Employer Status Determination

Contract Rail Service Company

This is the decision of the Railroad Retirement Board regarding the

status of Contract Rail Service Company (CRS) as an employer under

the Railroad Retirement and Railroad Unemployment Insurance Acts.

CRS is a privately held company which builds concrete pads,

environmental retention ponds and related appurtances. CRS is

involved in water, sewer and storm sewer construction, and road

building. CRS also provides plant and equipment maintenance, snow

plowing, fabrication, commercial painting and temporary help. CRS

has 12-15 employees yearly. Currently it has one employee working

on the property of Lake State Railway Company (LSR) . The CRS

employee first began providing a service to LSR on November 23,

1995. The employee receives work orders from an LSR dispatcher.

Thereafter CRS supervises, instructs and controls its employee.

The CRS employee must comply with Federal Railroad Administration

requirements with regard to safety and work rules. The CRS

employee is not integrated into the operations of LSR and most

tools and materials are provided by CRS. CRS is paid a daily rate 

for the employee providing temporary services to LSR.

Approximately 0-15% of CRS's revenue is derived its work for LSR.

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).

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

BCD 1996-68
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Contract Rail Service Company

This conclusion leaves open, however, the question whether the

persons who perform work for CRS under its arrangement with LSR

should be considered to be employees of LSR rather than of CRS.

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 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 CRS'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

CRS 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
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Contract Rail Service Company

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. While these may be rather close questions in cases such as

this one, where the contractor performs a service for only one

railroad and performs that service on the premises of the railroad, 

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

recognized trade or business with many other companies other than 

LSR; accordingly, it is the opinion of the Board that CRS is an

independent business.

Accordingly, it is the determination of the Board that service

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

Glen L. Bower