---- M E M 0 R A N D U .M ------

Washington, D. C.

September 21 1 1940

TO M. E. Lynch Acting Director of Retirement Claims

FROM Lester P. Schoene General Counsel

SUBJEX:T - Carpenter and Boxley (Contractor with Norfolk and Western Railway Company)

Reference is made to your req_uest of Septer;iher 29 1 1939 for a ruling as to t he creditability under the Railroad Retirement Act of serv­ ice from August, 1902 to August , 1904 performed under a contract between Car penter and Boxley and t he Norfolk and West ern Railway Company i n con­ nection with the claim of the above-mentioned applicant.

-FA- -CT--S

A copy of the contract in question dated August 5 1 1900 has been furnished to us by t he Norfolk and Western Rai lway Company (here­ i nafter referred t o as the railway) . Under t his contract Carpenter and Boxley (hereinafter referred to as the contractor) agr eed to com­ plete in a specified t i me al l the grading , masonry, tunnel, and trestl e work requi red for the road bed of sections one t o eleven of the Naugatuck branch of the r ailway's Ohio Extension. The perti nent provisi ons of this contract are set out in detail below in connection wi th t he "Discussion" .

It is stated by L. J. Boxley of the fj.rm of W. W. Boxley & Company, that the contractor was a partnershi p composed of J. C. Carpenter and W. W. Boxley, and that the latter , sppnrently a close relative of t he correspondent, after the death of Carpent er in 1910 continued to operate until his own death last Jarmary under the firm name of W. W. Boxley & Company. It i s further stated that the contract or was engaged in general contracting work, doing work for many railroads , municipaliti es, and pri­ vate companies; that the partnership was financed and operated by t he partners; and that the contractor was never owned or controlled by or under common control with any "carri er" under the Railroad Retirement Act.

Is service rendered under the above contract creditable as service to an "employer" under the Railroad Retirement Act? -2- -M. E. Lynch , Acting Di rector of Retirement Claims C 0 N C L U S I 0 N

It is my opinion that t he contr actor was an independent con­ tractor per forming the work wi th its own employees. It is also my opinion that the contractor was never itself an "employer" withi n the meaning of the Railroad Retirement Act . Consequently , service rendered t o the contractor is not creditable toward annuitj_es under t'hat Act .

D I S C U S S I 0 N

There are some provisions in the pr esent contract which con­ ferred upon t he rail way a certain measure of control over t he per­ formance of t he vior k . 'l'hus, i t i s stated in t he contract that the work was to be done " i n t he most substanti al and workmanlike manner to t he satisfaction and acceptance" of t he rail way ' s engineer and " agree­ ably to the dir ections and order s" of the railway' s engineer; the con­ tractor agr eed to di s charge any foreman or empl oyee who , in the j udg­ ment of the rai lway' s engineer, was unfai thful , unskillful or remiss in t he performance of his work , or guilty of riotous, disrespectful, or otherwise impr oper conduct; the railway ' s engineer was granted the right to make any necessary or desirable changes in t he location, line, grade, pl an, form or dimensions of the wor k ; the railway ' s engineer was to act as arbiter in case of contr oversi es arisi ng under t he contract, hi s de­ cisi on to be conclusive unless reversed or modified on a ppeal by the president of the railway; the r ailway i n the event of failure of the contractor to prosecute the work with a sufficient force to complete i t i n the specified time was given t he right to take over the work, employi ng such ·workmen as might be necessary to complete it, and char gi ng t he amounts pai d against the contractor; and finally the rail­ way reserved the right to termi nate the contract work for r0asons not specified in the contract on ten days notice, payi ng the contr actor only for work already done, but not being l i able for damages.

It appears , however, that when these or s i milar provisions are f ound i n a contract with one generally engaged in construction work and the contract calls f or a speci f i c j ob to be performed in accordance with annexed spec i fications, as was the case here , t hey are to be con­ strued as conferring supervisory rights only over the resul ts to be obtai ned. Thus, the courts have generally hel d that the presence of simi lar prov isions in railroad construction contracts for a specific job grants the r ailroad the power to supervise the results to be ob­ tained but not the manner of performi ng t he work, and accordingl y , they have held that such a contractor was· an independent contractor and that hi s laborers were his own employees . See Louisville and Nashville R. R. v. Cheatham, 118 Tenn. 164; Rogers v . Railr oad Company , 31 s.c . 378; Casement v . Brown , 148 U.S . 615; Orange v . Pit cairn, 280 Ill. App . 566 . -3- -M. E. Lynch , Acting Director of Retirement Claims In a numb er of cases this office has now reached the same re3ult and has held that contractors, other wi se independent, did not lose t hei r independent status because of provisions in particular contracts such as t he foregoing. See General Counsel ' s Opinions re }1orri son-Knudsen Company , Inc., L-39- 417; Utah Construction Company , L- 39- 581; Kellogg Grego Rai lway Service, L-40 - 76; James E. Bryant, L-40- 342.

Several factors in t he present case indicate that t.he contrac­ tor was otherwise i ndependent. In the first place , as has been poi nted out , the contractor was engaged generally i n construction work, doing work for many railroads , municipal ities, and private compani es , which is an i ndication that the contractor must have maintained its own staff to supervise such work. Furthermore , t he contr actor took all the usual economic risks of an independent contractor , being paid on a unit-price basis rather than on a cost- plus basis. Such assumption of the economic risks is also i mpl i cit in the various detailed contract provisions set­ ting forth the alternative courses which the railway might pursue in the event of material breach of contract by the contractor - - provisions which are, incidentally, ordinary provisions in a contract with an inde­ pendent contractor. Thus it was agreed that the r ailway might declare the contract forfeit and ret ain as liquidated damages fift <~c n per cent of t he progress payments ·which had been theretofore reserved. by it; or the railway might decl are t he contractor had forfeited all rights under the contract and proceed ag::i. inst the contractor and i ts s.ur eties for damages ; or t he railway mi ght take over the whole work, cor.1pleting it its elf and charging the costs of compl etj_on to the cont ractor. Other features of the instant contract which have frequent ly been held to be indicia of independent contractor status include the following : t he contract covered a single piece of constr uction to be performed in a defi nite time unless sooner terminated, rather than continuing and unlimited services; t he contractor, rather than the railway , agreed to furnish all tools , materi als and labor; t he contract indicated that the work was let after t he contractor had made a bid; and finally , t he con­ tractor assumed liability for injuries t o hi s workmen and i'or injuries caused by them to the persons or properties of t h ird per sons . Accord­ ingly, I conclude t hat neither t he cont:::·actor nor the individuals employed under the instant contract were "employees" of the railv1ay within the moaning of t he Railr oad Retirement Act .

With respect to the contractor's "employer" status, it i s evident from the natur e of the contractor' s business that it was never i tsel f an express company, s leeping-car company or carrier by rai lroad subject to part I of the Interstate Commerce Act . Furthermore, t here is no evidence that the contractor was ever directly or indir ectly owned or controlled by or under common control with any such corapany or carrier. Not only does the contract with the railway appear not to give t he rail­ way such control over the contractor as to constitute the contractor a "control led" company, but L. J. Boxley, an apparently close relat ive of -M. E. Lynch, Acting Di rector of Retirement Clai ms the surv1v1 ng member of the contractor, has stated. that t he cont ract or was financed and. operated by the individual partner s and was not owned or control led by or under cor.unon control with any such conpany or car­ r ier. The fa.ct that the contractor was a partnersh:i.p and was engaged gener al ly i n contracting work, doing work not only for railroads , but munici palities and private companies , suppor ts that statement . I t is ,my opi nion, theref or e , on the basis of the ava ilable evi dence, that t he contractor was never an 11 employer" under t he Railroad Retirement Act .

Lester P . Schoene General Counsel