September 26, 1979

79-71 MEMORANDUM OPINION FOR THE

ASSISTANT TO THE PRESIDENT FOR

DOMESTIC AFFAIRS AND POLICY

Interstate Commerce Commission—Directed Rail

Carrier Service—Back Pay—49 U.S.C. § 11125

(Supp. n , 1978)

This confirms my oral advice that it is our opinion that the Interstate 

Commerce Commission might determine that it was reasonable and 

necessary for a carrier, providing service over The Rock Island routes pursuant to a directed service order, to pay back wages owing to The Rock 

Island employees from The Rock Island in order to bring those employees 

back to work for the directed carrier. We understand that The Rock Island 

owes, but is presently unable to pay, back wages to its employees for work 

performed during August. Apparently the employees have taken the position that they will not return to work for a directed carrier or anyone else 

until back wages have been paid.

Section 11125(b)(3), 49 U.S.C. (Supp. II, 1978) specifically provides 

that “ A directed carrier is not responsible, because of the direction of the 

Commission, for the debts of the other carrier.” Although this provision 

expressly relieves the directed carrier of any obligation to assume existing 

debts of the defaulting carrier, in our view it does not preclude a determination that assumption of an existing debt is a permissible means of 

assuring the resumption or continuation of service.

The provision protects the directed carrier from suits by creditors of the 

nonoperating carrier; the directed carrier does not become liable for a 

defaulting carrier’s debts by virtue of the Commission’s directed service 

order. The provision, however, does not prohibit the directed carrier from 

paying an existing debt of the nonoperating carrier if such payment is required to enable the directed carrier to provide the service ordered by the 

Commission. The language of subsection (b)(3) quoted above is not a 

limitation on the payment by the directed carrier of the railroad’s existing 

debts. However, the reimbursement provision, subsection (b)(5), is a 

limitation on such payments.

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That subsection requires a finding by the Commission that an expense 

incurred by the directed carrier was “ incurred in or attributable to the 

handling, routing, and moving the traffic over the lines of the other carrier 

for the period during which the action of the Commission is effective” 

before it can be included for reimbursement by the Government. The 

Commission must find that the payment here was necessary to move traffic over The Rock Island line before it can consider the expenses incurred 

to be reimbursable.

It is important to note that The Rock Island’s financial posture will not 

be affected by the directed carrier’s payment of back wages; the directed 

carrier simply will be substituted for the several employees as claimants 

against The Rock Island for the back wages.

The directed carrier would advance the back wages to the employees in 

return for the employees’ assignment to the directed carrier of their individual wage claims against The Rock Island. The directed carrier, as 

assignee, would then be in a position to recover these payments from the 

trustee in bankruptcy for The Rock Island. Claims for wages are entitled 

to priority in a railroad reorganization.

The Commission, in our view, would be entitled to find that the directed 

carrier’s costs associated with advancing the back pay to the employees, 

and recovering the wage claims from The Rock Island, were necessary and 

reasonable expenses in the computation of Government reimbursement to 

the directed carrier under 49 U.S.C. 11125(b)(5) (Supp. II, 1978). Should 

the directed carrier be unable to recover from The Rock Island the full 

amount of the back wage payments, the shortfall could also be reasonably 

included in the directed carrier’s expenses, again assuming that the Commission determines that the payment of back wages was a necessary expense “ incurred in or attributable to * *" * moving the traffic over [The 

Rock Island] lines” during the period of the directed service order.

It should be pointed out that the Commission in its regulations issued 

under § 11125 has provided that, in the event a directed carrier does not 

need all the employees of the nonoperating carrier to provide the directed 

service, the cost of terminating the unneeded employees is an obligation of 

the nonoperating carrier and is not the responsibility of the directed carrier. Ex Parte No. 293 (Sub No. 3), Implementation o f P.L. 93-236, 248 

I.C.C. 251, 273 (1975). These regulations on their face do not foreclose a 

determination by the Commission that a directed carrier in the exercise of 

sound business judgment might conclude that the payment of the nonoperating carriers, obligations to employees incurred before the period of 

directed service was, in fact, necessary to assure the resumption of the 

ordered service and therefore was attributable to moving traffic over The 

Rock Island lines.

J o h n M . H a r m o n

Assistant Attorney General

Office o f Legal Counsel

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