Employer Status Determination

James Edwards Railroad Service

This is the decision of the Railroad Retirement Board regarding the

status of James Edwards Railroad Service (JERS) as an employer

under the Railroad Retirement and Railroad Unemployment Insurance

Acts .

JERS is a sole proprietorship which cleans rail cars under

contracts with the St. Louis Southwestern Railway (SLSR). It is

paid on a per car basis and does all of its work on the property of

the SLSR. This arrangement has been in effect since 1973.

Mr. Edwards pays self-employment tax and withholds taxes from his

employees' compensation. They receive holiday pay. They do not

receive sick leave or insurance. The SLSR cannot select the

employees who do the work. Mr. Edwards furnishes all supplies and

equipment such as trucks, fork lifts, dust masks, brooms, and

cleaning supplies; he is not reimbursed for these expenditures.

He pays for workers' compensation and business liability, property

damage, and automobile insurance. He states that he controls and

directs the employees in the performance of their work.

Section 1(a)(1) of the Railroad Retirement Act (45 U.S.C.

§ 231(1) (a) (1)), insofar as relevant here, defines a covered

employer as:

(i) any express company, sleeping-car company, and

carrier by railroad, subject to subchapter I of chapter

105 of Title 49;

(ii) any company which is directly or indirectly

owned or controlled by, or under common control with one

or more employers as defined in paragraph (i) of this

subdivision and which operates any equipment or facility

or performs any service (other than trucking service,

casual service, and the casual operation of equipment and

facilities) in connection with the transportation of

passengers or property by railroad * * *.

Sections 1(a) and 1(b) of the Railroad Unemployment Insurance Act

(45 U.S.C. §§ 351(a) and (b) ) contain substantially similar

definitions, as does section 3231 of the Railroad Retirement Tax

Act (26 U.S.C. § 3231).

JERS clearly is not a carrier by rail. Further, the available

evidence indicates that it is not under common ownership with any

rail carrier nor controlled by officers or directors who control a

railroad. Therefore, JERS is not a covered employer under the

Acts.

BCD 1996-27
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This conclusion leaves open, however, the question whether the

persons who perform work for JERS under its arrangement with SLSR

should be considered to be employees of SLSR rather than of JERS.

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.

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 and 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)).

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

performing the service is subject to the control of the servicerecipient not only with respect to the outcome of his work but also

as to the way he performs such work.

The evidence submitted shows that JERS's work is performed under

the direction of Mr. Edwards; 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 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).

Thus, under Kelm the question remaining to be answered is whether

JERS is an independent contractor. Courts have faced similar

considerations when determining the independence of a contractor

for purposes of liability of a company to withhold income taxes

under the Internal Revenue Code (26 U.S.C. § 3401(c)). In these

cases, the courts have noted such factors as whether the contractor

has a significant investment in facilities and whether the

contractor has any opportunity for profit or loss; e.a., Aparacor,
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Inc, v. United States. 556 F. 2d 1004 (Ct. Cl., 1977), at 1012; and

whether the contractor engages in a recognized trade; e.g.. Lanigan

Storage & Van Co. v. United States. 389 F. 2d 337 (6th Cir., 1968,

at 341. While these may be rather close questions in cases such as

this one, where the contractor performs a service for only one

railroad and performs that service on the premises of the railroad,

it is apparent that JERS is an established business engaging in a

recognized trade or business; accordingly, it is the opinion of the

Board that JERS is an independent business.

Accordingly, it is the determination of the Board that service

performed by employees of JERS is not covered under the Acts.

Glen L. Bower

V.M. S'

Jerome F. Kever