Employer Status Determination

ETC Office System Services, Inc.

MAY 1 o 2000

This is the decision ofthe Railroad Retirement Board regarding the status of ETC

Office System Services, Inc.(ETC) as an employer under the Railroad Retirement

and Railroad Unemployment Insurance Acts. The status of this company has not

previously been considered.

The evidence is that ETC was incorporated as a privately held Pennsylvania

corporation on March 4,1985. No railroad owns any stock of ETC, and no directors

or principal officers own any railroad stock, or are otherwise officers or directors

of a railroad. ETC is a temporary and permanent employment agency with four

offices in the Philadelphia area. ETC states that it assigns employees to a client

company’s location to perform specified duties, and pays its employees weekly.

ETC employees may request flexible work schedules, and the client company is

then billed for only the time the employee worked. While on assignment to a

chent, the employees receive work and projects from the client company. ETC

reports that individuals it sends to chent companies are governed by pohcies,

practices and procedures of ETC, and may be instructed and trained by ETC to 

satisfy customer requirements as needed.

On March 30, 1994, Conrail and ETC entered into a memorandum agreement in

which ETC agreed to provide temporary workers as requested by Conrail

departments and as authorized by Conrad's Human Resources department. The

agreement was to last from April through October 1994, during which time ETC

was to receive no more than $500,000, with a retainer of $20,000 paid in advance.

A contract for a total of $200,000 for the period June 1996 through April 1997 was

approved by Conrail on June 13, 1996, and later extended through December 1997

for a total of $1.3 million. As of August 1997, providing temporary employees to

Conrail constituted approximately 35 percent of ETC’s business. The remainder

of ETC’s business was conducted with non-railroad companies in the Philadelphia

area.

An average of 20 to 30 employees were assigned by ETC to Conrail each week in

1997. As of December 1998, 16 individuals remained. Conrail stated that

individuals assigned by ETC were assigned work which they did independently.

While Conrail stated that individuals providing service under the ETC

agreements were required to keep Conrail apprised of the progression of their

assignments, they were free to manage their own time in performance of the

assigned duties. Some worked at home, others on the property of Conrail. Many

worked on specific projects of limited duration. Others were engaged to train
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ETC Office System Services, Inc.

Conrail employees, or to fill positions which could not be staffed by permanent

employees due to the uncertainties of continued employment after the

approaching acquisition of Conrail by CSX Transportation and Norfolk Southern.

Section 1(a)(1) ofthe Railroad Retirement Act (RRA) (45 U.S.C. § 231(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 ofsubtitle 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) ofthis subdivision and which operates any

equipment or facility or performs any service (except trucking

service, casual service, and the casual operation of equipment or

facilities) in connection with the transportation of passengers or

property by railroad * * *.

Sections 1(a) and 1(b) of the Railroad Unemployment Insurance Act (RUIA), 45

U.S.C. §§ 351(a) and (b) contain substantially similar definitions, as does section

3231 ofthe Railroad Retirement Tax Act (RRTA), 26 U.S.C. § 3231.

ETC is clearly not a carrier by rail. Further, there is no evidence that ETC is under

common ownership with any rail carrier or controlled by officers or directors who

control a railroad. ETC therefore is not a covered rail carrier affiliate employer.

As ETC meets no other definition of a covered employer under the Acts, the

Board finds that ETC is not a covered employer.

This conclusion leaves open, however, the question of whether the individuals

who performed work for ETC under its arrangements with Conrail should be

considered to be employees ofthe railroad rather than of ETC. Section 1(b) ofthe

RRA and section l(d)(i) of the RUIA both define a covered employee as an

individual in the service of an employer for compensation. Section 1(d) 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 ofthe employer, or (C) he is rendering, on the property
ETC Office System Services, Inc.

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) ofthe 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 ofthe service-recipient not only with respect to the

outcome of his work but also with respect to the way he performs such work.

Although some ETC employees worked on Conrail premises, most set their own

hours and were responsible for completion ofthe projects assigned to them, rather

than subject to supervision by Conrail as to how the work was performed.

Accordingly, the control test in paragraph (A) is not met. See: Transportation

Certification Services. Inc.. B.C.D. 95-40 (employees of consulting company

providing training to railroad employees on premises were not covered

employees), and Battenkill Business Service. B.C.D. 95-49, (individual providing

bookkeeping service for public at large not a covered employee with respect to

work for railroad).

The tests set forth under paragraphs (B) and (C) go beyond the test contained in

paragraph (A) and would hold an individual to be 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. 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 ETC 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
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ETC Office System Services, Inc.

trade; e.g.. Lanigan Storage & Van Co. v. United States. 389 F. 2d 337 (6th Cir. 1968,

at 341). The four ETC offices in the Philadelphia area, and the fact that 65 percent

of ETC’s business derived from sources other than Conrail, indicate that ETC

engaged in the temporary employment business for the general public. Moreover,

the terms of the contracts provide only that Conrail may order services up to a

specified limit, thereby indicating that ETC may suffer a loss if its operating

expenses exceed the income under its contracts with Conrail. ETC consequently

meets the test for independent contractor status, and individuals performing

service under its contracts are employees of ETC, rather than employees of

Conrail while performing those services. Kelm. supra.

Accordingly, it is the determination of the Board that service performed by

employees of ETC is not covered employee service under the Railroad Retirement

and Railroad Unemployment Insurance Acts.