Opinion ID: 393013
Heading Depth: 1
Heading Rank: 2

Heading: Avoidability of Labor Costs

Text: 13 The first issue in this case centers on the question of whether or not the wages paid to railroad employees who presently work on the Rushville and Connersville branches could be saved by N&W if the lines were abandoned. The ICC overturned the administrative law judge's findings and held that the wages are avoidable costs. Because the labor expenses are so large, this materially shifted the balance away from a finding of profitability on the two lines. 14 The repair and maintenance crews on the two branches spend a portion of their time working on other lines. Since the employees' wages are paid for both work done on these branches and on other lines, the petitioners say, the employees still will have to be retained, and there will be no saving to N&W. Thus, petitioners claim, the wages that presently are paid to these employees on the branch are jointly shared with other of N&W's operations, and will not be reduced if the branches are abandoned. They contend that this case represents a true joint cost situation. 15 The ICC rested its conclusion about the avoidability of labor costs on one of its own cases, Illinois Central Gulf Company Railroad Abandonment, 363 I.C.C. 93 (1980), rev'd and remanded on review sub nom., City of Cherokee v. I.C.C., 641 F.2d 1220 (8th Cir.), cert. filed, 49 U.S.L.W. 3969, No. 80-2122 (June 15, 1981). Petitioners contend that the case does not support the ICC's conclusions since it concerns circumstances that do not implicate joint costs. As framed by the petitioners, then, our consideration of this issue turns on the existence vel non of a joint cost situation in the branches at issue. 16 We first note that while a true joint cost may almost always be unavoidable, not all unavoidable costs are joint ones. The ICC defines joint cost to cover a particularized subset of unavoidable costs. According to the ICC definition, a true joint cost exists when two services run over the same line, and only one of the services is eliminated. The repair work done on the line, for example, must usually be maintained at the same level for the remaining service, hence effecting no savings for the railroad. The repair crew's wages, then, are joint costs. See Illinois Central Gulf, 363 I.C.C. at 99 n.6. Since in our case there are no other services travelling this line (with one exception to be discussed later in this section), no joint cost situation is involved. 17 N&W proffered uncontradicted evidence that the employees worked a specific percentage of time on each branch. The evidence also showed that N&W's local management has the flexibility to assign and re-assign its employees as it wishes, although specific placements in the event of abandonment had not yet been considered at the time the evidence was entered. 18 This evidence demonstrates the ICC reasonably found that this case does not involve a true joint cost situation. No one disputes that the wages for work on each line can be separately apportioned to that line. It is clear which portion of the wages are paid for the work done on each line. Should operations over the branches terminate, the wages that would have to be paid to employees for their work on those branches need no longer be paid. The employees' time is freed for productive work elsewhere in the N&W network: work that otherwise might require the hiring of new personnel or the payment of overtime or premium wages. Thus, contrary to the petitioners' assertions, the circumstances here are far different from those implicated by the ICC's definition of a true joint cost situation. 19 The questions then become whether the ICC properly relied on the Illinois Central Gulf case, and whether the labor costs are avoidable even if not joint. We conclude that the ICC properly relied on the case, and acted within its discretion in concluding the labor costs are avoidable. 20 In Illinois Central Gulf the ICC held that a collective bargaining agreement guaranteeing wages to employees on a certain line regardless of whether or not the line was abandoned, did not preclude a railroad designating the labor expenses as an avoidable cost when an abandonment is sought. Language in the ICC's opinion suggested that the only un avoidable costs were those which are joint. The majority of the panel in Cherokee opted for a more flexible reading of the statutory definition regarding avoidable costs, and concluded that where wages must be paid pursuant to a collective bargaining agreement regardless of operations over the line, the labor expenses cannot be considered avoidable. The majority did not state that the ICC's definition of a joint cost was incorrect in any manner. Rather, on this issue, the majority in Cherokee held only that avoidable costs do not include employee wages guaranteed under a labor agreement such as the one involved in that case. Since, as the petitioners recognize, there is in the present case no issue about a restrictive collective bargaining agreement, the majority's discussion in Cherokee does not apply. 21 Nor does Judge Adams's dissenting opinion in Cherokee alter our conclusions in this case. He simply disagreed with the majority's view that the ICC had equated avoidable costs with joint costs. Like the Cherokee majority, Judge Adams had no complaint with the ICC's definition of joint cost. 22 That the ICC relied on a case subsequently overturned on review does not mandate a reversal here. The general principles underlying the Illinois Central Gulf decision remain intact; it was only the application of those principles to a certain narrow fact situation that caused the controversy in Cherokee. Thus, there remains a venerable line of cases in which the ICC has deemed labor expenses avoidable costs where the circumstances indicate employees will be shifted to other productive service upon abandonment. 4 The majority in Cherokee viewed the labor agreement involved in that case as pointing so clearly to the unavoidability of wages that there was no room for the ICC to come to the contrary conclusion. Since the present case does not involve such a labor agreement or any other similar evidence that could serve to limit the ICC's discretion, and does not involve a true joint cost situation, the principles in Illinois Central Gulf on which the ICC relied support its decision here. 23 The decision on whether or not employee transfers in fact will result in savings to the railroad is one for the ICC, not this court. We see no reason to disturb the ICC's conclusions in this case, at least as regards most of the line. 24 There is, however, one remaining issue that requires a remand to the ICC. ConRail operates pursuant to trackage rights over approximately a six-mile stretch of the Connersville branch. The ICC argues in connection with another issue in this case, see Section VII, infra, that ConRail will be allowed to use that stretch regardless of N&W's abandonment, implying that N&W is contractually bound to maintain the track. The record before us does not indicate whether the wages attributable to that portion of the track were included in the computation of avoidable labor costs. Because the extent of avoidable labor costs is the linchpin of much of the cost-accounting in this case, it is advisable that we remand for the ICC's determination of the amount of wages attributable to potential future upkeep, and a decision on whether this readjustment (if one need be made) affects the decision on the propriety of abandoning the Connersville branch. 25