 1: 6:35

Hmm, curious. Think about it Like what if? Yeah, what if I? Let's say, I work for TQL, right, and I've got a small shipper, and that small shipper wants to hire me to create their own internal brokerage or traffic department, to build out to get direct carriers.

Speaker 2: 6:59

Right and they say that soliciting the carriers right are their relationships right and, again, they're not their customers. But if you go back and take the carriers with you, there's an argument to be made that you're soliciting their carrier relationships. And again, most of the large brokers have just about every one of the large carriers onboarded with them at some point in time. So there's probably some argument that can be made that.

Speaker 1: 7:27

Yeah, that'll be well. I mean, like any initial announcement of like legislation or regulation, there's going to be challenges to it, there's going to be pushback to it. A lot of clarification.

Speaker 2: 7:37

It won't look like this at the end of the day, I'm sure Like it'll change a bit. I don't know. I know that the I forget which big trade group the Chamber of Business, like a national one said they were going to file suit, as of today, against the FTC.

Speaker 1: 7:51

I know what you're talking about. It's the yeah, it's not the Chamber of Commerce, chamber of something, yeah, but I know what you're talking about. Or the Commerce Committee, I don't know. I did see that though, all right.

Speaker 1: 8:02

Next question what paperwork should drivers be sending to me once they deliver my customer's load? All right, so we're assuming a freight broker here is asking hey, the load gets delivered, what paperwork should the driver be sending in? I'm going to generalize driver and carrier as one, because it might be the driver that sends it in. That driver might be an owner-operator, so they're the driver and the owner. It could be a dispatcher that sent you a truck, it could be the owner of a small truck, whoever. It is right the carrier's representative that you need paperwork from. All right, so it depends. Right, at a minimum they got to invoice you right. But commonly you're going to see they're going to send you an invoice that says hey, mr Broker, I'm invoicing you $2,000 per our agreed upon rate for this load To verify that rate and that load's been delivered.

Speaker 1: 8:54

Typically you're going to ask for some sort of proof of delivery. You hear that called a POD. Often that could be the signed bill of lading. That could be a POD, separate piece of paper. It could be a delivery receipt, some documentation that verifies the load has been successfully delivered. Some brokerages will also want a copy of the signed rate confirmation as part of that package. So those are kind of like your main three Invoice, proven delivery and the rate confirmation that shows we agreed on this rate for this load. Those are the common ones.

Speaker 1: 9:29

Now, in addition to that, your customer might have some special requests or requirements as well. If there's a reimbursement for a lumper, they might need a lumper receipt, a scale ticket, they might need a lumper receipt, a scale ticket they might need that. It could be check in and out times to verify that there's no detention, or something like that. Plus, your customer might require the POD to come to them within a certain amount of time. The big takeaway here is there's kind of like two things have an internal brokerage standard operating procedure that everyone understands here's what we need from our carriers to pay them and also have, for each customer, an understanding with what they require from us, because once we get invoiced by our carrier, we're likely going to turn around and then try to collect from our customer.

Speaker 1: 10:14

So what does our customer need for them to pay us? Right, it could just be pod and invoice, it could just be invoice, it could be. You've got to go in this portal online and have your accounting person upload all these documents. Check these boxes, spin around three times, do five drumming jacks and hit the submit button like there's. You know there's some yep, there's some wild requirements out there, but um, that's the big takeaway. Have you ever had any like weird? Like they require something kind of like really, uh, out there in left field?

Speaker 2: 10:45

not that I can remember. I feel like I've run into them, but just none are coming to mind with like I mean years ago the weird one are the actual ones. I'm sorry the there was a customer that I ran into last year that was still requiring the original BOL with inked signatures mailed to them.

Speaker 1: 11:07

Oh, instead of a copy.

Speaker 2: 11:08

In order to be invoiced right and it was creating lots of issues. And you can see why they do it. The shipper does it because it delays the amount of time that they have to pay their bills right. If you've got to have a literal hard copy to invoice them, it's going to take you longer to mail it. That gets them a couple extra days on every load.

Speaker 1: 11:25

And you got to wait for the carrier to get to you.

Speaker 2: 11:28

Exactly. Yeah, it's definitely antiquated. Very few companies do that anymore, but it was a weird one I ran into last year, I remember.

Speaker 1: 11:37

I've seen some weird ones that require like certification that the trailer's been um cleaned and sanitized after a certain product moved like literally trash or recycling material like recyclables out of like major Metro areas. Yeah, um, there was one that was this was like oh, super long time ago, but they moved the commodity listed was like just wrote the word specimen and like we found out it was like a dog carcass for like research purposes, but like there was all kinds of sanitary requirements afterward that had to be verified on paperwork.

Speaker 2: 12:14

really weird oh yeah, it makes sense. Yeah, I've never run into that one, but yeah, that makes perfect sense. Specimen.

Speaker 1: 12:21

All right. Last question this one's interesting what kind of losses should I be responsible for as a W-2 broker? Losses on loads, double broker scams, losses on claims? So what they're asking here is, financially, what is their responsibility if there is money lost? And I will tell you it depends, right? I mean, ideally, if you're a W-2, you would hope zero. But hold on, let me give you a caveat. Right, if you take a load at a $100 loss, yeah, it should probably be the total profit that you're paid on that week or that month. But if there is a claim on a load and let's say it uses either your policy for the insurance or it uses a carrier's insurance who has a deductible that they're not going to pay, either way, right, we don't make whole like the customer is at a loss here and the brokerage decides to own up to that missing amount and pay it, should the employee be financially responsible for potentially thousands of dollars?

Speaker 1: 13:30

I don't think so. Not as an employee. If you're an agent, I don't think so. Not as an employee. If you're an agent, I don't know, maybe you have a different conversation if you're a contractor. Double broker scams, if you have to pay a carrier twice, I think that comes down to your carrier compliance or your SOPs. I think there's a lot of subjectiveness here. Let's say you're making $35,000 a year salary plus commission and your company tries to say, hey, you owe us $10,000 for this, for this claim or this double payment or whatever, and we're going to withhold it from your paycheck. It's like what you can't do that.

Speaker 2: 14:06

I don't think that you're even allowed to do that. I mean, like just the laws and regulations around what you're paid for in your time. I don't think they can eat into your salary or your standard compensation. I think the only thing they can deduct it from is your commission percentage. Yeah, I think I and again, I'm definitely not a labor law attorney but I'm fairly certain that you cannot deduct a loss and offset the time you have to pay me for being here Because, like W2, like you're getting paid for your time, right. So you definitely wouldn't be allowed to just go to work for a month and not get paid because something unprofitable happened.

Speaker 1: 14:47

Yeah.

Speaker 2: 14:48

Yeah, when you draw the line of employee.

Speaker 1: 14:49

There's a lot of protection there.

Speaker 2: 14:51

And the other real gray area. You said right, like I could probably make an argument on both sides for the commission part. Right, like if you're using really suspect carriers and you're not doing the vetting that you should be, that the company has recommended or has a policy for, and you're just paying, playing fast and loose with your carriers, and you start using carriers with high out of service, high driver, you know issues and there's lots of issues there like I kind of feel like that should in some way be offset against your commission because, like you made the decision to operate outside of the guidelines, you took the risk, you, that gamble didn't pay off. I feel like there's an argument to offset commissions if you are operating in ways like that I would argue, in addition to that, that it would be proportionate to your commission percentage.

Speaker 1: 15:43

So let's say you make 25 commission right and you lose a thousand dollars on something.

Speaker 2: 15:49

You're not going to own up the entire thousand dollars, but you're going to own up to 250, that you're 25% of it Agreed and I will say TQL did something similar to that with a lot of their things, like when we had to pay things as a broker. That's exactly how they factored into it. Right Meaning like even for an employee. If I brought an employee on, I paid 25%. Tql paid 75% because that was my commission percentage, so I was responsible for that portion of their salary, which I always felt was like a fair way to do this for both sides, and I think to your point, if there is a downside, I think that should be applicable in some scenarios.

Speaker 2: 16:26

In some scenarios it's definitely not like things happen. I don't think in normal course of business there's just an accident and a claim. These things should come into play. I think if there's negligence on the person's job or how they did their job is where you've crossed that line. If they did something either didn't do something they were supposed to or did something they were supposed to avoid. Either way, right Like you're negligent.

Speaker 1: 16:52

I'm going to bring you into the agent world really quick. I don't want I don't want to go too long on this, but the 1099 agent world is different because you're not an employee and, depending on how your contracts written, this could be, it could go a variety of ways Right and I've seen a lot of agent contracts and they're a lot of times all over the place. For example, some will say there is no responsibility for bad debt at all. So if a customer doesn't pay or if there's a loss on something, you're not responsible for it. There's other companies that will.

Speaker 1: 17:26

They create a reserve out of your commissions in a sometimes interest bearing account, sometimes non-interest-bearing. It basically goes into escrow. Let's say they hold I don't know 1% or 2% of all your AR and at the end of the year they refund you whatever wasn't used. But they'll use that money to settle bad debt, to recoup if there's losses on a claim that they have to eat, or double broker scam, cargo theft, whatever it comes down to. Some do that. I have seen and this one pissed me off. I saw it, I've seen it. I'm not going to name the company, but a minimum load profit of $50, okay, which would state that the brokerage would make $50 off every single load hands down right. So if, let's say, a load makes 500 bucks and the agent gets 70%, that's $350 to the agent and 150 to the brokerage. All good.

Speaker 1: 18:32

Let's say the agent let's say the load makes $100. The agent would make 70, the brokerage would make 30, it fails. Now the brokerage makes 50 and the agent makes 50. Okay, maybe let's say you lose $100, right? So instead of like sharing in the loss of, I'll eat 70 and the brokerage eats 30, it was no, you eat all 100.

Speaker 2: 18:56

And 50.

Speaker 1: 18:57

You got to give me $50 for this load, so now you lost 150. That is dirty to me, yeah, but it is what it is. So it just depends on you know. Have it clearly spelled out in your contract, like I always recommend people verify that they know what pays what. What costs me money, because you got to figure out where's my risk reward. How is it all balanced out here in my agreement? So now, if you're a owner or co-owner or a stakeholder in a company mean sorry, like you're, you're just straight up part of the profit and loss of that organization based off of your ownership um amount, and that just parts part of the risk of being in business. So agreed, man. Any other thoughts on that one? Oh, we have another one. Come in here.

Speaker 2: 19:48

Yeah, we got one more from the YouTube comments.

Speaker 1: 19:50

We just want to know what we got.

Speaker 2: 19:52

It is. I'm an independent freight dispatcher. My goal is to continue to partner with owner ops. I think he means to lease on five to 10 trucks. I think that's what it means. Once I have enough carriers, would a freight brokerage be willing to hire me as a broker agent?

Speaker 1: 20:13

Okay, it depends. I mean, every agent-based company is going to have different requirements or ideal candidates that they look for. So if somebody is looking for an agent that is going to bring a strong carrier base, maybe, but what I'm not seeing here is direct shippers, which is what the majority of a brokerage or brokers out there are going to want to see if they're going to bring on an agent. Am I missing anything in there?

Speaker 2: 20:40

No, and I answered this one too, and the answer I said was, for the most part, brokerages want more customers. They want a base of customers before they're going to bring you on as an agent the carriers. They're going to either have a team of it or they likely have a large enough carrier base already that bringing on a dozen or even three dozen or even five dozen trucking companies isn't going to really benefit that brokerage. Enough for them to bring you on without any customers. Because the agent model right if you want to become a broker agent right is every time I bring an agent on, I have immediate costs. I've got to pay for their setup, I've got to pay for some of their support, their email not a lot, but there's some cost. Yeah, right. So the reason they want you to come with customers is because every month you don't have customers, there's some costs.

Speaker 2: 21:28

You got monthly recurring costs Right. So the reason they want you to come with customers is because every month you don't have customers. There's just money going out the door and it's a big question mark to whether or not you'll actually get customers and move freight. That's the biggest gamble for every company, Agent or W-2 model is I bring on somebody new, whether they have experience or not, can they actually bring in business and can they bring enough business in that offsets my cost to pay them? For W2, I'm paying a salary. I need to offset that one For an agent.

Speaker 1: 21:55

It's a much smaller number but it's still a number.

Speaker 2: 21:58

So the real thing that they're looking for, if you want to get a job either as an agent, is like do you have customers with some business that we can book? And a lot of agents like their benchmark is like 10 grand a month, give or take. Like you got to be doing at least 10 K a month because 70% that's going to go to the agent. I don't want to leave 30% right, three grand of the brokerage. So once they pay some of their expenses, that's kind of a rough number. I seen a lot of them use, but for sure not all of them. But you're right, like I mean, they need the business sooner and having the trucks doesn't get you really much closer to the business or the money.

Speaker 1: 22:35

Exactly Good questions. Keep sending them our way and we will answer them on the uh, on the upcoming episodes of the final mile, final thoughts.

Speaker 2: 22:45

Ben, yeah, I got a funny quote that I wanted to read. I think I sent this to you, but it's just, courage is knowing it might hurt and doing it anyway. Stupidity is the same. That's why life is hard.

Speaker 1: 22:59

Yeah, you sent me that one last week.

Speaker 2: 23:01

That's good parents Like, cause, I have definitely a risk-taking behavior and broke bones and did things when I was younger and my wife's always like, yeah, you keep pushing her to be courageous and when she's scared, but like that doesn't. That's not always a good thing. I'm like, yeah, but it's a good habit and I think it's a good personality trait to develop, because sometimes it definitely goes horribly wrong.

Speaker 1: 23:26

Yep, absolutely Alrighty, any last thoughts here.

Speaker 2: 23:30

Whether you believe you can or believe you can't, you're right.

Speaker 1: 23:34

And until next time go bills.