B.C.D. 03-60

Employer Status Determination

Rail Scale, Inc.

Southwest Signal Engineering Company

JUN 2 5 2003

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

Inc., and Southwest Signal Engineering Company (SSEC) as employers underthe

Railroad Retirement and Railroad Unemployment Insurance Acts.

Information regarding SSEC was provided by John H. Wilbur, Wilbur & Allen, counsel

for SSEC. SSEC was incorporated and began operations December 6,1988, and engages

in railroad signal engineering services. At least 95 percent of its work is performed for a

number of different railroads. SSEC is a privately held corporation which is not

affiliated with a railroad. It has 144 employees. SSEC’s work is performed on railroad

property> and includes provision oftechnical assistance with projects, construction

management services, and construction of crossing signals.

A copy of a contract which was provided, dated December 7,1999, between SSEC and

CSX Transportation (CSXT), obligates SSEC to “(1) test, certify and adjust * * * in-track

scales owned by CSXT, (2) test and certify in-tract scales owned by third parties, located

throughout CSXT’s railroad system, and (3) perform other related scale services to be

agreed upon by the parties * * Under the contract, SSEC agrees to utilize, and

acquire if necessary, the following equipment: six trucks and trailers, three truck

mounted knuckle boom cranes, and three test carts, and 216,000 pounds ofweights.

Under a Supplemental Agreement entered into January 31, 2000, SSEC agrees to lease

six of CSXT’s Scale Trucks and Scale Tools. Under the terms of a document dated

January 1, 2002, labeled “Service Contract Form” entered into between SSEC and CSXT,

SSEC agrees to perform signal engineering design and support services. Under the

terms of a contract entered into between SSEC and Southern California Regional Rail

Authority (the Despatching Department of which is covered under the Acts; B.A. No.

9749), SSEC is to perform signal and communications design services.

Information regarding Rail Scale also was provided by John H. Wilbur. Rail Scale was 

incorporated June 16,1999, and began operations February 1, 2000. It engages in the

servicing ofscales, which work it performs for a number of rail carriers. It performs

work for CSXT pursuant to an informal arrangement with SSEC which, as described

above, has a formal agreement with CSXT.

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;

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Rail Scale, Inc.

Southwest Signal Engineering Company

(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 (26 U.S.C. § 3231).

SSEC and Rail Scale clearly are not carriers by rail. Further, the available evidence

indicates that they are not under common ownership with any rail carrier nor are they

controlled by officers or directors who control a railroad. Therefore, SSEC and Rail 

Scale are not covered employers under the Acts.

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

work for SSEC and Rail Scale under its arrangements with rail carriers should be

considered to be employees ofthose railroads rather than of SSEC or Rail Scale. 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 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 used in the

employer's operations, personal sendees the rendition of which is

integrated into the employer's operations; and

(ii) he renders such service for compensation * * *.

Section i(e) ofthe RULA 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.
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Rail Scale, Inc.

Southwest Signal Engineering Company

The contracts submitted by SSEC show that SSEC itself is obligated to complete the

operations described therein. There is no evidence that rail employees have any

authority over SSEC’s employees. Since the work performed by Rail Scale is performed

under authority derivative ofthat of SSEC, it must be inferred that rail employees do not

have any authority over Rail Scale’s employees either. 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 ofindependent 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 SSEC and Rail

Scales are independent contractors. 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 States. 389 F. 2d 337 (6th Cir. 1968) at 341. SSEC and Rail Scale are engaged in

the recognized trade or business ofsignal and scale maintenance. They are clearly

independent operations which contract with many carriers. Accordingly, it is the

opinion ofthe Board that SSEC and Rail Scale are independent businesses.

Because SSEC and Rail Scale are independent contractors, their employees are not 

covered employees within the meaning of paragraphs (B) and (C). Accordingly, it is the 

determination ofthe Board that service performed by employees of SSEC and Rail Scale

is not covered under the Acts.

\J A/T QnDol/mori Tr* ^ V.M. Speakman, Jr.