L-41-509 / %

October 15, 1941

Mr. Chief Executive Officer Erie Railroad Company Midland Building Cleveland, Ohio

Dear Sir:

In a letter to Mi'. | | , Trustee-President, Erie Railroad Company, dated February 7, 1939, I advised that the Board had ruled that service under a contract dated January 9# 1922, be­ tween the Erie Railroad Company and the Consolidated Freight Handling Company, Inc., covering the handling of freight at certain points in the States of Ohio, New York,and Pennsylvania, was creditable toward annuities under the Railroad Retirement Act as service to the Erie Railroad Company.

In reply to my letter Mr. advised me that the Erie Railroad Company could not agree with such ruling, since it was the opinion of the Erie Railroad Company that the Consolidated Freight Handling Company, Inc. performed the freight handling services under such contract as an independent contractor, and that, therefore, the individuals working under the contract were employees of the Consoli­ dated Freight Handling Company, Inc, rather than of the Erie Railroad Company. No reasons or facts in support of such position, however, were set forth in Mr. | | letter. When this was brought to Mr. | attention, we received from Mr. Vice-President and General Counsel, Erie Railroad Company, certain information pur­ porting to establish the independence of the relationship between the Erie Railroad Company and the Consolidated Freight Handling Company, Inc. under the contract in question.

In my opinion such information contains no facts or circum­ stances surrounding the execution of the contract which would alter the Board * s original conclusion, which was based upon a legal analysis of the provisions of the contract, that the individuals engaged in the performance of service under the contract were employees of the Erie Railroad Company, within the meaning of the Retirement Act, and that, therefore, such service is creditable toward annuities under the Act. As pointed out in my letter to Mr. | | of February 7> 1939, the Erie Railroad Company clearly retained through the provisions of the contract the right to control the manner in which the freight handling operations under the contract were to be performed. Unlike the situation under the ordinary independent contract, all freight was to be handled under the contract in question in accordance with the standard practices, rules and regulations of the railroad company. Through such standard practices, rules and regulations, the railroad company could effectively control the manner of performance of every detail of the work, and thus leave little, or no, discretion in the Consolidated Freight Handling Company, Inc. as to how freight should be handled under the contract.

The contract here has been likened by Mr. to the ordi­ nary building contract, under which an independent contractual relation­ ship usually exists. In my opinion, however, a comparison of the con­ tract in question with the ordinary building contract supports, rather than challenges, the conclusion that the relationship here between the Erie and the Freight Handling Company is an employer-employee relation­ ship and not an independent contractual relationship.

A building contract usually covers the performance of a spe­ cific job for a lump sum and the work is ordinarily done in accordance with plans and specifications furnished the contractor in advance of his bidding for the job. Here, however, the contract is not for one specific job, but provides for services which are continuing in nature, a factor which the courts hold is strongly indicative of an employer- employee relationship. Moreover, unlike the independent building con­ tract, there were no fixed plans and specifications covering the work in question. On the contrary, the freight was to be handled here in accordance with standard practices, rules and regulations of the Erie which the Erie had the power to change from time to time during the course of the work without consulting the Freight Handling Company. And the contract contained no restriction as to how detailed the Erie could make such standard practices, rules and regulations. Thus the Erie here did not merely have the power to pass upon the results of the work, but through its standard practices, rules and regulations could control the manner in which the very details of the work were to be performed.

Furthermore, an independent contractor usually furnishes the necessary tools, equipment and materials. But here, the Erie undertook to furnish all the tools, equipment and materials used in the perform­ ance of the work. Added to this is the fact that the Erie had the ultimate financial responsibility for injuries and death, as well as for damage to property caused through the handling of the freight. Thus, it is clear that the Freight Handling Company undertook little, or none, of the financial risk or loss usually undertaken by an independent con­ tractor. That an employer-employee relationship rather than an inde­ pendent contractual relationship existed under the contract is still further evidenced by the fact that the Erie had the right thereunder to terminate the relationship at any time vdthout cause upon only tvrenty-four hours* notice, since such termination provision gave the Erie an effective means of compelling obedience to directions as to how the work should be done.

Mr. states that it is his understanding that the Erie’s local freight agent at the several freight stations covered by the contract never directly supervised the individuals as to the manner in which they performed the contract work, but rather dealt with the General Foreman of the Freight Handling Company. It must, of course, be remembered that actual supervision and direction is not necessary under the Retirement Act, the right to supervise is all that is required. And so far as actual supervision and direction of the individuals performing the contract work is concerned, the fact that the General Foreman of the Freight Handling Company actually told such individuals what to do and how to do it would not preclude the Erie from being their common employer, for as the Court said in MeLamb v, E. I. Dupont de Nemours & Co.. 79 F. (2d) 966 (C.C.A. 4th, 1935), at page 968:

11 * * * a superintendent or foreman usually has this authority over laborers and yet does not thereby be­ come an independent contractor; nor do the laborers cease to be servants of their common employer."

It is further stated by Mr. that the individuals per­ forming the work in question are not hired, discharged or paid by the Erie. While the fact that the Erie does not directly hire, discharge or pay such individuals is to some extent indicative of an independent contractual relationship, the courts and administrative authorities have held that such factors are not conclusive of the relationship. See Linstead v. Chesapeake and Ohio Railway. 276 U.S. 28 at p. 34; Regulations Concerning Employees Under Railway Labor Act, 231 I.C.C. 91 at p. 99; Bowen v. Gradison Construction Co., 236 Ky7 270, 32 S.W. (2d) 1014 at p. 1017.

It is also stated by Mr. that the Erie officers, other than the local freight agents, do not know the individuals working under the contract or how much they earn, and that such officers are not given the right to examine the books and pay rolls of the Freight Handling Company. Since, as recognized by Mi*. the local freight agents at the several stations of the Erie covered by the contracts know who the individuals working under the contract at those stations are and how much they earn, the Erie is, of course, charged with such knowledge, since the local agents are unquestionably its employees. And as a matter of fact, the tenth article of the contract specifically gives the representatives of the Erie authority to examine the reports, rec­ ords, books and accounts of the Freight Handling Company pertaining to the contract.

Mr. lays some stress upon the fact that the Freight Handling Company was required to furnish a surety bond. While it is true that independent contractors are often required to give surety bonds, it is nevertheless just as commonplace for employees in respon­ sible positions to be required by their employers to furnish such a bond.

According to Mr. at one of the stations covered by the contract, namely, the Youngstown, Ohio station, the Freight Handling Company handled freight for the Pittsburgh and Lake Erie Railroad Com­ pany and the Youngstown-Erie Terminals Company, as well as for the Erie Railroad Company. While this fact is some evidence that the Freight Handling Company may have been in the general contracting business, we have no information either as to whether the Freight Handling Company did work for the general public, or as to just what relationship actu­ ally existed between it and the Pittsburgh and Lake Erie Railroad Com­ pany and the Youngstovm-Erie Terminals Company. In any event, it is quite clear, in my opinion, that the work hereunder consideration was performed under the contract in question subject to the continuing authority of the Erie Railroad Company to supervise and direct the manner of its rendition.

The most that can be said is that the Freight Handling Com­ pany under the contract in question undertook to supply labor to the Erie. And from the information which we have received, it would ap­ pear that for the most part there was no need to supply any labor, for we understand that most of the individuals # 1 0 worked under the con­ tract had prior to its execution been directly employed by the Erie, and that after termination of the contract, the Erie again placed these individuals on its pay rolls.

The very contract hereunder consideration was held to be in violation of the Transportation Act of 1920 by the United States Railroad Labor Board in the Matter of Brotherhood of Railway and Steamship Clerks, Freight Handlers, Express and Station Employees v. Erie Railroad Co., 3 Decisions of the Railroad Labor Board 657 (Decision No. 1210, Docket 2070, September 8, 1922). In so holding the Board referred the parties to the opinion which it rendered with respect to similar contracts in the case of Railway Employees1 Department of A.F. of L. (Federated Shop Crafts) v. Indiana Harbor Belt Railroad Co.. 3 Decisions of the Railroad Labor Board 332 (Decision No. 982, Docket 850, May 9, 1922), in which case the Board found that the contractor there involved was merely an agent of the carrier. For all the foregoing r easons, it is my opinion that the in­ formation submitted by Mr. does not alter the conclusion hereto­ fore expressed in my letter to Mr. ° ? February 7, 1939* that the individuals rendering service under the contract in question were in fact employees of the Erie Railroad Company, and that therefore their service under the contract is creditable toward annuities under the Railroad Retirement Act as service to tliat carrier.

There are certain claims for annuities now pending before this Board which are based in whole or in part on service rendered under the contract in question, and we are therefore anxious to bring this matter to a close at the earliest possible date. Would you there­ fore at your earliest convenience advise us as to whether or not you are now disposed to accept our ruling in this case, for if you are not it will be necessary to arrange for a formal hearing at which all parties in interest would have an opportunity to present written and oral evidence in support of their respective positions.

Very truly yours,

General Counsel