Employer Status Determination

Pacific Rail Services

This is the decision of the Railroad Retirement Board regarding the

status of Pacific Rail Services (PRS) as an employer under the

Railroad Retirement and Railroad Unemployment Insurance Acts.

Information about PRS was obtained by the Board's Audit and

Compliance Division (ACD) as the result of a compliance audit of

the Burlington Northern Railroad (BN), a covered employer. During

the audit ACD decided to review the coverage of employees of BN

America (BNA). During the investigation of SNA's Customer Service

Center (CSC) in Seattle, Washington, and the Seattle Hub Center

(SHC) intermodal yard, ACD determined the employees of the two

facilities were employees of PRS.

PRS is a joint venture between Mr. John J. Gray, an individual, and

Stevedoring Services of America, a privately-owned company which

operates marine terminal facilities along the west coast. PRS

began as a joint venture in 1986, with Mr. Gray as the managing

partner. PRS is engaged in the business of operating intermodal

terminals, including the loading and unloading of intermodal trains

and the operation and maintenance of yard facilities. PRS operates

the CSC under a contract with Burlington Northern dated January 1,

1989. Under the same contract PRS also provides intermodal

services such as container handling and trailer chassis supply at

Burlington Northern hubs in Chicago, Portland, and Seattle. In

1993 PRS entered into a contract with AT&SF (a covered employer) to

manage neutral chassis pools at intermodal facilities in

Birmingham, Alabama and Memphis, Tennessee.

Investigation by the ACD showed that complete operation of the CSC

was run by PRS. BN employees cannot hire or fire PRS employees.

No BN employee supervises PRS employees; PRS has its own

supervisor, Mr. Mark Davis, who stated that he works for Mr. Gray

(the managing partner of the joint venture) and he coordinates the

operation of the CSC with Burlington Northern. The CSC operates

using a computer system and telephone system which is provided by

Burlington Northern. PRS pays BN for use of the telephone system

and then is reimbursed on a cost plus basis by BN. The computer

system is maintained by PRS but is the property of BN.

In response to inquiries by ACD, PRS provided a copy of a National

Mediation Board decision dated August 24, 1989, which held that PRS

was not a carrier under the Railway Labor Act. The decision noted

that while PRS performs service in connection with the

transportation of freight for railroads, it is not owned or

controlled by a railroad.

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:

BCD 1996-74
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Pacific Rail Services

(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;

(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).

PRS 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, PRS is not a covered employer under the Acts.

This conclusion leaves open, however, the question whether the

persons who perform work for PRS under its arrangement with BN

should be considered to be employees of BN rather than of PRS.

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)).
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Pacific Rail Services

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 PRS's work is performed under the

direction of its own supervisors; accordingly, the control test in

paragraph (A) is not met. Moreover, under an Eighth Circuit

decision consistently followed by the Board, the tests set forth

under paragraphs (B) and (C) do not apply to employees of an

independent contractor performing services for a railroad where

such contractor is 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

PRS 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 ,g. , Aparacor,

Inc, v. United States. 556 F. 2d 1004 (Ct. Cl., 1977), at 1012; and

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

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

at 341. The evidence of record establishes that PRS is an

established business engaging in a recognized trade or business

with at least one other company other than BN; accordingly, it is

the opinion of the Board that PRS is an independent business.

Accordingly, it is the determination of the Board that service

performed by employees of PRS is nc '

Glen L. Bower

ferome F. Kever