EMPLOYER STATUS DETERMINATION

H & M International. Inc.

Decision on Reconsideration

APR 2 1 2004

This is the decision on reconsideration of the Railroad Retirement Board concerning the

status of H & M International, Inc., as an employer under the Railroad Retirement Act

(45 U.S.C. § 231 et seg.) (RRA) and the Railroad Unemployment Insurance Act ,45

U.S.C. § 351 et seg.) (RUIA). For the reasons set forth below, the Board finds on

reconsideration that H&M International is not a covered employer The Board also finds

service performed by H&M employees may not be credited as service to a railroad

which is a client of H&M.

The Board in B.C.D. 02-06, issued January 22, 2002, held H&M to be a covered rail

carrier employer within the meaning of section 1 (a)(1 )(i) of the Railroad Retirement Act

and the corresponding provisions of the Railroad Unemployment Insurance Act, with

respect to a rail car switching operation in Marion, Arkansas. Section 1 (a)(1) of the

RRA (45 U.S.C. § 231(a)(1)), insofar as relevant here, defines a covered rail carrier

employer as:

(i) any carrier by railroad subject to the jurisdiction of the Surface Transportation

Board under Part A of subtitle IV of title 49, United States Code.

Section 1 of the RUIA contains essentially the same definition, as does section 3231 (a

of the Railroad Retirement Tax Act (RRTA) (26 U.S.C. § 3231(a)).

In a petition dated July 23, 2002, H&M, through its attorney, requested that the Board

reconsider its initial decision. H&M contended that any rail car movement at Marion is

merely in-plant operation not subject to the jurisdiction of the STB under subtitle IV of

U.S.C. Title 49. Private rail car switching which is not subject to STB jurisdiction is not

rail carrier operation within the meaning of RRA section 1(a)(1) and RUIA section 1. At

H&M's request, on November 20, 2002, the Board agreed to stay further consideration

to allow H&M to file a request for a declaratory order with the Surface Transportation

Board on the issue of whether H&M is a rail carrier subject to STB jurisdiction. The STB

issued its decision November 12, 2003, finding H&M not to be a rail carrier subject to

STB jurisdiction. See: H&M International Transportation. Inc.—Petition for Declaratory

Order, STB Finance Docket No. 34277, November 12, 2003. H&M contends that based

on the November 12, 2003 STB decision, the Board should now determine that H&M is

not a rail carrier employer under the Acts. The initial question presented is therefore the

effect of the STB decision upon further consideration by the Board.

The RRA requires that that Act “shall be administered by the Railroad Retirement

Board”. See RRA section 7(a) (45 U.S.C. §231f(a)); incorporated by reference into the

RUIA by section 12(1) of that Act (45 U.S.C. §362(1)). RUIA section 12(1) further

provides that in addition to powers and duties expressly provided, the Board “shall have

BA#4575
H & M International, Inc.

Decision on Reconsideration

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all powers and duties necessary to administer or incidental to administering this Act."

Among duties expressly assigned to the Board by both Acts is the issuance of rules and

regulations governing returns of compensation paid to employees of covered railroad

employers. See section 9 of the RRA (45. U.S.C §231 h) and section 6 of the RUIA (45

U.S.C. §356). The power to determine whether a company must file a return of

compensation is at least incidental to administration of sections 6 and 9

Moreover, both the RRA and the RUIA vest the Board with sole authority to render 

decisions on claims for benefits under the Acts, and provide that “the decision of the 

Board upon all issues determined in such decisions shall be final and conclusive for all

purposes and shall conclusively establish all rights and obligations, arising under the 

Act, of every party * * * notified of his right to participate in the proceedings." RUIA

section 5(c)(5), (45 U.S.C. §355(c)(5)), incorporated into the RRA by section 8 (45

U.S.C. §231g). A decision as to whether a claimant has been employed by a covered

employer is fundamental to establishing further rights of the claimant to benefits under 

the Acts. Finally, section 8(k) of the RUIA confers on the Board, for purposes of 

collection of contributions due from covered employers under the RUIA, “all authority 

and functions" vested in the Secretary of the Treasury with respect to collection of taxes

under the RRTA. The Secretary of course is authorized in connection with collection of

taxes under the RRTA to determine whether an entity is an employer subject to the tax.

See regulations of the Internal Revenue Service at 26 CFR 31.3231 (a)-1, and generally,

26 U.S.C. §6301.

The Acts make but one specific reference to circumstances where the STB has

authority to determine whether a company may be a covered employer under the Acts.

Section 1(a)(2) of the RRA provides, regarding determinations of status of electric 

railways that:

(2) Notwithstanding the provisions of subdivision (1) of this subsection, the term 

“employer” shall not include—

(ii) any street, interurban, or suburban electric railway, unless such railway is

operating as part of a general diesel railroad system of transportation, but shall

not exclude any part of the general diesel-railroad system of transportation now

or hereafter operated by any other motive power. The Surface Transportation 

Board is hereby authorized and directed upon request of the Railroad Retirement 

Board, or upon complaint of any party interested, to determine after hearing

whether any line operated by electric power falls within the terms of this

paragraph.
H & M International, Inc.

Decision on Reconsideration

See also section 1 of the RUIA. Board regulations acknowledge that where an

employer disagrees with a determination by the Board that a company is a covered 

electric railway, the matter will be submitted to the STB. 20 CFR 202.13(b). Section

3231(a) of the RRTA also contains the same language, except that the Government’s

authority to request a determination for purposes of the RRTA is vested in the Secretary

of the Treasury.

In sum, the RRA and RUIA consistently place authority for determining the status of a

company as an employer covered for purposes of establishing benefit entitlement for

employees of that company, and for purposes of collection of contributions due under

the RUIA from that company with respect to its employees, with the Railroad Retirement

Board.1 Regulations of the Board reserve this authority to the members of the Board 

itself. 20 CFR 259.1, 259.3. RRA section 1(a)(2) and RUIA section 1 explicitly provide

the only exception to this authority. As the rail car switching operation by H&M in

Marion, Arkansas does not involve electric locomotive power, the decision by the STB 

does not foreclose independent consideration of the matter by the Board.

This is not to say that the Board should disregard the decisions of other Federal

agencies addressing the same legal issues of coverage with respect to a particular

company. In declining to determine whether the Board was entitled to deference in its

interpretation of the definition of covered employer under the RRA and RUIA, the 

Seventh Circuit Court of Appeals noted the potential for differing interpretations of the 

definition of employer, at least between the Board and the Commissioner of Internal 

Revenue on behalf of the Secretary, could “produce a muddle”. Livingston Rebuild 

Center v. Railroad Retirement Board, 970 F. 2d 295, 299 (7th Cir. 1992). In the context

of parallel determinations of total disability by the Board and the Social Security 

Administration, the Eighth Circuit Court of Appeals has stated that where two agencies

look at the same set of facts under the same rules but arrive at contrary decisions, the 

result creates a public image of unfairness and conflict in the government. Sones v.

United States Railroad Retirement Board, 933 F. 2d. 636, 637 (8th Cir., 1991). For 

these reasons, the Board recognizes that a decision by the STB regarding the status of

a company as a rail carrier, while it cannot relieve the Board of its duties under the Acts

it administers, must be weighed in a decision by the Board on the same matter. In

decisions involving small class III rail lines, the Board routinely relies on the

determination by the STB that a company is a rail carrier subject to subpart IV of Title

49, U.S.C. The Board has on occasion relied on a decision to the contrary as well.

1 The former Interstate Commerce Commission specifically refrained from taking a position in a dispute of

coverage under the RRA and RUIA. North Carolina Ports Commission—Petition for Declaratory Order or 

Prospective Abandonment, Finance Docket No. 31248, decided September 21, 1988, at note 9.
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H & M International, Inc.

Decision on Reconsideration

See, e.g. B.C.D. 96-59 Port of Palm Beach District Railroad, (finding a port authority not

a rail carrier on the basis of a decision by the former ICC).

The evidence is that H & M began operations in 1968. At many sites it operates local 

area trucking terminals, custom examination sites, and warehousing and distribution

facilities. H & M also performs operations at five separate railroad terminals. At these

intermodal terminal sites, H&M operates side loaders and cranes to load and unload

trailers and containers from railroad flat cars. It hostles trailers and containers to and

from parking places, and inspects containers and trailers to determine any damages. At

one terminal H&M provides customer service and clerical support, which includes

systems input, trailer and container inventory, car programming, and office

administration. Effective June 1, 1998, under contract with the Union Pacific Railroad, a

carrier engaged in interstate commerce, H&M began operating locomotives at the 

Marion, Arkansas, terminal to move intermodal cars to and from operating tracks and to

and from departure tracks and arrival tracks. Only the Marion site involves switching

operations. The switching operation in Marion consists of 18 employees out of a total

H&M work force of 968.

In its petition for reconsideration, H&M takes issue with the interpretation of its activities

at the Marion, Arkansas facility. H&M submits that it provided inaccurate information

due to its unfamiliarity with the railroad industry and the practices of the Board. H&M

argues that rather than providing switching service that might be subject to the

jurisdiction of the Surface Transportation Board (STB), H&M is merely providing in-plant 

switching for its own use. Secondly, in its petition for reconsideration H&M argues that

it does not hold itself out to the public as a carrier by rail, the essential element to being 

a carrier subject to the jurisdiction of the STB. H&M specifically notes that its lease 

agreement with the Union Pacific Railroad, from whom it leases the Marion, Arkansas

facility, provides that the Union Pacific Railroad is "liable for the performance of all

carrier obligations arising in connection with the transportation of the freight in the 

trailers”. H&M also argues that the movement of trailers does not assist any rail carrier

in performing its carrier obligation.

The STB states in its November 2003 decision that while H&M’s intermodal activity 

could fall within the definition of rail transportation, H&M nevertheless is not subject to

STB jurisdiction as a rail carrier because it does not hold itself out to the public to

provide common carrier service. The STB notes that H&M’s operations reserve to the

Union Pacific Railroad all common carrier rights and obligations and bar H&M from 

providing common carrier service. The STB agrees that H&M’s rail-related activity is inplant service performed in furtherance of H&M's primary non-rail business purpose.
H & M International, Inc.

Decision on Reconsideration

Although the facts are susceptible to more than one interpretation, the Board cannot say

the judgment of the STB regarding evidence of H&M operations is incorrect.2 In the 

limited circumstances of the switching done by H&M, and in consideration of the public

interest in uniform interpretation of the law, the Board therefore finds on reconsideration

that H&M’s switching operation at Marion, Arkansas does not constitute operation as a

rail carrier, and consequently, H&M is not and has never been a rail carrier employer

under the RRA and the RUIA.

This conclusion leaves open, however, the question whether the individuals who

perform work for H&M under its arrangements with Union Pacific should be considered 

to be employees of the railroad rather than of H&M, a matter which the Board did not

need to address in B.C.D. 02-06 because H&M itself was determined to be a covered

employer.

Section 1(b) of the Railroad Retirement Act and section 1(d) of the Railroad

Unemployment Insurance Act both define a covered employee as an individual in the

service of an employer for compensation. See 45 U.S.C. §§ 231(b) and 351 (d). Section 

1 (d)(1) of the RRA further defines an individual as "in the service of an employer" when:

(i)(A) he is subject to the continuing authority of the employer to

supervise and direct the manner of rendition of his service, or (B) he is

rendering professional or technical services and is integrated into the staff

of the employer, or (C) he is rendering, on the property used in the

employer's operations, personal services the rendition of which is

integrated into the employer's operations; and

(ii) he renders such service for compensation * * *.

Section 1(e) of the RUIA contains a definition of service substantially identical to the

above, as do sections 3231(b) and 3231(d) of the RRTA (26 U.S.C, § 3231(b) and (d))

2 Switching that involves the "making up or break up of trains for road movement” is subject to the

jurisdiction of the Surface Transportation Board (petition for reconsideration at 7 & 8) In the Marion.

Arkansas facility H&M accepts the trains from the Union Pacific Railroad and according to the ' Ramp 

Operator Agreement” loads and unloads the trailers, provides the switching to make up new trains and 

delivers them to Union Pacific Railroad for further transportation. In doing so, H&M uses the equipment

of the railroad rather than of H&M. It is arguable that the switching is done for the benefit of the Union

Pacific Railroad rather than for the benefit of H&M. In Sinkler v. Missouri P. R, Co.. 356 US 326, 327, 2 L

Ed 2d 799, 801, 78 S. Ct 758 (1958), the Court described switching as "a vital operational activity of

railroading consisting in the breaking up and assembly of trains and the handling of cars in interchange

with other carriers”. Switching by a common carrier is rail carrier service covered by section 1 (a)(1 )(i) of

the RRA and the corresponding provision of the Railroad Unemployment Insurance Act.
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H & M International, Inc.

Decision on Reconsideration

The focus of the test under paragraph (A) is whether the individual performing the

service is subject to the control of the service-recipient not only with respect to the

outcome of his work but also the way he performs such work.

In B.C.D. 02-06, the Board noted that H & M began operations in 1968. In addition to

the five intermodal operations, H&M engages in non-rail related trucking terminal 

operations throughout the country, provides custom examination sites, and performs 

warehousing and distribution facilities. Only one of the H & M intermodal terminal 

operations involves switching operations. At the rail terminals, H&M operates side

loaders and cranes to load and unload trailers and containers from railroad flat cars

The cranes and loaders are provided and maintained by railroads. H&M hostles trailers

and containers to and from parking places, and inspects containers and trailers to

determine any damages. In this activity H&M evidently uses its own tractors, yard

vehicles, and forklifts, and at some locations railroads reimburse H&M for fuel costs

H&M provides customer service and clerical support at one terminal. Clerical support 

includes providing systems input, trailer and container inventory, car programming, and

office administration. Railroads at some locations provide computer equipment. H&M

furnishes its own office furniture. Of the total 968 current H&M employees, 397 (41

percent) are in positions related to business connected with rail carriers. Eighteen H&M

employees work in the Marion, Arkansas location.

H&M argues that as it is an independent company not affiliated with any rail carrier, its

employees should not be considered to be employees of the Union Pacific since the

employees are on the H&M payroll, are supervised or directed by H&M and not by

Union Pacific employees, and perform service only on the property, through its lease, of

H&M. These contentions are consistent with the statement previously provided by the

company in January 2001, wherein H&M stated that its managers assign its employees

to tractors and lift equipment, determine which rail cars are loaded and unloaded, and

train the employees in operation of equipment used in the work performed.

Based on this evidence, H&M, rather than the railroads, direct the rail terminal

employees. Accordingly, the control test in paragraph (A) is not met. The tests set forth 

under paragraphs (B) and (C) go beyond the test contained in paragraph (A) and would 

hold an individual to be a covered employee if he is integrated into the railroad's 

operations even though the control test in paragraph (A) is not met. However, under an

Eighth Circuit decision consistently followed by the Board, these tests do not apply to

employees of independent contractors performing services for a railroad where such 

contractors are engaged in an independent trade or business. See Kelm v. Chicago, St.

Paul, Minneapolis and Omaha Railway Company, 206 F. 2d 831 (8th Cir. 1953).
H & M International, Inc.

Decision on Reconsideration

On balance, the Board finds that the evidence supports a conclusion that H&M engages 

in an independent business. The large, specialized equipment at the intermodal centers

is furnished and maintained by the railroads, but H&M has invested in smaller

equipment such as vehicles and furniture. Moreover, it may be said that H&M’s training 

of employees in use of the rail-related equipment is an investment as well. Prior 

coverage decisions have also considered operation of intermodal rail terminals to be an

independent business. See L-91-67, Budco Group Inc., Parsec and Piggyback

Services Divisions, and L-90-159, Mi-Jack Products Inc., In-Terminal Services Division.

Considering these facts, Kelm would prevent the application of paragraphs (B) and C) of

the definition of covered employee to this case. Accordingly, it is the determination of

the Board that service performed by employees of H&M is not covered under the Acts 

as service to the Union Pacific.

The petition for reconsideration is granted.

Michael S. Schwartz

V. M. Speakman, Jr. (Separate

opinion attached)
Concurring Opinion of V. M. Speakman, JR

Employer Status Determination

H & M International, Inc.

In STB Finance Docket No. 34277, November 12, 2003, the Surface Transportation

Board found that H & M International was not subject to its jurisdiction because it does

not hold itself out to the public to provide common carrier service. On the basis of that

decision we find that H & M is not a carrier by rail subject to STB jurisdiction and that

H & M does not meet any other conditions for coverage under the statutes 

administered by this agency.

Our decision on reconsideration also makes it clear that even though we will give 

deference to a finding that the STB lacks jurisdiction over an entity, the Board could 

reach a contrary finding on the same evidence. In my view the degree of deference

given a decision of the STB should be based upon the extensiveness of the

proceedings before that body. Where, as in this case, the STB decision is based only 

on verified pleadings of the party, far less deference should be given by the Board, than

a decision based upon a more extensive inquiry.

Finally, the discussion on whether employees of H &M should be considered 

employees of the Union Pacific Railroad based upon their limited involvement with

moving Union Pacific cars seems to me needless. There is no employee of FI & M

claiming that he or she should be considered an employee of the Union Pacific, nor do I

think they could seriously make such a claim under the facts before us. Board

coverage decisions should deal with real issues and not engage in theoretical

discussions.

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