Employer Status Determination

Eagle Systems, Inc.

This is the decision of the Railroad Retirement Board regarding the

status of Eagle Systems, Inc. (ESI) as an employer under the

Railroad Retirement and Railroad Unemployment Insurance Acts.

ESI is a privately held company which holds itself out as a general

commodity carrier providing general and contract services to the

general public. ESI also provides intermodal terminal management

at its trucking locations. ESI currently has 425 employees and

first began providing services December 24, 1979. ESI is

independent of any railroad, and no railroad owns any part of ESI.

All of the work ESI does for railroads is done in a highly

competitive environment through a bid system. ESI serves

approximately 400 customers other than railroads. Approximately

65% of ESI's revenue is derived from its work for railroads.

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 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) .

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

This conclusion leaves open, however, the question whether the

persons who perform work for ESI under its arrangements with any

railroads should be considered to be employees of those railroad

rather than of ESI. 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

BCD 1996-55
-2-

Eagle Systems, Inc.

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 ESI'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

ESI 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,

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

whether the contractor engages in a recognized trade; e.q., 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 where
-3-

Eagle Systems, Inc.

the contractor performs a service for only one railroad and

performs that service on the premises of the railroad, in this case

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

recognized trade or business with at least four railroads, and in

fact, companies other than railroads; accordingly, it is the

opinion of the Board that ESI is an independent business.

Accordingly, it is the determination of the Board that service

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