The record shows that as a result of an inquiry from the Assistant General Chairman of the Brotherhood of Maintenance of Way Employees (BMWE) of the Atchison, Topeka and Santa Fe System Federation, the Chief of Audit and Compliance contacted JA by letter of May 21, 2004 to pose a series of questions regarding his work for the Burlington Northern and Santa Fe Railway Company (BNSF Railway). JA responded that “since 1991” he has moved rails, ties, ballast; removed and installed the pre-cast panels which fit between rails at road grade crossings; and otherwise has done “anything a [model] 950 Cat[erpiller wheeled] loader can do” exclusively for the BNSF Railway. He has worked on BNSF Railway property from Wanoka in northwest Oklahoma to Bovinia, Texas, approximately 70 miles southwest of Amarillo. He works under the supervision of the BNSF Railway road master and a foreman, who inspect and approve his work, stating that “you do it their way or you don’t stay.” He is paid at an hourly rate upon submission of monthly invoices, as specified by his written agreement.

JA provided a copy of his written agreement with BNSF Railway, dated April 1, 1998. Paragraph 3(a) of the agreement states that JA as contractor agrees to provide and operate “miscellaneous equipment and machinery for loading and unloading railroad ties, removal and installation of switches, [road grade] crossings and site cleanup at various locations in the states of Texas and Oklahoma, on an ‘EMERGENCY’ or on an ‘ON-CALL’, ‘AS NEEDED’ basis.” Paragraph 35 provides JA will be compensated at one hourly rate set for both the equipment and the operator together by “Exhibit A” attached to the contract, except that any single non-emergency job over $10,000 requires a separate proposal be submitted for the railroad’s acceptance. Paragraph 10 also requires the contractor to rebuild any work found unacceptable by the BNSF Railway without further payments. Unless otherwise agreed, paragraph 36 specifies JA will submit monthly invoices of work done at the end of each calendar month. Paragraph 34 states that JA agrees to accept the compensation pursuant to the agreement as full payment for his work and expenses.

Paragraph 4 of the agreement states that it remains in effect until terminated on 30 days’ notice by either party, except that BNSF Railway may terminate on 5 days’ notice if JA provides substandard services or otherwise breaches the agreement. Without any fault on JA’s part, BNSF Railway may also suspend or terminate any work prior to completion pursuant to paragraph 26, which then allows JA compensation only for the work performed without further damages. If BNSF Railway terminates work under paragraph 27 due to
failure of performance by Mr. Adcock, however, the railroad is allowed damages equal to the cost of completion of that work plus ten percent.

Paragraphs 16, 17, and 18 of the agreement require JA to indemnify the railroad from liability for loss and damage, and to maintain insurance with BNSF Railway as an additional insured. Paragraph 3(c) states that JA is to be considered an independent contractor rather than an employee, while paragraph 20 states that JA must hold BNSF Railway free from any liability for employment taxes, including taxes under the Railroad Retirement Tax Act or contributions under the Railroad Unemployment Insurance Act.

JA also provided copies of the certificates of insurance required by the contract, and a copy of the invoice which he submitted pursuant to paragraph 36 of the agreement on July 6, 2004 for 171 hours of work on 23 days during the preceding month. The invoice shows he worked an average of 7.4 hours per day, ranging from 3 hours on June 18 to 11 ½ hours on June 11.

The Chief of Audit and Compliance also contacted BNSF Railway regarding JA’s relationship with the company. By letter of November 4, 2004, the railroad responded that JA has provided services within the railroad’s “Panhandle subdivision” between Amarillo, Texas and Woodward, Oklahoma since the merger which created BNSF Railway in 1996, and had performed similar services for predecessor Atchison, Topeka & Santa Fe Railway since 1991. BNSF Railway explained that the number of projects undertaken by the railroad at times exceed the capacity of equipment and employees of the company. Rather than hire additional employees and purchase additional equipment to meet these peak period needs, the company “engages additional capacity when needed to handle such activity spikes; hence, the ‘as needed, as required’ context of JA’s Contract. ”BNSF Railway states JA’s services were required “* * * no more than six or seven months each of the last four years. And even during the months when his services/equipment were utilized, that utilization by no means required his presence five days per week throughout the six or seven month period.”

While conceding that JA necessarily works on the premise of the railroad, and that his presence necessarily will occur within the workday of the BNSF Railway crew requiring his services, the railroad states that JA will not necessarily be present at the same time as the railroad crew, and is not governed by work rules requiring the railroad’s employees to be present a given number of hours. BNSF Railway states that though its employees inspect JA’s work for conformance with the contract, the railroad “relies on JA to provide the identified equipment and on his know-how to operate that equipment” and provides no training in that regard. JA has completed an Internet “Safety Orientation Program” provided by an outside source under agreement with the BNSF Railway, but BNSF Railway requires this course be taken by all contractors working within 25 feet of the right of way track, and notes that the outside source provides the program to other railroads as well. BNSF Railway also points to provisions of its contract with JA noted earlier as evidence that he is not an employee, including the description in paragraph 3 that he is an independent contractor, and the payment by invoice for work performed under paragraph 36 rather than by hours worked through payroll.

By letter of November 2, 2004, the Director of Strategic Coordination & Research of the Brotherhood of Maintenance of Way Employees forwarded the observations of three BNSF Railway employees (a laborer, a welder, and a construction foreman) who had worked with JA. All three stated they had observed JA operate a front-end loader on a daily basis on BNSF Railway property, moving rails, ties and material. All three stated that each morning JA attends the briefing given to the crew by the BNSF Railway road master regarding the day’s work, and that he receives instructions from railroad officials, including the track gang foreman. Two observed that JA starts work at the time the railroad employees do, and takes meal breaks when they do.

To be an employee of a covered railroad employer for purposes of benefit entitlement under the Acts administered by the Board, the individual must fall within the definition of that term provided by the Acts. Section 1(b) of the RRA and section 1(d)(i) of the RUIA both define a covered employee as an individual in the service of an employer for compensation. Section 1(d) of the RRA further defines an individual as "in the service of an employer" when:

(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 RUIA contains a definition of service substantially identical to the above, as do sections 3231(b) and 3231(d) of the Railroad Retirement Tax Act (RRTA) (26 U.S.C. § 3231(b) and (d)).

As the above definitions would indicate, the determination of whether or not an individual performs service as an employee of a covered employer is a fact-based decision that can only be made after full consideration of all relevant facts. In considering whether the control test in paragraph (A) is met, the Board will consider criteria that are derived from the commonly recognized tests of employee-independent contractor status developed in the common law. In addition to those factors, in considering whether paragraphs (B) and/or (C) apply to an individual, we consider whether the individual is integrated into the employer’s operations. The criteria utilized in an employee service determination are applied on a case-by-case basis, giving due consideration to the presence or absence of each element in reaching an appropriate conclusion with no single element being controlling. Because the holding in this type of determination is completely dependent upon the particular facts involved, each holding is limited to that set of facts and will not be automatically applied to any other case.

The focus of the test under paragraph (A) is whether the individual performing the service is subject to the control of the service-recipient not only with respect to the outcome of his work but also with respect to the way he performs such work. The tests set forth under paragraphs (B) and (C) go beyond the test contained in paragraph (A) and could hold an individual to be a covered employee if he is integrated into the railroad's operations even though the control test in paragraph (A) is not met. The Board has in recent years not applied paragraphs (B) and (C) to employees of independent contractors performing services for a railroad where such contractors are engaged in an independent trade or business, relying on the decision of the United States Court of Appeals for the 8th Circuit in Kelm v. Chicago, St. Paul, Minneapolis and Omaha Railway Company, 206 F. 2d 831 (8th Cir. 1953). However, the Court in Kelm distinguished between services performed for the railroad by employees of a firm with a clearly independent existence, and services performed by an individual who primarily contracts to furnish only his own labor. 206 F. 2d at 835. Employees of a contracting firm must meet the direction and control requirements of paragraph (A), while single individuals contracting directly with the railroad may fall within the broader definitions of (B) or (C). In making a determination under these sections, the Board is not to be bound by the characterization of the relationship stated by the parties in a contract. Gatewood v. Railroad Retirement Board, 88 F. 3d 886, (10th Cir., 1996), at 891(holding with respect to an attorney’s agreement to perform professional services for the railroad as an independent contractor that “* * *merely to state that such a relationship exists does not necessarily make it so* * * .”)

The majority of the Board notes aspects of JA’s agreement with BNSF Railway which would support a decision to disregard the contract’s characterization of JA as an independent contractor. JA evidently works only for BNSF Railway, he is paid by the hour, and the contract does not allow him damages beyond payment for the time he worked if the railroad determines to end a job early. Devoting one’s time solely to one employer, and receiving payment by the hour only for hours worked rather than payment for a project are common indications that an individual is an employee. Moreover, the evidence of record is also that JA performs his services to the railroad in person, and does not delegate performance to anyone else.

However, the majority of the Board finds other factors weigh in favor of a determination that JA operates “The ‘A’ Team” as independent business enterprise. He owns, fuels and maintains heavy construction equipment which he agrees to furnish under the contract. This demonstrates a significant investment in the business, beyond what would be expected from an employee. The hourly rate of compensation under the contract specifically includes payment for use of the machinery as well as his own labor, and the evidence regarding the services BNSF Railway requires shows the railroad would not be interested if JA offered his labor alone. Moreover, if he fails to produce a result acceptable to the railroad, he must remedy any deficiencies without compensation for the additional time spent, indicating the railroad is contracting for a result rather than service alone. Unlike an employee, JA must carry liability insurance which names the railroad as an insured party. On these facts, the majority of the Board finds that the decision in Kelm prevents a determination that JA is an employee of the BNSF Railway for purposes of either paragraph (B) or (C) of section 1(d)(i) of the RRA, or the comparable provision of the RUIA.

Under paragraph (A) of section 1(d)(i), JA is an employee if his performance of service is subject to the control of the railroad not only with respect to the outcome of his work but also with respect to the way he performs such work. Statements by JA and the maintenance of way employees agree that JA works alongside railroad crews working on the tracks, and that he receives instructions from railroad foremen and supervisors at morning briefings. However, BNSF Railway states that the railroad crew is not always present when JA is working, and BNSF Railway expects him to use his own expertise to accomplish the contracted work. The evidence regarding the railroad’s control of JA thus conflicts.

In view of the conflicting evidence regarding the question of direction and control of JA’s service, the majority of the Board believes it relevant that JA has never over the last fourteen years considered himself an employee of either the BNSF Railway or its predecessor, the Atchison Topeka & Santa Fe, and Mr. Adcock has never claimed to the Board that service as an employee of the railroad should be credited under the RRA and RUIA for any period. As BNSF Railway also asserts he is not an employee, this means both parties to the contract for his services considered the relationship to be purchase of service from an independent contractor. While the intent of the parties is not itself determinative, Gatewood, supra, it is certainly a factor which may be weighed with other evidence. Holt v. Winpisinger, 811 F. 2d 1532, 1538 (D.C. Cir., 1987)(employment relationship established under ERISA).

Accordingly, in view of all the evidence in the record, it is the determination of the majority of the Board that service performed by JA for BNSF Railway or its predecessor AT&SF Railroad, is not covered employee service under the Railroad Retirement and Railroad Unemployment Insurance Acts. Labor Member Speakman dissents from this determination in his separate dissenting opinion.
 

DISSENT OF
V. M. SPEAKMAN, JR.
EMPLOYEE STATUS DETERMINATION ON
JA d/b/a THE “A” TEAM

The Majority’s decision in this case eviscerates the deemed employee provisions found in Section 1(d) of the Railroad Retirement Act and Section 1(e) of the Railroad Unemployment Insurance Act by unnecessarily expanding the holding in Kelm.

JA freely admits that since 1991 he has performed maintenance-of-way with his own equipment exclusively for the BNSF Railway and its predecessor, the AT&SF. He states that he works under the supervision of the BNSF Railway road master and a foreman who inspects and approves his work, stating that “you do it their way or you don’t stay.” He is paid at an hourly rate upon submission of monthly invoices, as specified by his written agreement with BNSF.

Employees of the BNSF, who have worked with JA, have observed JA operate a front-end loader on a daily basis on BNSF Railway property, moving rails, ties and material. All three stated that each morning JA attends the briefing given to the crew by the BNSF Railway road master regarding the day’s work, and that he receives instructions from railroad officials, including the track gang foreman. Two observed that JA starts work at the time the railroad employees do, and takes meal breaks when they do.

BNSF Railway freely admits it uses JA so that it does not have to hire additional employees. It concedes that all his work is on carrier property, subject to the general direction of the BNSF foreman. It admits that JA is subject to the same safety rules as its employees, but disputes that he necessarily works the same hours as its employees.

To be an employee of a covered railroad employer for purposes of benefit entitlement under the Acts administered by the Board, the individual must fall within the definition of that term provided by the Acts. Section 1(b) of the RRA and Section 1(d)(i) of the RUIA both define a covered employee as an individual in the service of an employer for compensation. Section 1(d) of the RRA further defines an individual as "in the service of an employer" when:

(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 RUIA contains a definition of service substantially identical to the above, as do sections 3231(b) and 3231(d) of the Railroad Retirement Tax Act (RRTA) (26 U.S.C. § 3231(b) and (d)).

The focus of the test under paragraph (A) is whether the individual performing the service is subject to the control of the service-recipient not only with respect to the outcome of his work but also with respect to the way he performs such work. The tests set forth under paragraphs (B) and (C) go beyond the test contained in paragraph (A) and could hold an individual to be a covered employee if he is integrated into the railroad's operations even though the control test in paragraph (A) is not met.

The Board has in recent years not applied paragraphs (B) and (C) to employees of independent contractors performing services for a railroad where such contractors are engaged in an independent trade or business, relying on the decision of the United States Court of Appeals for the 8th Circuit in Kelm v. Chicago, St. Paul, Minneapolis and Omaha Railway Company, 206 F. 2d 831 (8th Cir. 1953). However, the Court in Kelm distinguished between services performed for the railroad by employees of a firm with a clearly independent existence, and services performed by an individual who primarily contracts to furnish only his own labor. 206 F. 2d at 835. Employees of a contracting firm must meet the direction and control requirements of paragraph (A), while single individuals contracting directly with the railroad may fall within the broader definitions of (B) or (C). In making a determination under these sections, the Board is not to be bound by the characterization of the relationship stated by the parties in a contract. Gatewood v. Railroad Retirement Board, 88 F. 3d 886, (10th Cir., 1996), at 891(holding with respect to an attorney’s agreement to perform professional services for the railroad as an independent contractor that “* * *merely to state that such a relationship exists does not necessarily make it so* * * .”)

JA works only for BNSF Railway, and the contract does not allow him damages beyond payment for the time he worked if the railroad determines to end a job early. Moreover, the evidence of record is also that JA performs his services to the railroad in person, merely doing business in the name of “The ‘A’ Team.” On these facts, the decision in Kelm does not prevent a determination that JA is an employee of the BNSF Railway for purposes of the RRA and the comparable provision of the RUIA if he meets either paragraph (B) or (C) of Section 1(d)(i) of the RRA, even if he would otherwise not meet the test under paragraph (A).

Considering the first element under Section 1(d)(i)(C), BNSF Railway acknowledges that the nature of JA’s service necessarily requires that it must be performed on “property used in the employer’s operation,” the BNSF Railway right-of-way. Moreover, there is no indication that anyone other than JA performs these services.

The final question under paragraph (C) is whether JA’s services have been integrated into the operations of the railroad employer. Though the BNSF Railway states that the railroad crew is not always present when JA is working, the railroad does not contradict other evidence that at times JA also is present, and assists the work of railroad’s employees. Statements by BNSF Railway, JA and the maintenance-of-way employees therefore all agree that JA works alongside railroad crews working on the tracks.

Statements by JA and the maintenance-of-way employees also agree that he is instructed by railroad foremen and supervisors in the order of tasks and manner of performance of work as part of the railroad crew. Thus, the evidence overwhelmingly indicates that JA’s services are integrated into the operations of the BNSF Railway within the meaning of Section 1(d)(i)(C) of the RRA and the comparable provision of the RUIA.

In finding that Kelm applies, my colleagues hang their hat on the fact that JA has investment in equipment and is required to carry liability insurance. These are indeed characteristics of an independent contractor. However, there is nothing in Kelm that provides no independent contractor can come into the ambit of paragraphs (B) and (C). The whole purpose of those provisions is to cover independent contractors doing business on carrier property and integrated into carrier operations. See Testimony of Murray J. Latimer, Chairman of the Railroad Retirement Board, Hearings on H.R. 1362, 79th Cong.1st Session (1945) page 156.

Kelm holds that only those independent contractors who engage in an independent trade of business escape the application paragraphs (B) and (C). The indicia of an independent trade or business is aptly stated in Legal Opinion 91-8; Loram Maintenance of Way, Incorporated; namely; maintaining a separate place of business, hiring your own employees and a having a multitude of customers.

In short, there is no question that the statutory language in question applies to JA. JA himself make no pretense that he has an independent trade or business. There is no reason to extend Kelm beyond the holding of the case. It is the Board’s obligation and that of its General Counsel to apply its statutes as Congress intended them and not to strain to find a way not to apply them so as not to inconvenience a Class I carrier.

The Internal Revenue Service is also in accord with my view. In Revenue Ruling 74-355 (C. B. 1974- page 339) the Internal Revenue Service held that an independent contractor should be considered an employee of the carrier for purposes of the Railroad Retirement Tax Act under section 3231(d)(1) of the Internal Revenue Code, because he was performing services of a continuing nature on the property of the carrier which were similar to services performed by employees of the carrier.

In this case the independent contractor cleaned rail cars for the carrier on an on-call basis. He furnished his own truck, tools and cleaning supplies, worked at his own convenience and was paid a specified amount for each car he cleaned. He performed his services personally and had no employees of his own.

These facts are virtually identical to the facts in the case before us. JA works on a continuous basis on the property of BNSF using his own equipment. He performs services identical to those performed by other BNSF employees. He performs his services personally and has no employees of his own.

Section 3231(d)(1) of the Internal Revenue Code parallels Section 1(d)(1) of the Railroad Retirement Act. This revenue ruling supports a finding that JA should be treated as an employee of the BNSF and that the Kelm case is inapplicable.