EMPLOYEE STATUS DETERMINATION

Southern Pacific Transportation Company

Environmental Consultants

This is the determination of the Railroad Retirement Board 

concerning the status of environmental consultants who performed

services for Southern Pacific Transportation Company (BA No.1713)

(SPTC) as employees under the Railroad Retirement Act (45 U.S.C.

§231 et sea. ) (RRA) and the Railroad Unemployment Insurance Act (45

U.S.C. §351 et sea.) (RUIA).

Background

The Board's Division of Audit and Compliance conducted an audit of

SPTC to determine the accuracy of creditable compensation and

service reporting under the RRA and the RUIA. The environmental 

consultants were identified through a review of IRS Forms 1099

"Miscellaneous Income" and accounts payable transactions issued by

SPTC to individuals treated as independent contractors. Because 

the audit found that those individuals worked exclusively for SPTC 

for extended periods of time on SPTC property, the question was

raised as to whether they were correctly classified as independent 

contractors. SPTC's comments on the coverage report relating to

the environmental consultants are noted in the discussion below.

The scope of the investigation was limited to obtaining an

understanding of the services performed by the consultants and

determining the number of individuals involved, the amount of

compensation paid during calendar years 1991 and 1992, the

period(s) of time services were provided, and whether the

consultants performed service for other clients, as well as to

obtain any other information necessary for the Board to make a

coverage determination.

Information Gathered About Environmental Consultants

SPTC employs environmental consultants to provide consulting

services on various environmental matters. Duties include

management of environmental projects to evaluate and remedy 

properties which may be environmentally contaminated, and

participation with SPTC employees in settlement negotiations or

agreements with County, State and Federal regulatory agencies to

the extent that their expertise and knowledge of the project is

required for the negotiations. The consultants are not, however,

authorized to approve settlements or agreements on their own.

Rather, a company employee, usually a lawyer, is required to

approve final settlements or agreements on behalf of the Company.

The type of reports, memoranda, etc., that the consultants prepare

are project specific technical evaluations of field sampling data,

BCD 1996-53 BA # 1713
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Environmental Consultants

site inspections, agency meetings, written responses to technical 

questions and interpretation of data, review, evaluation and

editing of draft reports prepared by other consultants and

contractors and preparation of responses to environmental agency 

information requests or comments. They also assist in preparation

of documents involved in litigation in which their expertise is

required.

The consultants' work is assigned on a project-by-project basis.

Their work is directed through the Law Department to meet the

environmental compliance and litigation support needs of SPTC.

Consulting services are also provided to the Real Estate and

Engineering Departments to manage environmental issues and problems

related to rail operations, sale, purchase and leasing of SPTC

property. Environmental projects are usually of long duration

(often several years), and therefore the consulting services are of

a continuing nature. SPTC indicated that the duration of an

assignment depends on the specific task to be accomplished. For

example, consulting services on litigation matters are provided as

needed throughout a case as technical and expert assistance is

required.

The work product delivered by the consultant ranges from a

technical answer or opinion on an environmental issue to the

production of a project specific report or completion of a cleanup 

project and final agency certification. The work product may 

involve the successful oversight and completion of a field activity

such as a soils or ground water sampling program or site

inspection.

SPTC stated that the work assignments performed by the consultants 

are an offshoot of Federal and State environmental legislation and

implementation of regulations. Since the technical level of

expertise and experience required for the work product produced by

the consultant does not exist within the SPTC employee pool, SPTC

has had to engage environmental consultants to meet the company's 

environmental compliance requirements.

SPTC treats its environmental consultants as independent 

contractors. Consulting agreements are written directly between 

SPTC and the individual. The agreements do not allow consultants 

to assign or delegate to any other person or entity any rights or

duties, without the express written consent of SPTC. The

agreements specify that all materials prepared or developed by the

consultant during hours billed (e.a , documents, calculations,

maps, sketches, notes and reports) become the property of SPTC.
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The agreements also provide that either SPTC or the consultant may

cancel the agreement by giving 30 business days written notice to

the other party.

The environmental consultants are paid on an hourly basis. Hourly 

rate increases are negotiated at the request of the consultant 

generally based on increased rates in the consulting business 

and/or changes in the cost-of-living index.

SPTC also pays reasonable expenses for food, lodging, travel and

other similar expenses incurred in the performance of the

consultants' work. The agreements provide that consultants shall

invoice SPTC twice monthly. Copies of invoices show the number of

hours billed during the period, the hourly rate, as well as

expenses for travel, lodging, automobile mileage and rental, meals,

parking, telephone charges, tolls, etc. Airfare was either 

reimbursed or prepaid by SPTC. Upon receipt of the invoice, SPTC

makes payment within 5 business days.

SPTC employed the services of six environmental consultants during 

the calendar years 1991 and 1992. Five of the six individuals 

provided service in prior and subsequent years. Environmental 

consultants have worked for SPTC for a minimum of 2 years up to a

maximum of 7 years and 9 months. All but one of the six

consultants currently provide service to SPTC.

Audit and Compliance's review of Forms 1099 "Miscellaneous Income"

issued by SPTC for calendar years 1991 and 1992 show that

environmental consultants were paid compensation exceeding $412,000

in 1991 and $503,000 in 1992. Audit and Compliance concluded that

four consultants worked in excess of 2000 hours for SPTC in

calendar year 1992. That estimate was derived by dividing the

consultant's annual income for 1992 by their hourly rate. However,

SPTC pointed out in its comments that the Forms 1099 included all

reimbursement of travel and other expenses paid to the consultants.

SPTC stated that the environmental consultants did not work in

excess of 2,000 hours for SPTC, noting that during 1991 and 1992,

SPTC did not prepay airfare for those individuals.

Environmental consultants performed work at various SPTC property

locations depending on the project assignment. Some consultants 

stated that a portion of their work was performed at home or at

their own consultant's facilities. Four of the consultants stated

that the majority of their work is performed on SPTC property.
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Environmental Consultants

Environmental consultants set their own work schedule or routine.

The majority of individuals work during normal business hours which

coincide with those of SPTC. Consultants stated that they also

worked evenings, weekends, and as needed due to emergencies. SPTC

stated that the company does not specify the schedules or the hours

devoted to a project or assignment. SPTC also indicated that since

the consultants set their own work schedules, SPTC could not

provide a percentage allocation between time spent by the

consultants working on company prpperty and at other offices or

their homes.

The environmental consultants stated that they do not follow SPTC's

operating instructions or procedures when performing their work.

Consultants receive emergency response training for railroad 

derailments. Four of the consultants indicated that they are

required to comply with safety rules governing contractors working 

on SPTC property.

The consultants do not attend SPTC sponsored training. They do

attend instruction and seminars required to perform their

consulting function for specific projects and are reimbursed by

SPTC for such attendance. The consultants attend in-house training 

when offered and applicable to a specific skill required for the

project. An example of recent in-house training given by SPTC was

a seminar on Legal Issues in Attorney Client Privilege and Attorney

Work Product.

All of the environmental consultants indicated that they are not

supervised or controlled by SPTC when performing their work. With 

one exception, the environmental consultants stated that they work

only for SPTC and do not perform services for other clients.

The environmental consultants are provided the use of SPTC office

space, office equipment, telephones, company business cards and

letterhead, and, for specific projects, cellular telephones and

pagers. SPTC provides consultants with readily available office

supplies. Consultants are reimbursed by SPTC for usage of computer 

related hardware and software, office supplies and other related 

equipment on their expense reports. SPTC commented that the

consultants are not reimbursed for all computer equipment and

software.

All of the environmental consultants stated that their businesses 

were not incorporated and that they are not registered to do

business in their state. None of the consultants advertises their

services in trade or business publications.
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Southern Pacific Transportation Company

Environmental Consultants

With one exception, the consultants do not maintain liability 

insurance for their businesses. With two exceptions, the

environmental consultants are listed in the April 1994 SPTC

telephone book under the designation, "Environmental Affairs."

Discussion and Conclusions

Section 1(b) of the RRA defines the term "employee" to mean "any

individual in the service of one or more employers for

compensation." Section 1(d)(1) of the RRA provides in pertinent 

part that an individual is in the service of an employer if:

(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. [45 U.S.C. §231(d)(1)(i)].

Section 1 of the RUIA contains essentially the same definition.

The information summarized above indicates that two of the

definitions of employee (those in sections 1(d)(1)(i)(B) and (C))

might apply to the environmental consultants. First, the

definition in section 1(d) (1) (i) (A) does not apply because the

evidence indicates that the consultants are not subject to the

continuing authority of SPTC to supervise and direct the manner in

which they render their services. Specifically, the consultants do

not follow SPTC's operating instructions or procedures when they

perform their work. In addition, they set their own work schedule 

and routine. Further, although they attend instruction and

seminars which are required to perform their consulting functions 

for specific projects, they do not attend SPTC-sponsored training.

The evidence also shows that the environmental consultants do not

fall into the definition in section 1(d)(1)(i)(C) because they do

not meet both parts of that definition of "employee." Turning to

the first part of the definition in section 1(d) (1) (i) (C) , the

evidence does show that the consultants do render personal 

services, i. e. , tasks which each consultant is required by his or

her contract with SPTC to do without delegating or assigning to

anyone else. However, the evidence also shows that the

environmental consultants are not integrated into the staff of

SPTC. First of all, the work that they perform is not work that
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Environmental Consultants

traditionally has been done as part of running a railroad. In

fact, as was pointed out by SPTC, the work which the environmental 

consultants do is of recent origin, resulting from laws and

regulations dating from the 1980s. Moreover, the evidence 

indicates that the environmental consultants perform services which 

are tangential to SPTC's railroad operations. Specifically, they 

provide technical advice and knowledge in environmental projects 

ranging from negotiations with State and Federal regulatory 

agencies to preparation of a variety of written work to providing

expert assistance in litigation. The fact that the projects that

the environmental consultants do can extend over a long time period 

does not change the conclusion that they are not integrated into

the SPTC staff. Rather, the work that they do, on a project-byproject basis, simply can take as many as several years to

complete. The resulting work product is nothing which by its

nature is part of railroad operations. Rather, the product may be

a technical answer or opinion on an environmental issue or a

project specific report. Thus, a majority of the Board concludes 

that the environmental consultants are not integrated into the

staff of SPTC, but rather are used as true consultants to provide 

knowledge and expertise which are not available within the SPTC

staff.

Finally, looking at the definition of "employee" in section 

1(d) (1) (i) (B) , a majority of the Board finds that the services

performed by the environmental consultants are technical in nature 

because of the specialized knowledge and expertise which the

consultants must possess in order to carry out their services. For

example, the consultants prepare project specific technical 

evaluations of field sampling data and site inspections. In

addition, they serve with SPTC employees who negotiate with State

and Federal agencies concerning environmental issues when their

specialized knowledge and experience is required. However, for all

of the reasons discussed in connection with the discussion of the

definition of "employee" in section 1(d) (1) (i) (C) , a majority of

the Board finds further that the environmental consultants are not

integrated into the staff of SPTC. Rather, a majority of the Board 

finds that the environmental consultants are true consultants used 

by SPTC for special projects not necessarily related to SPTC's

operation of a railroad where special knowledge and expertise are

required.
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Southern Pacific Transportation CompanyEnvironmental Consultants

For the reasons set forth above, a majority of the Board finds that

the environmental consultants are not employees of Southern Pacific 

Transportation Company.

Glen L. Bower
DISSENT OF

V M. SPEARMAN, JR.

ON THE COVERAGE DETERMINATION

SOUTHERN PACIFIC TRANSPORTATION COMPANY

ENVIRONMENTAL CONSULTANTS

/ disagree with the majority ofthe Board's determination that the environmental

consultants in question are not employees ofSouthern Pacific Transportation Company

(SPTC). A review ofthefacts in this case indicate that with one possible exception, all

ofthe individuals work exclusivelyfor SPTC, are paidwhat could be considered an

hourly salary with regular raises plus expenses, andperform most oftheir duties on

company propertyfor company personnel. Even ifthe workperformed is ofrecent origin

due to rules and regulationsfrom the 1980 's, it is still ongoing work. While duties may

not be those traditionally done as part of “running a railroad, ” the technicalservices

performed can be considered railroad related

The consultants attend certain in-house training, are provided or reimbursedfor most of

the tools oftheir trade by the company, and have company business cards and

letterheads. Furthermore, these employees do not hold out theirservices to the public.

Ifind the environmental employees to be “consultants ” in name only, and infact, true

employees ofSPTC integrated into the operations ofthe railroad