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UNITED STATES GOVERNMENT RAILROAD RETIREMENT BOARD V .Memorandum OEC27 1989

TO Director of Compensation and Certification L " 8 9-161

FROM Deputy General Counsel

SUBJECT: Fox River Valley Railroad Corporation Employee Service

This is in reply to your Form G-215 dated August 4, 1989, requesting my opinion regarding the status of individuals providing services to the Fox River Valley Railroad Corporation. That company has been held to be an employer under the Railroad Retirement and Railroad Unemployment Insurance Acts.± 7

In response to inquiries from your office, Mr. Stephen P. Selby, President of Fox River Valley Railroad Corporation, provided the following information. The change from FRVR Corporation to Fox River Valley Railroad Corporation came with the purchase of 208 miles of railroad from the Chicago and North Western Transportation Company. The new company, Fox River Valley Railroad Corporation (hereinafter "FRVR '), made the decision to meet the need for various types of operating personnel by arranging for services to be provided by various temporary employment services. The rationale behind this decision was, according to Mr. Selby, that due to the period of transition and changes in the way business would be conducted by FRVR, there was uncertainty as to how many permanent employees would actually be needed. According to Mr. Selby:

"in order to avoid placing people in positions that were almost certainly not going to be permanent positions, and thereby avoid recruiting them away from permanent positions they may have held, FRVR made a decision to meet the temporary need by arranging for services to be provided by companies whose business it is to furnish temporary workers."

1/ It appears in the Employer Status List at B .A. No. 3659, with the period of creditable service being from October 1, 1987 to date. It is noted that the company's original corporate name was "FRVR Corporation". In December 1988 FRVR Corporation became Fox River Valley Railroad Corporation, with no change in the employer status (see Interstate Commerce Commission Finance Docket No. 31492, decided July 14, 1989). Director of Compensation and Certification

Mr. Selby described six different situations in which temporary employment services were utilized. A total of thirty-six different temporary employees were provided by four companies, Manpower Inc., Kelly Temporary Services, Applied Information and Development, Inc., and Cap Gemini America ..2/ Information provided by Mr. Selby about each of these situations is outlined below.

1. "Start-up". Mr. Selby describes several activities, e.g., development of a computer program and data base; establishment of computerized accounting programs for car records; and redesigning computer programs to be compatible with the new equipment which replaced the equipment used by the previous owner, as "one-time undertaking related to startup, and not requiring continued performance." Mr. Selby states that a "substantial portion of the temporary assistance we engaged during the first six months of our operation was to meet these short-term, one-time, computer and formatting requirements . "

2. Temporary manning of Broadway Tower. The acquisition plans of FRVR called for Broadway Tower to be closed within sixty days of start-up. Litigation held back the start of the new company until December 8, 1988 (from the scheduled start of September 1988) , and then weather conditions prohibited construction of the crossover necessary to close the tower. As a result, FRVR arranged for temporary operators from December 1988 until weather permitted the construction. Broadway Tower was permanently closed on June 12, 1989. Prior to that closing, Manpower Inc. furnished nine individuals to FRVR to perform the necessary services.

3. Bridgetenders. Manpower Inc., also provided personnel to serve as bridgetenders during the pleasure boating season. Personnel were needed from May 10, 1989, until automation of all bridge locations is complete or the season ends (Note: the season ended in September). As four of the five bridge locations were automated before the season began, temporary personnel were used only at the one which had not been automated (located in Oshkosh).3/

77 Manpower Inc., provided service at Fr Vr 1s sites in Green Bay, Oshkosh and Fond du Lac, Wisconsin; the other three companies provided services at Green Bay only.

_3/ It is noted that a memorandum from the Board's base point in Escanaba, Michigan dated August 14, 1989, states that a railroad employee who was a former bridgetender for the Director of Compensation and Certification

4. Secretarial and receptionist personnel. Manpower Inc. and Kelly Services provided FRVR with temporary secretarial and receptionist personnel to fill in for FRVR employees who were on vacation. Four such temporaries were provided, each of whom worked for two weeks or less.

5. Track repair gangs. For the period of May 3 through June 11, six laborers were provided by Manpower Inc. to work on a track repair gang.z'

6. Consultants. FRVR hired four consultants; one was a professional civil engineer to design a crossover, and the other three provided 'training and direction to FRVR in setting up computerized accounting systems".

37 Continued.

Chicago & North Western Transportation Company was displaced when their Green Bay Wisconsin operation was sold to FRVR. The employee applied with FRVR for the same job, and was advised that all bridgetending position would be filled through Manpower, Inc. He applied at Manpower, Inc., was hired by that company, and worked for FRVR as a bridgetender for approximately fourteen weeks.

4/ It should be noted that Mr. Selby states that:

"FRVR, like virtually all railroads, particularly in the northern climates, utilizes college students to work on track repair gangs during the summer. They are included on the FRVR payroll as employees, and contributions under the Railroad Retirement and Unemployment Insurance Acts are made. However, because of the new status of our railroad and the need for taking advantage of some suitable weather prior to the time these college students were available, FRVR arranged with Manpower Inc. during the period of May 3 through June 11 to furnish six temporary laborers to work on the track gang. They were employees of Manpower Inc., and not of FRVR." ■ Director of Compensation and Certification

As you know, 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 Retirement Act further defines 'in the service of an employer" as:

"(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 the rendition of which is integrated into the employer's operations; and

(ii) he renders such service for compensation * * *."

Section 1(e) of the Railroad Unemployment Insurance Act contains a definition of service substantially identicalto the above, as do sections 3231(b) and 3231(d) of the Railroad Retirement Tax Act (26 U.S.C. §§ 3231(b) and (d)).

Courts have construed the definitions of employee service under the Railroad Retirement, Railroad Unemployment, and Railroad Retirement Tax Acts interchangeably. Under certain circumstances, courts have determined that 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. A prime consideration in determining whether an individual is subject to the continuing authority of a railroad in the performance of his services is whether or not the services performed are of a nature which the railroad could delegate and place beyond its control and still claim to operate its railroad and carrier activities. Wabash R.R. Co. v. Finnegan, 67 F. Supp. 94, 99 (E.D. Mo., 1946). This is not limited to employees engaged in actual train operation, as the Board has in the past been required to identify and cover as employees under the Acts individuals performing accounting, purchasing and stenographic services. Adams v. Railroad Retirement Board, 214 F. 2d 534 (9th Cir., T954).

Furthermore, in considering an individual's status as an employee under the Acts, the fact that an individual may be nominally on the payroll of another company may be disregarded. The language in all three Acts which includes as employees those individuals rendering professional or technical services, or rendering personal services on the property used in the employer's operations, does not refer to the degree of the railroad's •Director of Compensation and Certification control over the employee. The latter provisions were added as part of the 1946 amendments to the Acts. A paper prepared by the General Counsel's office shortly after the 1946 amendments found the purpose of these provisions to be that of "preventing escape from coverage through 'contracting out' railroad work." See Legal Opinion L-46-692. The General Counsel further noted that as the Acts had already been held to include as railroad employees individuals appearing on the payroll of another company, Congress intended the amendments to clarify existing law, rather than establish a new interpretation. See Utah Copper Co. v. Railroad Retirement Board, 129 F . 2d 358, 362 (10th Cir. , 1942).

Opinions of this office have, in appropriate cases and consistent with this rationale, determined independent contractors and their employees to be employees of the railroad which contracted for their services. The Internal Revenue Service is in agreement with respect to the Railroad Retirement Tax Act. See Rev. Rul. 74-355, 1974-2 C .B. 339. As noted earlier, one indication of employee status would be performance of a service which by its nature is so integrated into the railroad's operation that it must be performed under the railroad's control. Therefore, if an individual, nominally on the payroll of a hiring agency, performed service for a railroad which is clearly an integral part of the railroad's operation, such as locomotive engineer or signalman, such individual would be an employee under the Acts.

Other individuals may perform services, such as bookkeeping or carpentry in structure maintenance, which are not necessarily associated solely with the railroad industry, and may be performed by individuals in a distinctly independent trade or business. General principles of the employee-employer relationship may be applied to duties not intrinsically those of a "railroad employee".

Thus, it may be said that if any arrangement entered into between an individual and an alleged client is such that services are not performed subject to the supervision of the client as to the manner in which they are performed and are not integrated into the staff or operations of that client, then the individual will be considered to be a self-employed independent contractor. If, on the other hand, the individual were to perform work for a railroad employer subject to the continuing authority of that employer to supervise and direct the manner of its rendition, or if the individual is integrated into the staff or operations of that employer while performing such work, then he or she will be considered to be acting as an employee.

Some indicia pointing to the existence of employee status are the performance of work on the employer's premises, execution of a contract for continuing services over a long or indefinite Director of Compensation and Certification period, devotion of substantially all of a person's working time to such service, the performance of duties similar in many respects to those previously performed by an employee, and the periodic payment of regular remuneration rather than payment for a specific result or work product. Indicia pointing to the existence of a self-employed independent contractor status are the setting up of an office or the performance of the work in places not connected with the employer's premises, performance of similar services for persons other than the employer, complete freedom in regard to the amount of time to be expended in rendering a particular service, agreements or arrangements for the performance of specific services of limited duration on a particular project, and payments for a particular result accomplished rather than regular remuneration on a time basis. Any one of the matters mentioned as indicia may not be controlling in a particular case, but, together with like matters which the case may involve, such indicia usually serve to form a basis for a firm conclusion with respect to an individual's status.

A hiring agency which supplies to railroads temporary employees who remain on the payroll of the hiring agency would require the same analysis under these principles as any other case involving general contract work for a railroad. On the one hand, the agency may have its own office, arrange for furnishing its "employees" to the railroad for a specific purpose, provide its own supervision of those employees while on the railroad's property, and have contracts with many clients. On the other hand, the "employees" may work on the railroad's property, under the supervision or general authority of railroad employees, and the agency may furnish "employees" to only one client. To the degree that factors tend to indicate lack of independence, individuals furnished to the railroad would be considered employees of the railroad under the Acts. See Legal Opinion L-87-147.

According to Mr. Selby's letter, when the arrangements were made with the temporary agency, FRVR provided the agency with an explanation of the work to be done, the location where facilities for the work was available, any specifications needed with respect to the assigned work, and its timing. Mr. Selby stated that:

"(W)hile there are regular employees of FRVR at most such locations who are available to show the temporary employees what space is to be used, the equipment available, and where to obtain needed supplies, most such work is of a kind and nature that very little instruction of this kind is given or necessary." Director of Compensation and Certification

Mr. Selby went on to state that the services in question were not expected to be a part of the company's continuous procedure or practice, "most of the work performed was special in nature and associated with the transition to the new owner and the start-up process for a new company", and in each case there was a specific limited time for performance of a specific project or assignments to be completed, after which the relationship between FRVR and the individual(s) ended. All services were performed on FRVR property, with the exception of the engineering design for Broadway Tower. No oral or written reports were required, and FRVR had no involvement in the determination of method of payment to the individuals. There was no reimbursement for travel or business expenses, with the exception of the engineering consultant who was reimbursed for equipment rental, material and mileage to the work site. The services of the individuals in question are available "to any person or company with whom the service company does business, and it is assumed that this would include the general public." FRVR had no authority to dismiss any of the individuals; in the event of a problem FRVR contacted the service company.

From the information provided by Mr. Selby, it is my opinion that the individuals provided to FRVR for the start-up activities (e.g. , the computer programming and formatting), those individuals filling in as secretarial and receptionist personnel for FRVR employees who were on vacation, and the four consultants were not employees of FRVR, but were employees of the employment agency which paid them. Compare Legal Opinion L-69-196 (Kelly Girls, Inc.). However, the individuals who manned Broadway Tower, worked as bridgetenders and worked on the track repair gangs were performing services as employees of FRVR. All of these duties are the type of duties which are integral to the operation of this railroad employer. The fact that at least one former bridgetender was hired through Manpower to perform the same railroad job he did previously lends credence to the idea that the work is of the type which would usually be considered traditional railroad work. With respect to the track repair gang, it is noted that FRVR treats college students working in the summer like FRVR employees and makes the appropriate contributions under the Acts. FRVR1s rationale for treating the individuals provided by Manpower, Inc. differently is plainly inadequate; there is no difference between the two situations. See Legal Opinion L-62-214 (Manpower, Inc.)

Accordingly, the service and compensation credited to the individuals who manned Broadway Tower, worked as bridgetenders and worked on the track repair gangs should be reported by FRVC as service and compensation provided by employees to an employer covered under the Acts. - 8 -

-Director of Compensation and Certification

This opinion has no effect upon the continued status of Fox River Valley Railroad Corporation as an employer covered by the Acts.

Steven A. Bartholow

RLSimmons :klh:cmw 0193o/C. 1766-89 k.

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