Intro – 00:00:01:
Welcome to Freight Nation: A Trucking Podcast, where we explore the fascinating world of trucking and freight management. We dive deep into the freight industry and uncover why the trucking industry is more crucial to our country now than ever before. Stay tuned to uncover the driving forces behind successful trucking businesses and hear from the hardworking truckers and leaders who keep the world moving. Let’s hit the road.
Brent – 00:00:26:
All right, Freight Nation, welcome back to another episode of Freight Nation, a podcast by truckstop.com. Man, we’re so glad that you give us your time because you get a lot of places you can hear information on the internet and on this worldwide web that we’re all a part of. And we’re glad that you’ve chosen to give us some of your time today. Freight Nation is a podcast about the stories that make trucking great. And man, we got a great one today. I tell you what, so I have such a great time hosting Freight Nation because I get to spend a lot of time with people that I’ve known for a long time in the industry and people that can give great information and great advice. And it’s always wonderful to hear their story. And that’s really what Freight Nation is about. What’s the story? Because we feel like that’s the most important thing that you can kind of take away. Like, okay, I want to be in transportation or I think I might want to be in transportation, freight transportation. And what are some people I can learn from and hear from that can help us? So thanks, Freight Nation, for being out there. We got a fun one today, and I’d be warned. We have an attorney that’s going to join us today. He’s a fun one, but we’re going to be talking all about one of my favorite, and as I like to say, my favorite transportation attorney in all of trucking, Marc Blubaugh from Benesch. Marc, thanks for joining us today.
Marc – 00:01:34:
Oh, my gosh, Brent. Thanks for inviting me. I’m delighted to be here, and I appreciate the exceptionally flattering introduction.
Brent – 00:01:41:
You’re so welcome. I may be crazy. I love dentists, and I love attorneys. So that’s kind of probably crazy about me. But, no, I’ll tell you what. Freight Nation, one of the wisest things you can do is always really understand the rules and regulations. We got a lot of them in transportation, but have somebody on the inside. Have that special sauce on the inside. You know someone that can help you and give you great, kind advice. And Marc has been that for several decades inside of transportation. That may date him a little bit. It dates me. I’m older than Marc, by the way. Marc has been a leader in this industry for a long time. He’s somebody that I’ve turned to. One of the things that I’ve appreciated and Truckstop has appreciated about him is it’s just plain spokenness and like helping you understand it. So today’s going to be a little bit of an understanding about some things that are going on in the marketplace and ways in which you can navigate and manage your business. But before we do that, how we like to do things at Freight Nation, we always, always want to hear the story. Because one of the coolest things about freight is that nobody usually goes, huh, let’s say I’m in eighth grade. I just really want to be inside of trucking and transportation. Some do, some do, but the greater part of the population don’t. But it’s such a big industry that people gravitate towards it. And then as we all know, once you get into transportation, you never want to leave it because it’s the funnest market on the planet, populated by the greatest people on the planet. And Marc is certain one of them. So Marc, when you were an up and coming guy and you had lots of hair and you were thinking about getting into the law part of the business, you did your undergraduate, you get into the law part of the business. First off, how’d you get into law? And then how did you say, okay, well, man, transportation is like a really cool segment. I know there’s a great story. So tell the Freight Nation listeners and watchers, your story, man.
Marc – 00:03:21:
Well, I appreciate that Brent. We have to go quite a ways back before I when I had hair, but that’s okay. Yeah, I ended up going to law school. It’s just kind of an idea that I had had ever since being a child. And I’d watch Perry Mason and other movies and shows like that. And I thought, oh, that would just be a neat thing to do. I enjoyed arguing, making arguments. And so it was it was kind of always my natural inclination. So when I went to law school, to your point, I had no idea that there was even such a thing as transportation law. I knew very little about the industry. And it wasn’t until first couple of years of practice. It was in the late 90s. I got involved in a case that involved a shipment of shoes that was coming from Brazil to the United States. And its destination was here in Columbus, Ohio. And when they opened up the container, a destination, it was empty. All of the shoes were missing. And it was a couple hundred grand worth of shoes. So there was enough for people to fight about. And as a result, the case was filed in federal court here in central Ohio. And everybody would ever touch this box. This container ended up getting sued. So there was a Brazilian warehouse operator, the steamship line that brought it across the railroad that took it from the port inland. The trucking company that picked it up at the rail ramp and brought it to destination. Our client in that case happened to be an ocean freight forwarder who had coordinated the whole thing. And for me, it was this wonderful introduction to the world of transportation and logistics, because candidly, I had not really given much thought before. Where does this highlighter come from or anything else that I’ve got? Who are all the people that touched it? And when I litigated this case, it introduced me to the whole legal world of transportation law, because there were unique federal statutes involved that most lawyers don’t know anything about. There were international treaties that were implicated that, again, most lawyers don’t know anything about. And I thought to myself, this is an area that I find just interesting, neat people in dealing with all these types of entrepreneurs out in the marketplace. And it would be a good way for me to help distinguish myself from other good lawyers, as I was a young lawyer trying to make a name for myself. And it would help our firm as a whole, I thought, to continue to build this kind of a practice focused around transportation and logistics. So as that case concluded, I had reached all these conclusions and said, you know, I’m going to start reading the trade press, read the journals, began to attend industry functions to make sure I’ve got a real feel for what’s going on in the industry and what the business issues are that our potential clients were dealing with. Began to publish articles then in the industry about various current legal regulatory issues. That leads to being invited to speak at different industry conferences and related events. And eventually I started to take on some leadership roles in various transportation and logistics organizations. And one of my colleagues and I, we had approached our executive committee at the firm saying, we really think this is an area that the firm should focus on and invest in. And we made a decent business case, I think. And as a result, we had buy-in from our partners. And we began to hire more and more attorneys in our group, including those who were industry veterans.
Brent – 00:06:25:
Yeah. And so what year was this? You went to the leadership of the firm and said, hey, we want to invest. What year was that?
Marc – 00:06:30:
That would have probably been around 2000, I think. Probably around 2000. So, yeah, almost 25 years, 24 years. So it’s been a great stretch ever since. We have built this fantastic team that I’m privileged to co-chair here at the firm. It’s a very multidisciplinary practice where we draw on all sorts of skill sets and talents from across the firm. Yeah, we’ve got about 30 people in the group. The firm’s about 400, over 400, but we’ve got 30 of us who are devoted to this industry and over a dozen of them came from the industry. They were people who had business roles in the industry. Maybe they were in a house attorney in the industry. They worked for a trucking company or a brokerage, or maybe they worked with a warehousing company. So it’s been a fun run working with my colleagues, serving our clients in this space. And we’ve been fortunate to be recognized by a lot of the credentialing authorities likewise. So. One that we’re probably most proud of is the U.S. News & World Report, giving us the transportation law firm of the year, probably six or seven times now. They choose one firm in the whole country and it’s been us.
Brent – 00:07:31:
Yeah. Well, I think that’s a good reflection of your dedication to the marketplace. And one of the things that Freight Nation, if you’ve never sat with an attorney, they’re always pretty complimentary of their fellow attorneys. And so there’s lots of other good firms in the market, several other good firms in the market. I wouldn’t say there’s lots because transportation is so unique, but certainly Benesh and led by Marc and the team there, has been recognized greatly for their expertise and their care for this marketplace. I want to go back just a little bit. So when you were pitching your firm, it’s always about the pitch, right? So it’s about, you know, got to get things together. And then, so it was you and another person that was with you.
Marc – 00:08:03:
Yeah. My partner, Eric Zalud. And I was just an associate at the time. I wasn’t even a partner yet.
Brent – 00:08:08:
So you weren’t even a partner. So you’re going in. Just for the Freight Nation watchers, the listeners, how long did you prep? Do you remember how big the document was? What was the sort of setup? Because our carriers have to, talk to brokers about calling freight for them. And then the brokers have to talk to manufacturer shippers about pitching them for their business. So what was the prep time? And then we could jump into some of the unique things.
Marc – 00:08:30:
The prep time should have been more probably, you know, I didn’t as thoroughly prepare as I would have if I were doing it now, but must have been a compelling case. We had some industry data and we had demonstrated already that we were getting some traction in the industry just based on, you know, the revenue that we were generating and the publicity that we were receiving. So all of that helped contribute. Yeah. On reflection, I should have spent more time probably making the pitch, but it was successful at the end of the day. So we were really very fortunate in that regard.
Brent – 00:08:59:
Yeah, I bet. I bet. To me, it’s funny when I’m out there talking to people about this industry, I always say that there’s very few industries that measure themselves with a T, a trillion. And back then, 25 years ago, it was probably seven or 800 billion, you know? And so it’s such a massive industry and there’s such opportunity across the board. And that’s really why I love, and Marc, I appreciate you telling the beginning, I love for people to tell their story because there’s such unique opportunities inside of transportation that many, many, many can enjoy. And so you think about it. I know I’ve coached my kids on it. By the way, Freight Nation, Marc’s got four kids. By the way, you might want to call him by his services because he’s got two in college right now. He’s got one more coming and I’ve got two more coming. So Freight Nation, we appreciate you out there. So the point being is that there’s so many pathways. I talk to my kids all the time about the opportunity in supply chain, because it’s the largest practice in the world, because we have to have goods in order to run every economy and our lives. And so there’s ways in which you can connect in. And so Freight Nation, one of the things that I like to put people to the story is because there’s a place for anybody in their endeavor inside of the supply chain, inside of transportation for you to pursue things. And you can make a wonderful life and you’ll get to enjoy the most relational industry in the industry. So that’s one reason why I appreciate and respect Marc so highly is he’s so relational. He’s not one of them fuddy-duddy attorneys that’s all about the law. And he’s worried about the billable minutes. He’s really cares. And so Marc, you guys get to see a lot. You get to see what goes on. Just the story on getting in this was a maritime thing, right? And so it was connected all the way across. Was it the ship? Was it the rail? Was it the port? Was it the truck? And so you see a lot. And so if you don’t mind, give a couple examples on when you’re thinking about constructing something, constructing your business on why understanding the law and understanding those things is so vital to your business. And then a couple of stories you think that might just eliminate that.
Marc – 00:10:59:
Sure. No, I’d be happy to do that. I think ultimately anyone who’s building a business, you’re investing your sweat, your tears, your funds, your resources into that enterprise. And it’s always struck me as being prudent to say, shouldn’t I be aware of at least those existential risks that face my business so that I know that I haven’t done all of this for naught. That, you know, one mistake is going to doom the business that I have poured my heart and soul into for all of this time. And of course, there are other ways to mitigate risk and do that. But, you know, initially focusing on those existential risks. Why would I want to create a business that I have? It’s generating income. It’s giving people jobs. It’s creating fulfillment for folks. And then to have one thing go sideways and suffer the consequences. And usually these things are relatively easy fixes oftentimes, you know, there will be trucking companies that maybe don’t procure the appropriate license that they might need. Think about a specific service, an intrastate service in a given jurisdiction that decides to police it in a particular way, and they can get shut down. And even if they can resolve that over time, there’s reputational damage in the meantime. They’ve lost customers. So you’re trying to do that due diligence on the front end. What is it that I’m engaged in? What service am I providing to the marketplace? Are there those existential risks that I need to be aware of? I mean, that’s usually how I would frame it for most of your listeners to start with. You know, there’s always, again, things around the margins that we could work on and improve and tweak contracts and the like, but make sure you’ve got the fundamentals in place. And then you can work to enhance the entire operation and hopefully optimize performance and everything else along the way.
Brent – 00:12:42:
We live in a data-rich world. Data is everywhere. And we’re regulated by part of the Department of Transportation. Federal Motor Carrier Safety Administration. And their job is about safety. You know, I know we would like for them to say, well, you’re not helping my business. Well, they’re like, we’re not concerned about your business. We’re concerned about the safety on the highways. And if your business benefits, then great. If not, we’re about the safety. So there’s so much data out there on the marketplace. How has that changed the need to really understand the legal approach to your business or understanding how that impacts the business from a legal standpoint? That’s changed the game some. Talk a little bit about that sort of revolution or that change in our market.
Marc – 00:13:22:
It is a revolution. If I step back in time to when I began in this industry and compare it to now, you’ve got at one end of the spectrum, some of this still exists, but the kind of purely people, paper, pencil-based data. And on the other extreme now, we’ve got very sophisticated technological solutions with the detailed analytics and the like, such as those provided by my good friends at truckstop.com. You’ve got the whole spectrum, but it really has, and that’s one thing that’s fascinating about transportation. I would never have guessed in the late nineties that we would be this data-focused, tech-driven in the industry. I mean, maybe I would have speculated, but I wouldn’t have appreciated the magnitude of that shift over time. And even in our own practice, we’ve seen that be transformational. I involve intellectual property attorneys on my matters and my clients every day because they’re dealing with copyright issues, data privacy, data security, licensing agreements, the like. And these are all hazards and tripwires for those that aren’t alert to them. And you think about, just take an example, the motor carrier industry and nuclear verdicts. You’ve got recidivist attorneys out there and they understand the changes in technology too, because they educate each other. They’re feeding each other information every day about how they can better go after trucking companies. And they know the types of data that motor carriers, freight brokers, others have. And they’re very precise in their requests when you get a litigation, because they know they can mine that data, get it out of an ECM. They can get data from a TMS that might come back to bite somebody. So vigilance has to be given to the deployment of technology in order to, again, mitigate what could be existential risks to one’s business at the end of the day. So that’s one way I’ve seen it certainly change over time. But even our clients, our clients are entrepreneurs, as I was talking about earlier. You’ve got guys that are coming up with new ideas. They might have some other creative business process that they’ve put in place. And they want to protect it too, because again, now they’ve invested in creating a new technology or a new business process. And they say, how do we ensure that somebody doesn’t come along and just become a copycat? Take that and take it themselves. You know, all the intellectual energy that you’ve put into creating that and your creative team, gone. So why not, again, don’t be penny wise, pound foolish. Think about it on the front end, protect it, and ensure that you’re going to be able to see that ROI and what you’ve done with respect to technology in your business. Does that make sense, Brent?
Brent – 00:15:56:
Oh, yeah, sure. Certainly. So sounds like that you’re saying when you’re organizing your business, or if you already organize your business, just make sure you do your due diligence and making sure that your data is protected and also that it’s clear as to your ability to report it back out to somebody.
Marc – 00:16:12:
And to delete it when you need to. Some people are, they become data hoarders and they hold onto data. That frankly, they shouldn’t be holding on to its dated, it’s old, and it can only hurt you at the end of the day. So that’s just a little caveat.
Brent – 00:16:25:
Well, you bring up another part of this because you mentioned this earlier. Most of Freight Nation listeners are going to be in a spot market where we deal with like one-off contracts on everything that we do and make sure we fully disclose this, Freight Nation watchers and listeners. Mr. Blubaugh is the representing attorney and counsel for the Transportation Intermediaries Association, does an excellent job there. But contracts or in agreements are something that the spot market works on because every single movement has a contract with it. And they’re all individual by the shipment. It’s not like, you know, in the large fleet marketplace or the large carrier marketplace where they have one contract for 10,000 loads. So talk a little bit, if you don’t mind, just give a little bit of advice on when approaching a contract and balance it out between broker and carrier because they need each other in order for the stuff to move. What are some of the things you see that you need to make sure you pay attention to? What’s the big thing that gets missed all the time?
Marc – 00:17:16:
Yeah, I’ll share a couple of things. You know, one, I think having that contract in place is key. You know, having a good business relationship depends on good contracts. That old saying about senses make good neighbors. You know, you want to understand your relationship to one another. So, but a couple of the key provisions that can come back to bite either brokers or carriers, one, cargo liability. Are parties on the same page in terms of what they think the exposure for any given party is going to be? Is this a high value load that requires a larger amount of insurance? Is this a commodity that you don’t face a lot of risk with? And matching up insurance, cargo insurance with that liability limit. A lot of folks in the industry think insurance limits a liability. It’s all one in the same. It’s not. I mean, you could say, oh, I’ve got a hundred thousand in cargo insurance. Am I not protected if it’s a $250,000 loan to get stolen? No, you’re going to get a hundred grand out of the insurer. And then you’re going to be on the hook if you’re a broker, for instance, on that additional $150,000. Nor the same with a carrier that decides to move a load that’s high value being underinsured, in other words. So that’s one big area. And if you’re a broker in particular, I think the biggest area of exposure, Brent, that I see is a failure to match up the promises that that broker is making to a customer with the promises that they’re extracting from the carrier. There’s not harmony between the two. There’s a gap. And as a result, they face exposure. And again, that could be on something like cargo, where I promise my customer, oh, yeah, don’t worry. I’m going to get people with $250,000 in insurance for cargo. And then they go out and I hire a carrier that has $100,000 or $150,000. And claim arises and I’m on the hook. So it’s matching up those obligations, I think, is really key. And same financially as well, of course, to your point earlier, Brent. You can’t make certain payment term commitments to your carriers downstream if you haven’t gotten reasonable commitments from your customer in the first place. And Brokers tend to be the bank. And that’s going to happen oftentimes. But nevertheless, try to make it as tight as you possibly can. But those are a couple of areas. And another one, I suppose, for brokers in particular, is language that some of them include in their contracts that suggests with their carriers that they’re exercising more control than they really should be. And that can come back to bite brokers, too, because then, again, the plaintiff’s personal injury bar will go out and say, well, wait a minute, broker, you’re essentially acting as the employer of this motor carrier. You may say you’re a broker, but look at your contract. You’re telling them to do this, that, and the other thing more than just complying with law, but you’re micromanaging them. And if that’s the case, we’re going to treat you as the employer rather than as an independent broker, and you’re going to be on the hook. So that’s another kind of danger area for a lot of the contracts that we run into.
Brent – 00:20:05:
Yeah. Well, I’m glad you brought that up. We’re going to talk a little bit more about the independent contractor aspect of things in a minute. And it applies to all sides. It’s not just on the trucking side. It applies to the brokerage side as well. But you brought up the idea of making sure that you’re managing that agreement really heavily. I just talked to a new carrier in the marketplace. They’re a 25 truck carrier. And they were talking to me about their agreements. And they said that they had talked to their attorney. And I said, timeout. Let me get a timeout here. I said, is this a transportation attorney? And they were, well, no, it was our general attorney that we’ve had in our family. And I go, you might want to talk to a transportation attorney. Because if not, your attorney’s probably going to talk to a transportation attorney because you have to know this. So this carrier, like I said, they had 25 trucks. And so they were talking to me about it. And I said, well, your need is very different in the marketplace. So you want to talk to a transportation attorney. It’s very, very important that you make sure you have the terms and conditions in your contract reflect what the industry needs within the market. That’s super important. So what’s one big thing, like you talked about one aspect, anything else that’s like typically missed in the market and by people that are trying to run their operation?
Marc – 00:21:14:
Let me say good business hygiene. It sounds so basic sometimes, but.
Brent – 00:21:19:
Like washing or what are you?
Marc – 00:21:21:
Washing your business now, you know.
Brent – 00:21:23:
Yeah, be careful.
Marc – 00:21:24:
There is a temptation, I think, on the part of a lot of, particularly the startup businesses, or even those that have grown, but you know, they began small and now they’ve scaled up. And as they’ve scaled, they haven’t taken into account, complying with some corporate formalities, making sure that they’re handling their books appropriately, that there’s not commingling of funds, those sorts of things, because the failure to do that, again, kind of creates that existential risk in the event that they get hit with a potential nuclear verdict or something along those lines. So it sounds so basic sometimes, Brent, but I really encourage your listeners to just take into account that basic business hygiene. Am I having regular meetings? How am I handling bank accounts? What kind of cash management system do I have in place? Am I engaged in new businesses now that I wasn’t when I founded my business? I was a carrier and now I’m also providing some brokerage services or now I’m providing some warehousing services. What have I done to address that? Do I have one business entity that is now exposed to claims from all sorts of areas? Or does it make sense to kind of split some of this out and to have one business that’s running the brokerage, one that’s running the motor carriers, something else that’s working on warehousing? So thinking through those things, I know it seems like a luxury sometimes to folks that are operating their business day to day. But again, trying to keep in mind, if you don’t do these sorts of things, you may regret it down the road in the unfortunate event that you get hit with a significant exposure at some point. You don’t want to give ammunition to your opponent and the plaintiff’s bar in particular.
Brent – 00:22:59:
Right. I’m glad you brought up about bifurcating a business that would be, and a lot of carriers do this. They’ll have a trucking operation. And then they see the opportunity that has grown existentially large over the last 25 years called brokerage because they can move freight without ever having to buy more trucks because of platforms in the marketplace that can bring them capacity to move it. So your advice is to make sure that I like that I use the word hygiene. Most of the time people think like, you know, high school football team and hygiene and how teenagers tend to smell funny. But that’s not what we’re talking about. You’re talking about making sure that you’re always paying attention to it, keeping it up. And making sure that it’s in the set right structure.
Marc – 00:23:38:
That’s exactly right. You don’t just set it up and let’s let it go on autopilot. You got to revisit it from time to time. Let me give you one other example for people. For instance, that example you gave a motor carrier that decides I want to be involved in brokerage and they think they can just do that without getting a license, without getting their proper security done. That is not only exposure for the business, but that is exposure for the officers, the directors and the principals of the business under federal law. They can face not only a civil penalty from the federal government, $10,000 per load for any unlicensed transportation brokerage, but they can also face a claim from a competitor, a disgruntled customer, anybody who claims they’ve been injured by this activity that wasn’t properly licensed. Again, that exposure is not just the companies, but Congress, when it enacted the statute said, you can not only go after that business, you can go after the officers, the principal. So that’s out of your own pocket. If you’re the CEO. You could be paying out of pocket. Your home could be exposed because you didn’t take that simple step of saying, wait a minute, I’m doing something new now, do I need a license to do this?
Brent – 00:24:43:
Yeah. Fantastic. I appreciate you bringing the penalty for illegally hauling a commercial load that goes up and down the highways. And so, because you said it’s $10,000 per load, that could be the fine on that, or it could be the penalty on that. Because when you have 800 million movements of anything, there’s always going to be people that want to skirt the edges. And so Freight Nation watchers and listeners, this is super important. Because there’s a lot of players in the industry. So make sure that the person that you’re working with is federally licensed and covered, whether it’s a bond or whether it’s insurance. And make sure that you understand what you’re hauling, that you have the authority to hold that, because there are penalties against this. And they’re there for a reason is to make sure that the system runs fairly and safely. The super important, by the way, Marc, I don’t think most truckers probably, especially small trucking companies wouldn’t know that if they were hauling a load without the commercial checks and balances on, they had all the right licensing and permitting and insurance. They could get fined enough to put them out of business in a day.
Marc – 00:25:40:
Yeah. I mean, it’s scary stuff. And I mean, you know, I see this come up frequently with something very simple, like intrastate transportation that a lot of folks think, oh, you know, I seeing Amazon out there doing their thing. I really don’t need to worry about it. It’s just in my state. It’s not really interstate. That’s a more complex analysis to get into, but it’s a danger spot for some operators.
Brent – 00:26:00:
Yeah. Thank you so much for bringing up that too, because we’ve had a massive increase and hotshot expedite haulers and a lot of them are hauling truckload partial, or they’re hauling sort of Amazon type freight or that category of parcel type freight where it’s becoming more and more of the market because of the way in which purchasing is changing. So another thing Freight Nation, pay close attention to this just because you’re hauling intrastate. That means inside the state that inside of one state, you know, make sure that you’ve got the right licensing and permitting and insurance. If not, you may end up forgoing your dream very quickly running your business. All right. Marc, I want to take the last segment and I want to talk about the independent contractor laws that are coming out there, also known in the industry as AB5, but that’s a California thing. But as we all know, a lot of times what happens in California comes East. Sometimes that’s good. Like we like California type music. Everybody does. It’s really cool. We like California type technology. We don’t always like California type regulations when it comes to the trucking industry. And unfortunately we have to live with them. So. Back in 2019, a Assembly Bill 5, that’s what AB5 stands for Freight Nation, got passed in California and it changed things as our transportation, even though it was appealed and it would always Supreme Court and Supreme Court said, nah, we’re not going to listen to it. So, which means it became law in California that changed things for our market. Now the independent contractor is a big part of our industry. It’s not just trucking Freight Nation. So Marc’s going to talk a little bit about this. It’s also independent contractors called agents that work for brokerages. So there’s independent contractors. That’s a 10 person. It’s not an employee. There’s a 1099 provider of services to a business entity. So Marc’s going to talk a little bit about AB5 and what that means and the impacts and where we are today. So Marc, I am so glad you’re on because there’s a little bit of a murkiness on this. You wouldn’t think there would be, but it’s going to change things. And there’s a bunch of states that are already looking at AB5 type legislation because it’s going to eventually become part of where we are in the market. We just got to figure out how to handle it. So Marc, talk a little bit about that and where it’s going.
Marc – 00:28:05:
Sure. Yeah. I like the way you kind of teed it off too, because you know, lots of things in California we like, but policy is not usually one of them. And so I, I agree with those who say, you know, California can be the birthplace of all bad government policy. It seems sometimes. So yeah, with AB5, for your listeners to make sure they understand that it’s a three part test, essentially ABC is what we call it. The ABC test. And the real key is the letter B, which means that, you know, somebody is going to be deemed to be an employee and less. The company hiring them, so to speak, can demonstrate that that person is doing something that’s outside the usual course of the hiring company’s business. And so you think about trucking, how do you do that? Because I’m hiring a truck driver. They’re moving freight from A to B. I’m a trucking company. That’s the business I’m in is moving freight from A to B. So you fail the test automatically, essentially. But not withstanding that, as you pointed out, the appellate court and the Supreme Court were not interested in it. Just earlier this month, though, the decision finally came back down from the federal judge to whom the case was remanded. This is the judge who did, to his credit, enjoined enforcement of 85 against the trucking industry right as it was coming into effect. New Year’s Eve 2019. He was willing to do that, but he got reversed on appeal and the Supreme Court wasn’t interested in re-reviewing that. So it got sent back down to him. And earlier this month, he rendered his decision, which was essentially saying, sorry, guys, you’re out of luck. This is really going to become a legislative issue now. I’m not going to enjoy the law again. I don’t think the new legal arguments that you guys have raised are going to be sufficient. So you have to comply. Now, also your point, Brent, it’s been in effect now since 2022. Or it said, you know, hey, we’re not interested in it. So it has been the law of the land in California. And it’s unfortunate this had impacts, obviously, on capacity and the way people are operating in California in a variety of ways. You got some people that have pivoted and said, you know, fine, I’m just going to start dealing with employees only, even though that presents its own challenges in terms of flexibility and overall cost structure. You’ve got others who have said, you know, look, I’m going to try to find a middle ground of some sort. Sometimes we refer to it as the two-check model. That can be a way to work around some aspects of AB5. Others say, well, you know, there’s this, what they call the business-to-business exemption in AB5. And maybe there’s a way. It’s a very complicated test, Brent. There’s 12 factors and you’ve got to satisfy all of them and it’s a mess, but maybe there’s a way I can do that. What I’ve seen most do in California is pivot to what I’ll call the broker-carrier model, which is I used to be a motor carrier. Now I’m going to be purely a broker, and I’m going to expect that any of my former drivers who were independent contractors need to go out. They need to get their own authority. They need to become motor carriers, and I will broker to them. Because the way to work around the ABC test is to be able to say, the person I’m hiring is not in my line of business. So, I’m in the business of sourcing freight. I’m a broker and arranging for transportation, whereas the carrier is now performing the transportation. Two different separate lines of business is what we would argue. And that’s what a lot of folks have done in California to try to make the best of the situation. But there are other creative ways that folks have gone about it. But the implications, I think, are really what’s most important, probably, at the end of the day. And you’ve got small carriers that are going out of business. It’s too daunting or expensive to convert to one of these alternative models. Brokers that have also feeling pain because particularly small brokers who are heavily reliant on small motor carriers feel the consequences of this as well. There are specific sectors that have been hit harder than others. I think always of intermodal drayage, which is a longstanding target in California. That’s a particularly difficult industry to be in in California now. Even large carriers. There’s that continuing concern about, you know, what does the driver population look like? Are there going to be folks that we’re going to be able to tap in the future? Is this chilling people from entering into the industry or not? And then everybody’s concerned about enforcement. Now, strangely enough, Brent, there hasn’t been a dramatic effort at enforcement on the part of the state of California to date. On the other hand, plaintiffs are all called, you know, wage and hour attorneys who are suing trucking companies for violating work classification laws. They’re capitalizing on it for sure. And that’s where a lot of the effort, the enforcement mechanism really ultimately comes, I think, at the end of the day, because you’ve got a lot of these guys, they have cottage industries in trying to go after trucking companies. They recruit one former driver who says, I think I was mistreated. I don’t think I was paid. Now, in retrospect, I think that was an employee and they’re off to the races. Now that the judge has decided in California that he’s not going to enforce it. The California Labor Commission might start taking a more muscular, robust approach to enforcement. We don’t know. And one other caveat, Brent, we don’t know if the California Trucking Association and ELIDA are going to appeal the court’s decision and if they’ll have any success in appealing it ultimately at the end of the day. They have 30 days to do it, absent some post-trial motions. So we’ll know relatively soon what that looks like. But for now, people have become resigned. And I think brokers as well obviously have their own set of concerns related to AB5, as I was suggesting. I mean, tighter capacity will affect rates, obviously. That could be favorable in certain respects, obviously. But they’re going to be dealing with these carriers that are in the process of converting or have already converted. And the industry has its own economic headwinds right now, as everybody knows. So that’s presenting its own particular challenge. And those brokers that use an agent model right now, they have some concerns as well. There’s been no effort so far in California to try to argue that a broker-agent model violates AB5. But it’s not beyond the realm of possibility that someone will argue that at the end of the day. You’ve got an agent working for a freight broker that might be considered as performing work within the same business as the freight broker. There’s the business-to-business exemption, which is, again, perhaps an escape hatch, so to speak, for the brokerage industry. But it’s challenging. And all of this, no matter if your listeners are brokers or carriers, you have to drive some discussions with their customers about, this is the landscape now, and this is how it’s going to affect our rates, our ability to serve you in a responsible way. You may have to tweak certain contractual provisions, ultimately, in your relationships with certain customers. And it’s going to complicate things because there will be some motor carriers that may, frankly, just say, even if they’re not in California or they’re doing a little bit of delivery in California, but they’re housed elsewhere, they may say, you know, we’re not even going to send our guys into California anymore because the risk is too great. California exercises its jurisdiction in a broad and sweeping way and says, oh, you know, not only can we regulate companies in California that are moving things around, but maybe if you’re outside of California and you’re sending people in, maybe we’ll try regulating you, too. So they have a very expansive view of their jurisdiction in California. So, and the copycat legislation that you were referring to as well.
Brent – 00:35:36:
Yes, sir. I just wanted you to bring that up.
Marc – 00:35:37:
I mean, the hotbeds really in this area beyond, obviously, California, New Jersey and Illinois are top of the list. I mean, that’s really where the significant exposure exists. Yeah, you’re going to see kind of a political breakdown in terms of where the highest risks are. You know, generally speaking, and this is a generalization, you’re going to see the blue states tend to be a little more aggressive on this front. The red states, so to speak, are generally a little more protective on that front. These aren’t bright line rules, but that’s kind of the general lay of the land. And you’ve got the purplish states that are, you know, they can come out, either way on these things. So it’s a concern. It has been so essential to the trucking industry to have access to this independent contractor model. And the independent contractor drivers want it. I mean, that’s the thing. They want to be entrepreneurs, small business people who are creating and growing their business. They don’t want to be beholden to a boss who’s going to tell them to clock in and clock out. This is what you’re going to do today. No ifs, ands, or buts. They want that freedom. I mean, it’s almost indisputable, just to the lifeblood of transportation. I mean, it’s like, I think of transportation as the almost the physical embodiment of freedom. You know, you’re, I’m jumping in my car, my truck, and I’m going wherever I want, how I want, and I’m going to get to destination. So it’s a very tough development for the industry. And I know there’ll be continuing challenges. You know, we’ll see how the election shakes out as well this fall. And that could have implications for what happens at a federal level and whether or not the federal government continues on the path that it’s on with respect to work classification which is an unfortunate path. Or they’ll take a little bit of a turnaround and have a little bit more of a business-friendly attitude, particularly towards small businesses that are trying to live the American dream.
Brent – 00:37:24:
Yeah, and we’re not for the AB5 laws being put nationally as far as Truckstop is concerned because we support the same thing. We want to support the choice of the under-operator to run their business the way they want to. And one of the things is the idea of being an independent contractor working for a larger carrier entity, a fleet entity, allows you the opportunity to step into private business ownership without all of the risk at once. And we want to make sure that we’re making sure that everybody in the industry knows about this as much and deeply as possible. Because you mentioned a couple other states. I saw a list just at the TCA show last week where I think there are 11 or 12 more states, one being Washington and I was surprised. This one, I think Texas was on the list, too, which was kind of interesting. Now, look, don’t get too concerned about this Freight Nation list, because it’s a long pathway to things. But the point is to be aware. But you’re right about California where they oftentimes say, well, what we do here, if you’re going to come into our state, even though you’re not domiciled here, you have to adhere to these standards, which make it very difficult. So we’ve got a couple minutes left. All right, Marc. So when you were a young man a few years ago, a couple years ago, by the way, thank you for the AB5 thing. Thank you for talking about the contract things. Thank you so much for that. But when you were a young man, what was some of the like, think back, what was a pivotal piece of advice that changed sort of your direction you were going from a business standpoint or maybe even like the way in which you go about accomplishing things and creating success in your personal life? What was a piece of advice, if you can think of one?
Marc – 00:38:53:
Yeah. Yeah. I mean, I guess a couple of things come to mind. One that I’ve tried to abide by is tempting as a lawyer to always talk. It’s listen more. You got to just listen to what the needs are. Those in the industry, your prospective customers or clients, making sure that you’re doing that. That’s fundamental, I think. A second thing that always resonates with me is attitude. It’s a little thing that makes a big difference, I think. And if you want to make sure that you’re maintaining that, I like to keep relatively positive attitude, even when it’s a tough times for the industry and everybody is facing these difficult circumstances. There’s lots of opportunity out there still. And the other final thing, just not to be afraid. There’s always temptation to say, oh, I can’t really do this. I’m not sure. I’m very uncomfortable in this situation. Throw yourself in. I mean, what’s the worst that will happen? You’ll be embarrassed a little bit for a period of time and you’ll move on and you’ll learn from it. So I think be fearless to a certain extent when you’re looking at new opportunities.
Brent – 00:39:53:
I love that. I love that. Listen, be fearless. What great advice, man. Thank you, Marc. Thank you so much for being on Freight Nation. Hey, Freight Nation listeners, you got a really good inside peak. Then this one didn’t cost you a single penny, but everything, your time, only time can be expensive or keep that about. But this one was free as far as like this advice from a guy that works for a company that really cares about transportation, all segments of transportation they have for decades. And I know they will for decades more. And we’re thankful, Marc for what you and Benisch do to really help the industry. And we’re thankful Truckstop for what you do to help us. Thank you so much for coming on day and being willing to give your wise counsel.
Marc – 00:40:31:
Of course. It’s been a real privilege. Brent. I always enjoy speaking with you.
Brent – 00:40:35:
Oh man, same here, pal. Same here. All right, Freight Nation. That’s a wrap. Another episode in the books. Thanks for watching and listening today. We appreciate you again that you give us your time and your effort and your energy. Stay strong out there. I know it’s a difficult market right now, but stay focused on the right thing. Stay focused on making sure you get your business set upright. Make sure that you’ve got the relationship set up right as well. Super important. And always remember you need to work hard. You need to be kind and you need to stay humble. Thanks a lot Freight Nation and keep on trucking.
Outro – 00:41:04:
On behalf of the Truckstop team, thanks for listening to this episode of Freight Nation. To find out more about the show, head to truckstop.com/podcast. If you enjoyed this episode, make sure you hit subscribe so you don’t miss any future episodes. Until then, keep on trucking and exploring the open roads with Freight Nation: A Trucking Podcast.
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