B.C.D. 03-74

Employer Status Determination

DOT Rail Service, Inc.

SEP 1 9 2003

This is the decision ofthe Railroad Retirement Board regarding the status of DOT Rail

Service, Inc. as an employer under the Railroad Retirement Act (RRA) and Railroad

Unemployment Insurance Act (RUIA). The following information was provided by

Mr. Thomas F. McFarland, attorney for DOT.

DOT was incorporated May 26,1983, and engages in the provision oftrack

maintenance, repair and rehabilitation work oftrack, intraplant railcar switching, and

other work such as tree cutting, clean-up of variousjob sites, snow removal, and

excavation. DOT has approximately 42 employees, of whom 57 percent perform track

maintenance and repair and rehabilitation oftrack. The vast majority oftheir time is

spent working for private industries and an estimated 8 percent oftheir time is spent

working for a rail carrier. DOT spends an estimated 8 percent ofits business time

providing services for the Burlington Northern Sante Fe Railroad Company and 6.6 

percent of its business time providing services for Union Pacific Railroad Company.

DOT owns equipment such as “backhoes, tampers, ballast regulators, spikers, speed

swing machines, engines, trucks, trailers, etc.” DOT is a privately held corporation

owned by Paula J. Mudge-Gibson and Don L. Gibson, who also own Central Illinois

Railroad Company, Inc., a covered employer under the Acts (B.A. No. 4785), and

Chicago Heights Switching Company, which was held by the Board on reconsideration

not to be an employer under the Acts (B.C.D. Number 03-63).

Section 1(a)(1) ofthe Railroad Retirement Act (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 ofthe Surface 

Transportation Board under Part A ofsubtitle IV oftitle 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 i(a) and i(b) ofthe Railroad Unemployment Insurance Act (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).

DOT clearly is not a carrier by rail. Further, although it is under common control with

Central Illinois, there is no evidence that it provides any services to its affiliate.
DOT Rail Service, Inc.

Therefore, the Board, Labor Member dissenting, finds that DOT is not a covered

employer under the Acts.

This conclusion leaves open, however, the question whether the persons who perform

work for DOT under its arrangements with rail carriers should be considered to be

employees ofthose railroads rather than of DOT. Section i(b) ofthe Railroad

Retirement Act and section i(d) ofthe Railroad Unemployment Insurance Act both

define a covered employee as an individual in the service of an employer for

compensation. Section 1(d)(1) ofthe RRA further defines an individual as "in the

service of an employer" when:

(i)(A) he is subject to the continuing authority ofthe employer to

supervise and direct the manner ofrendition 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 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 i(e) ofthe RUIA contains a definition ofservice 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 ofthe 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.

There is no evidence showing that DOT’s work is performed under the direction or

control ofthe employees of any of its customers; 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 independent contractors performing services for a railroad where such

contractors are 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 DOT is an

independent contractor. Courts have faced similar considerations when determining

the independence of a contractor for purposes ofliability 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.. Lanigan Storage & Van Co. v. United
3

DOT Rail Service, Inc.

States. 389 F. 2d 337 (6th Cir. 1968) at 341. It is apparent that DOT is in the business

of providing services to many customers, only a relatively small percentage of which are 

connected to the rail industry. The evidence of record indicates that DOT is engaged in

the recognized trade or business ofrepairing and maintaining track. DOT has a

substantial investment in track repair equipment. Accordingly, it is the opinion ofthe

Board that DOT is an independent business.

Because DOT engages in an independent business, Kelm would prevent applying

paragraphs (B) and (C) ofthe definition of covered employee service to this case.

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

DOT is not covered employee service under the Acts.