What is a Dispatcher Carrier Agreement?
Dispatcher Carrier Agreements are contracts between a freight broker and a trucking company registered with the Federal Motor Carrier Safety Administration. The Transportation Intermediaries Association (TIA) issued a standard contract for its members to use with motor carriers. The TIA definition states:
"The form is designed to be customized by the parties to meet their unique business needs. It provides, in one document, all of the vital elements of a broker-carrier relationship, including but not limited to contract terms and conditions, information on the services being provided, and the business and legal relationship of the parties."
Moreover , a Dispatcher Carrier Agreement defines the method in which the terms of the broker-carrier relationship are carried out and the manner in which the brokers and carriers shall work together to benefit both parties.
Furthermore, the TIA Interpreter for the Standard Broker-Carrier Agreement goes on to state that the "form covers regulatory requirements, such as no waiver of carrier insurance, and gives brokers the foundation to ensure contractual compliance to FMCSA standards currently existing in federal and state transportation and insurance laws."
In addition, the TIA provides a "Joint and Several Liability" Addendum, which states that in the event that the carrier fails to pay its bills for services provided to the broker to the shipper, the shipper may seek payment from the broker’s bonding company.
What Are the Essential Elements of a Dispatcher Carrier Agreement?
Agreements between a motor carrier and its dispatcher are essential for the proper functioning of their business relationship. The failure to clearly define each party’s responsibilities in such an agreement can result in significant liability.
Dispatcher Service: The dispatcher’s responsibilities are usually set forth in detail. Examples include business development, back office services (i.e., maintaining records, billing, and collecting), and obtaining, screening, and negotiating loads. Compensation: Compensation is often on a sliding scale based upon revenue provided; the service is paid by the carrier based upon a percentage of revenue. Commissions for specific services may also be included. Independent Contractor Status: To avoid outcome-determinative issues in the event the IRS audits the company, the agreement should clearly set forth that the dispatcher is not an employee and that it has no authority to act on behalf of the carrier. Equipment: The agreement should clarify any responsibility for the purchase and maintenance of certain equipment, e.g. cell phones or dispatch software. Insurance: The agreement should cover insurance responsibilities, including retention of independent contractors. Compliance: The agreement should require that the dispatcher ensure that all drivers and owner-operators are properly trained and licensed. Indemnification: A mutual indemnification clause is highly advisable.
Advantages of a Dispatcher Carrier Agreement
Both Carriers and Dispatchers Appreciate Each Other, After All
Although carriers have been using their own dispatcher carrier agreements for years, the industry has discussed the use of standard form agreement for dispatching services for several years. The purpose is to develop some standard terms and eliminate the need for each and every contract to be individually negotiated.
The new agreement is based in large part on the work of the American Trucking Association’s (ATA) subcommittee on freight broker/carrier issues. Each ATA member could theoretically request the use of the ATA form dispatcher carrier agreement. Generally speaking, the new agreement brings the carrier and dispatcher into a joint enterprise relationship, which would allow a carrier to make deductions from the dispatcher’s fees to offset carrier damages and liabilities it incurs because of dispatcher actions or omissions. The agreement also is intended to guard against potential joint employer liability.
According to ATA’s Jim Parry, there are many other advantages for carriers and dispatchers, namely:
- The new agreement recognizes the carrier’s responsibility for the performance of the motor carrier as if the performance were that of the dispatcher. The agreement allows responsible parties to be named in court pleadings. That aspect of joint enterprise has been found useful in court cases for motor carriers who are named in lawsuits when the fault was with the supporting company.
- The new agreement sets clear standards for compensation. Without a written contract, enforcement of compensation arrangements subject to state law can be difficult. In a lawsuit, evidence of a standard form of compensation (like the new ATA language) helps support the carrier’s claim for compensation.
- The agreement specifically gives the dispatcher a license to use the carrier’s name and DOT number. Some states have very strict rules about deputies and license requirements for brokers. The agreement protects both parties, for example, by reserving the carrier’s right to approve each customer. It even provides that the carrier has the right to directly contact the customer about the shipment.
- The new agreement allocates liability among the dispatcher and carrier for cargo and other damage. This allocation protects each party from allegations made by the other. For example, if a carrier is sued for lost or damaged cargo that occurred while the dispatcher was negotiating the contract with the shipper or receiver, the carrier has a clear right to look to the dispatcher for that loss if the dispatcher did not protect the carrier’s interest under the contract with its customer.
- The new contract will enable carriers to move towards a network of trusted providers. Many companies realize that they cannot do all things well themselves. They need partners — like good dispatchers — to add value to the service to consumers. The new form will allow carriers to document those arrangements. An added benefit is the ability to move towards a good deal with better legal protection.
- The new contract allows cash flow benefits. Carriers and dispatchers can negotiate their own terms to ensure that a carrier has the benefit of advance payment for services. Carriers wouldn’t have to wait for a customer to pay a broker before paying the dispatcher.
- The new form would allow a carrier to have a special lane or contract with one dispatcher. For example, the new form allows the carrier and dispatcher to jointly market the services of both parties. That should allow carriers to approach a shipper with two representatives and to market joint load plans. That should increase collaboration and the ability for everyone to benefit.
- The new form will allow carriers to take advantage of the internet and its ability to market services around the world. The new form allows the flexibility suggested above and to use technology to good advantage.
Common Legal Challenges with Dispatcher Carrier Agreements
There are two common legal issues that arise in the context of these types of agreements: (1) arbitration provisions, and (2) damages provisions or limitations. These provisions can have a significant impact on a party, so ensure that you have a handle on their reach and impact before you enter into an agreement.
Arbitration Provisions
One such clause that I encounter repeatedly in these types of agreements is a mandatory arbitration clause that requires all disputes arising under the agreement to be arbitrated before a single arbitrator. While one may be used to seeing arbitration clauses in certain types of contracts, in this context such requirements can impose a major disadvantage on the dispatcher. Arbitrators hired to resolve disputes that involve a contract and claim for damages between a trucking company (or more commonly, a freight broker) and the dispatcher (or agent), are more times than not retired trucking company executives or insurance company claims analysts. This is problematic because those individuals are trained to decide these types of cases in favor of trucking companies and the freight broker. Some of the more common arbitration provisions I see are as follows:
Damages Provisions
Another common clause seen in these agreements is a provision limiting damages. For example, one might read that in no event shall a Company (i.e., the trucking company or freight broker) be liable to a Dispatcher (or agent) for any special, incidental, indirect, consequential or punitive damages arising out of the Agreement. In other words, even when the dispatcher can prove actual damages, the trucking company or freight broker will not be required to pay them. This places the dispatcher at a significant disadvantage. A pattern seen in nearly every case I’ve litigated for a dispatcher is a counterclaim by the trucking company or freight broker alleging that the dispatcher made more money than allowed under the contract – because those company’s are able to track the income versus expenses of the dispatcher or agent through carrier performance software like TMW/TranzAct, they have an edge when it comes to such an accusation. Some of the more common damages limitation clauses I see are as follows:
How to Negotiate a Fair Dispatcher Carrier Agreement
A few tips for ensuring a fair and effective dispatcher carrier agreement include:
Always be prepared- a general outline of terms and conditions should already be ready to for discussion. Having a draft agreement lays the groundwork for a complete mover forward with negotiations. Additionally, you should familiarize yourself with basic for all standard agreements in the industry so that you have your own clear understanding of what the important terms of the agreement mean.
Understand the legal obligations – You should have a clear understanding of Federal and state laws in regard to your responsibilities as a dispatcher and the responsibilities of the carrier(s) for whom you will be dispatching loads. Make it a priority to be aware of your exposure if things go wrong , and the allocation of liability. Again, going through this upfront and having a clear understanding can better prepare everyone for future problems.
Protect your interests – make sure you understand your role as a dispatcher and have clear expectations in your agreement. As the intermediary your role is critical to the relationship between the carrier and the shipper. Make sure you understand your role and how you are able to help both parties reach their goals.
Be willing to compromise – No one is going to walk away from any deal 100% satisfied so be prepared to give here and there just to get at the very least an acceptable deal.
How To Write a Dispatcher Carrier Agreement
When a dispatcher is used to broker loads for the carrier, we often use a "dispatcher carrier agreement" that governs these terms. It should be used because although the dispatcher could be an agent, it is likely that the parties want to decide how the parties relationship is governed. A basic outline of clauses that can be used in a dispatcher agreement include:
- Declare the parties and the nature of each parties’ business. If the broker has any insurance to cover the trucking companies conducted business, this should be described.
- Identify the subject of the Agreement.
- Scope of Agreement. State the nature of the relationship between the parties (e.g., a non-exclusive written agreement fault). What is the dispatcher allowed to do on behalf of carrier? Is the dispatcher a required intermediary or can the carrier work directly with the shipper?
- Prohibited Actions. There should be no declaration by the dispatcher that he can control the carrier’s safety, route, hire or fire decisions or supervise the employee driver. Caselaw suggests these actions by a dispatcher may render the carrier an employee. The dispatcher should agree not to implement or execute any actions that may deem the driver an employee.
- Compensation. There should be a clear description of what services are provided for a rate of compensation.
- Independent Contractor Relationship. There should be a declaration stating this is an independent contractor agreement.
- Representations and Warranties. Each party should represent and warrant to the other that it is legally authorized to package/transport the freight.
- Indemnification.
- Access to Records.
- Termination. In the event the dispatcher has any interest in a trust fund imposed by 49 USC 373.201, the agreement should provide that any such fund is created and is in the control of an independent trustee.
- Governing Law.
- Miscellaneous.
Other potentially relevant clauses include Choice of Forum, Confidentiality, No Sale of Assets, and Insurance. During the drafting process, it is a good idea for each party to seek advice of counsel to avoid unintended liability.
Dispatcher Carrier Agreement Case Studies
Let’s look at three case studies where the dispatcher has really added value to the carriers they represent.
1) Medical carrier
A medical carrier dispatches their drivers to a neurology clinic a few times a week where they take patients for regularly scheduled testing. They also do pickups from that clinic to take the results to another facility. Prior to having a dispatcher, the carrier was trying to schedule these drives themselves. They were losing a lot of time and money because they didn’t realize the clinic had appointments that needed to be met and therefore had to turn down a majority of the requests. The dispatcher was able to work with the clinic and now they have a steady stream of clients and are getting paid regularly without having to worry about whether they have enough in the calendar to stay busy.
2) Limo service provider
A large limo service had been servicing numerous accounts for many years and suddenly one or two of those companies decided they wanted to start scheduling them directly. The dispatcher was able to negotiate with those accounts and retain the business. She added one more regular account of her own and between the three, she has made this account profitable again.
3) Box truck service
A box truck company had been doing a certain type of work for a client for almost 20 years. This client provided the company with approximately 18% of its annual revenue. About 6 months ago, this client began dealing directly with the company. At first, this was fine and there didn’t appear to be any problems, but one day, the client simply stopped answering phone calls. The owner of the company was not able to figure out why he was no longer contracted for the work and when he finally tracked down the owner of the client, he was informed that due to negligence, he had not been insured properly and therefore his services were no longer needed.
The Next Wave: Dispatcher Carrier Agreements
As technology evolves, so too do the complexities and requirements surrounding the relationship between dispatchers and carriers. In the future, we can expect to see an increase in the use of artificial intelligence in the creation, negotiation, and enforcement of dispatcher carrier agreements. For instance, automated contract drafting tools could help dispatchers quickly and easily create customized agreements that meet both federal regulations and their specific business needs.
Additionally, with the rise of e-commerce and on-demand delivery services, we should expect to see more sophisticated dispatcher carrier agreements that account for these new business models. This might include more detailed provisions addressing issues such as last-mile deliveries, real-time tracking, and payment processing in a gig economy context.
Further, as the gig economy continues to grow, we may also see an increase in the use of dispatcher carrier agreements with independent contractors, similar to how some technology companies hire software developers on a project basis . This may lead to more flexible contractual arrangements with even more non-traditional terms and conditions.
Another interesting avenue to watch is whether there will be greater adaption of written contracts in the independent contractor context. The law is currently unsettled in this area, as courts require that businesses using independent contractors comply with applicable laws using a variety of tests, such as the Borello, the ABC, and the Common Law Test. Written agreements specifying the nature of the relationship between dispatchers and carriers may help protect dispatchers and carriers from misclassification claims.
Finally, a future issue may develop around whether freight brokers, essentially the dispatchers of freight intermediaries, will be required to utilize dispatcher carrier agreements given increasing regulatory scrutiny. In addition, it is possible that the terms found in dispatcher carrier agreements will gain traction given the growing popularity of digital contracting. A wide range of companies will need to pay attention to developments in the area of dispatcher carrier agreements.