U n i t e d S t a t e s G o v e r n m e n t

M e m o ra n d u m

FORM G-USf(l-92)

R a i l r o a d R e t i r e m e n t B o a r d

June 20, 2003

L-2003-06

TO: Martin J. Dickman 

Inspector General

FROM: Steven A. B

General Coi

SUBJECT: Training and Consulting Connection, LLC - B.C.D. 2003-1

Employer Status and Contract Employee Status

This is in reply to your memorandum of June 13, 2003, suggesting that the Board 

reopen and revise Board Coverage Decision 03-1, which determined that Training and 

Consulting Connection, LLC was not an employer covered by the Railroad Retirement 

and Railroad Unemployment Insurance Acts, and that it's employees were not statutory 

employees of any client railroad of that firm for purposes of the Acts. You also suggest 

addition of a requirement in future coverage decision notice letters that the subject 

company notify the agency if the character of the business changes or differs materially 

from the description contained in the coverage decision. As discussed below, I agree 

that future notice letters may be revised as you suggest. I do not agree that B.C.D. 03-1 

need be reopened.

As you know, the Secretary to the Board provides a cover letter addressed to the 

subject company for all coverage decisions by the Board. The letter which 

accompanies an initial decision advises the recipient of the right to request that the 

Board reconsider the decision within one year. The letter which accompanies any such 

later decision by the Board on reconsideration does not provide similar directions 

regarding making further appeal to the Courts of Appeal. Neither letter provides further 

information beyond the statement that the Internal Revenue Service shall be notified of 

the decision as well. These letters are sent to all subject companies, regardless of 

whether the decision finds the company is or is not a covered employer under the Acts. 

As a coverage decision by the Board is often based upon representations by the subject
Martin J. Dickman

company, I agree that it is appropriate to include language that the subject company 

must notify the Board of changed circumstances or inaccuracies.1

Before I address your suggestion that the Board reopen B.C.D. 03-1, I believe a 

summary of law regarding the relationship between railroad contractors and coverage of 

their employees under the Acts administered by the Board may be in order. As you 

know, section 1(b) of the Railroad Retirement Act of 1974 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 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)).

As initially enacted, the RRA, RUIA and RRTA defined employee only as one who “is 

subject to the continuing authority of the employer to supervise and direct the manner of 

rendition of his service, which service he renders for compensation". See section 1(c) of 

the Railroad Retirement Act of 1937, Public No. 162, 75th Congress, (50 Stat 307 at 

308); section 1(d) of the Carriers Taxing Act of 1937, Public No. 174, 75th Congress, (50 

Stat. 435. 436); and section 1(d) of the Railroad Unemployment Insurance Act of 1938, 

Public No. 722, 75th Congress, (52 Stat. 1094,1095). The language which now 

appears as paragraphs (B) and (C) above was added to the 1937 RRA, the RUIA and

1 Because the Board’s regulations impose the duty to furnish information or record upon 

“any employer or employee”, the argument has-been raised in connection with coverage 

investigations that an entity which is not an “employer" does not have a duty to comply. 

See 20 CFR 209.2, 209.5. However, the power of the Board to issue administrative 

subpoenas “relative to the determination of any right to benefits" provides adequate 

authority to compel non-employers to provide at least threshold evidence regarding an 

entity's status as an employer under the Acts. Cf. Legal Opinion L-2000-23, advising 

the Chief of Audit and Compliance that where a case had been referred after a five-year 

fraud investigation of the employer by the Office of Inspector General was closed 

without prosecution, he retained authority to audit years otherwise now outside the four 

year limitation of section 9 of the Act.
Martin J. Dickman

the RRTA by the 1946 amendments. See section 1, Public Law 79-572, (60 Stat. 722). 

Although supervision and direction of an individual’s rendition of service is the classic 

test for status as an employee (27 AM JUR 2d Employment Relationship § 2), the 

Board’s General Counsel at the time nevertheless characterized the 1946 amendments 

as a “clarification” of prior law rather than the introduction of additional alternatives, on 

ground that prior “rulings of the Board show that the Board had considered functional 

and economic criteria in determining whether an individual was an employee under the 

un-amended law.” See Legal Opinion L-46-692, (Analysis of the Clarified Employee 

Definition) at 4.

However, the “functional and economic” test for the status of contractor employees as 

statutory employees of a covered rail carrier employer was contested in a number of 

cases under the Tax Act with negative results, whether the issue was analyzed under 

the law prior to or after the 1946 amendments. See: Pennsylvania R.R. Co. v. United 

States. 70 F. Supp 595, (Ct. Cl. 1947); Reynolds v. Northern Pacific Railroad Company. 

168 F. 2d 934 (8th Cir., 1948); Reynolds v. Chicago. St. P .. M. & O. Rv. 168 F. 2d 943 

(8th Cir., 19481: Reynolds v. Great Northern Rv Co.. 168 F. 2d 944. (8* Cir. 1948); 

Nicholas v. Denver & R.G.W. R.R. Co.. 195 F. 2d 428, (10th Cir., 1952); and Kelm v. 

Chicago. St. P.. M. & O. Rv. Co.. 206 F. 2d 831 (8th Cir., 1953). In 1953, the General 

Counsel, in his role as the initial adjudicator of coverage decisions under the regulations 

in effect at that time, issued a series of opinions accepting the outcome of the Tax Act 

litigation with respect to status of employee service under the RRA and RUIA. See 

Legal Opinions L-53-545; L-53-546, L-53-547, L-53-548, and L-53-549. Later, in a 

memorandum to Labor Member A. E. Lyon dated December 11,1964, the General 

Counsel discussed the foregoing cases, and noted that in the previous eleven years,

“we have not been aware that their success in court actions encouraged the railroads to 

engage in contracting-out their railroad work to any greater degree than they had 

regularly done in the past.”

The policy set forth in the 1953 opinions has been followed by the Board to date.2 

Specifically, the Board has not applied paragraphs (B) and (C) to employees of 

independent contractors performing services for a railroad where such contractors are 

engaged in an independent trade or business. Moreover, in acknowledgement of the 

standing of employees of independent contractors under the coverage provisions of the 

Acts, as interpreted by the Board, the matter has been reviewed as recently as 1990 by 

the Commission on Railroad Retirement Reform established by Public Law 100-203 

(101 Stat. 1330 at 1330-296). The Commission’s report to President Bush noted that

2 1 note that the Board has reserved the authority to classify a contractor’s employees as 

statutory employees in the limited circumstance of where the employee is performing a 

duty so integral to railroad operation that the railroad must control the performance of 

the duty, as in the case of engineer or brakeman. See, e.g., B.C.D. 95-20, Marietta 

Industrial Enterprises, Inc.; and 02-83, Boothill & Western Railway Co.
Martin J. Dickman

due to conflicting testimony it “was unable to reach a definite conclusion on the extent of 

the financial effects of contracting-out on the Railroad Retirement system * * V 

Commission on Railroad Retirement Reform. Final Report. September 1990, at 125. 

Rather than bring contractors within coverage, the Commission recommended that if the 

extent of contracting out work by railroads did jeopardize the system, railroads be 

assessed an excise tax. Id. at 125-126. The Commission’s proposal thus dealt with the 

loss of funding to the system without recommending coverage of the contractor’s 

employees.

In accord with the foregoing, the Board in B.C.D. 03-1 applied the Kelm analysis to 

Training Consulting Connection LLC, and determined it to be an independent business. 

One of the criteria considered was whether TCC offered its services to the general 

public, as reflected by the number of its clients. The fact that TCC may have served 

more than one railroad client, rather than requiring reconsideration, therefore actually 

further supports the conclusion by showing that TCC offered its services to the public in 

general, rather than to a single employer. Once TCC is established to be an 

independent entity, under Kelm individuals in service to TCC cannot be considered 

employees of a contracting railroad in the absence of supervision. Because additional 

railroad industry clients would thus not affect the outcome of the decision, reopening 

appears to me to be unnecessary.3

In closing, I may note that the treatment of service by employees of one entity as 

employees of another for purposes of employee benefits is a difficult question, and case 

law reflects that it is certainly a matter over which reasonable minds may differ. See, 

e.g., United States v. Pacific Electric Rv. Co.. 157 F. 2d 902, (9th Cir. 1946) (one half of 

compensation paid to employees working for unincorporated joint venture bus line was 

taxable under the RRTA to the railroad venture partner.); Gatewood v. Railroad 

Retirement Board. 88 F. 3d 886, (10th Cir. 1996) (legal service provided by attorney

3As the question of service to TCC arose as a result of employees concerned with the 

potential loss of a current connection for benefit entitlement purposes as a result of their 

work activity, the Office of Operations was aware of the Board’s decision with respect to 

this matter through informal channels. In addition, the Office of Policy and Systems of 

the Office of Programs routinely receives from the Secretary to the Board a copy of all 

coverage decisions by the Board, and may notify the adjudication sections within 

Programs as deemed appropriate. It should also be noted that the Office of 

Assessment and Training receives a copy of any coverage decision that addresses the 

status of one or more named employees. However, I agree with your general point, and 

will take steps to ensure that a decision regarding an individual’s status as a covered 

employee is brought to the attention of a section handling that individual’s case for 

further action as appropriate.
Martin J. Dickman

through law firm was creditable railroad service under RRA); and see generally, Central 

States v. Central Transport. Inc.. 83 F. 3d 1282, (7th Cir. 1996) (multi-employer pension 

did not establish that employment firm which leased drivers to trucking firm was liable 

for pension contributions as an “alter ego” of trucking firm.) This Office will continue to 

be mindful, in providing advice to the Board in exercise of its statutory authority to 

determine coverage under the Acts, of the law and the balance of equities between the 

railroad industry, its employees, and administration of the railroad retirement system.

cc: The Board 

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