Memorandum L-85-121

UNITED STATES GOVERNMENT RAILROAD RETIREMENT BOARD November 13, 1985 Memorandum L-85-121 TO Director of Compensation and Certification FROM Deputy General Counsel subject: Ontario Eastern Railroad Corporation d/b/a/ Jersey Southern Railway South Jersey Rail Line Company Employer Status This is in response to your request for my opinion as to the status of the Ontario Eastern Railroad Corporation, doing business as the Jersey Southern Railway, as an employer under the Railroad Retirement and Railroad Unemployment Insurance Acts. While the Ontario Eastern Railroad has previously been held to be an employer with regard to operations conducted in the State of New York (see Legal Opinion L-82-37 and Employer Status List Item No. 4961.3), neither the Jersey Southern Railway nor the South Jersey Rail Line Company (discussed below) have been held to be employers under the Acts. The evidence available tends to establish that sometime prior to August 1983, Conrail abandoned rail service on an approximately 3.5 mile length of track extending between Seabrook and Bridgeton Junction, New Jersey, where it connected with a Conrail trunk line. This right of way was subsequently purchased by the township of Upper Deerfield, New Jersey. On October 31, 1983, the township leased the rail line for a term of five years, subject to renewal, to South Jersey Rail Line Company. South Jersey Rail had previously been incorporated on August 3, 1983 for the purpose of restoring rail operations on the line in question. The president of South Jersey Rail is an employee of Clement Pappas Company, and the vice president, secretary and treasurer are employees of Seabrook Brothers and Sons, Incorporated. Pappas and Seabrook are apparently the two predominant shippers along the line. On October 31, 1983, the date on which the township leased the line to South Jersey Rail, the latter company entered into a written agreement with the Ontario Eastern. Under the agreement, Ontario Eastern is to conduct rail carrier service over the leased line under the name "Jersey Southern Railway." Under sections 201 and 301 of the agreement, Jersey Southern is Director of Compensation and Certification given authority to dispatch trains and to assign available freight cars, crews, and locomotive power; however, under those sections South Jersey Rail has the right to approve any substitution or assignment increasing operating costs and to disapprove changes in the frequency or other aspects of rail service, if disapproval does not impair Jersey Southern's common carrier obligations. Jersey Southern is responsible for maintenance of track and facilities, but pursuant to section 401 of the agreement it may not undertake maintenance costing over $2,500.00 without approval of South Jersey Rail. Section 303 of the agreement provides that "All crew members shall be the employee [sic] of Railroad [Jersey Southern], and Railroad shall be responsible for all insurance, compensation and benefits therefor." 'Similarly, Article V of the agreement requires Jersey Southern to hold South Jersey Rail harmless from liability for any losses connected with the rail operation and to carry liability insurance. In return for rail service provided by Jersey Southern, section 602 of the agreement provides that South Jersey Rail will pay to Jersey Southern a monthly advance covering estimated payroll, rent, fuel, supplies, insurance, and taxes, to the extent that these expenses exceed operating revenue. Section 702 of the agreement requires that South Jersey Rail reimburse Jersey Southern for any start-up costs. Under section 703 South Jersey Rail remains responsible for payments under the lease of the rail line from Upper Deerfield township. It may also be noted that at the time of the agreement, South Jersey Rail's business address was given as Post Office Box 103, Seabrook, New Jersey, the address of Seabrook Brothers and Sons. In a decision rendered November 30, 1983, the Interstate Commerce Commission scrutinized the terms of the agreement and exempted Ontario Eastern from the prior approval requirements of section 11343 et seq. of Title 49 of the United States Code, pertaining to combinations of carriers and other carriers or non-carriers. Ontario Eastern Railroad Corporation, Finance Docket No. 30310, 48 Fed. Reg^. 55055. By a letter dated April 24, 1984, Mr. Paul 0. Schaefer, Assistant Treasurer and Controller of the Jersey Southern, stated that while operations on the line commenced November 1, 1983, Jersey Southern had "no employees" and that "All work [was] contracted out with other companies." Mr. Schaefer later wrote that "The administra tive work is performed by our general office staff * * * in Sodus, New York. They are employees of RMS [Rail Managment Services] Inc. and provide general administrative services for several different Railroads. The Railroad is billed for time and fringe Director of Compensation and Certification benefits on and [sic] actual time worked basis." The General Counsel has held Rail Management Services Inc., not to be an employer under the Acts because it was not under common control with a railroad employer. See Legal Opinion L-81-21 and Employer Status List Item No. 5528.5. Mr. Schaefer also wrote that "All operational employees who perform the maintenance, track repair, and train crews are full time employees" of one of the shippers along the line (later revealed to be Seabrook Brothers and Sons Inc.), and that "that company then bills the Railroad for their actual time spent plus a 30% factor to cover fringe benefits which that company provides. When they are not working on the Railroad, they are doing other things for their employer." Over a 72 week period ending June 12, 1985, Seabrook furnished a total of 25 employees to assist in train crews, track work, equipment maintenance, and derailment crews. Seabrook typically furnished three employees in any given week, who each worked an average of 10.2 hours per week. Jersey Southern has a right to object to an individual furnished by Seabrook, and has in fact objected once. Individuals furnished by Seabrook are trained on the job by the superintendent of Jersey Southern, who also conducts a written examination covering a 21 page set of operating rules and evaluates performance of the train crews. The rules were written by the Ontario Midland Railroad, and have been used by that railroad and by the Ontario Central Railroad, which Mr. Shaefer described as "affiliated" with the Jersey Southern. Both the Ontario Midland and the Ontario Central have previously been held to be employers under the Acts. See Legal Opinion L-79-325 and Employer Status List Items 4961.7 and 4960.5. Operating and safety rule violations would be subject to discipline by the Jersey Southern. According to The Pocket List of Railroad Officials, Vol. 91, No. 2. Second Quarter 1985, p. 607, Jersey Southern has one diesel-electric locomotive. In addition to operating this locomotive, train crews also perform daily equipment inspections and tests. Periodic operational tests and equipment inspections pursuant to regulations of the Federal Railroad Administration are performed by the Jersey Southern's chief mechanical officer, who is also an employee of the Ontario Midland Railroad, or by its supervisor of operations, who is compensated through the Seaorook payroll. As noted earlier, decisions regarding train operation are assigned to Jersey Southern pursuant to the operating agreement. Jersey Southern has established no time tables. However, whether a train is to be run is determined by the supervisor of operations. The supervisor also communicates with shippers and is usually a member of the train crew. Director of Compensation and Certification Section 1 of the Railroad Unemployment Insurance Act (45 U.S.C. § 351) provides in pertinent part that: "For the purposes of this Act, except when used in amending the provisions of other Acts— "(a) The term 1 employer1 means any carrier (as defined in subsection (b) of this section) * * *. " (b) The term 'carrier1 means an express company, sleeping-car company, or carrier by railroad, subject to part I of the Interstate Commerce Act." Section 1(a) (1) (i) of the Railroad Retirement Act (45 U.S.C. § 231(a)(1)(i)) contains a substantially identical provision. Moreover, this office has long held that a company whose railroad is operated in interstate commerce under lease or other arrange ment by a rail carrier subject to part I of the Interstate Commerce Act is itself an employer under the Railroad Unemployment Insurance and the Railroad Retirement Acts. See Legal Opinions L-42-393, L-83-134 , and L-85-39. Section 1(d)(i) of the Railroad Unemployment Insurance Act defines the term "employee" as any individual who is or has been in the service of one or more employers for compensation. Section 1(e) of that Act provides that an individual is "in the service of an employer" if: " (i) he is subject to the continuing authority of the employer to supervise and direct the manner of rendition of his service, or he is rendering professional or technical services and is integrated into the staff of the employer, or he is rendering, on the property used in the employer's operations, other personal services the rendition of which is integrated into the employer's operations, and (ii) he renders such service for compensation * * *." Substantially the same definitions are found in section 1(b) and 1(d)(1) of the Railroad Retirement Act, and in sections 3231(b) and (d) of the Railroad Retirement Tax Act. In considering these provisions, courts have construed them interchangeably. It has been held that, under certain circumstances, the employees of a third party which contracts to perform a service for a railroad employer may be considered to be in the service of the railroad employer within the meaning of these sections.

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