STB Finds Dispatching Contractor is a Rail Carrier for RRB purposes

The Surface Transportation Board ruled on November 15, 2013 that a contractor that provides rail dispatch services to small and regional railroads is a rail carrier for purposes of the Railroad Retirement Act. The STB decision, which was not unanimous, and contains a well-reasoned dissent, is attached here.

Rutland Vermont-based Rail-Term is small privately owned company that provides rail dispatch services to small and regional rail carriers. Rail-Term has no ownership in its rail customers, nor does it own any tracks, trains, or employ any personnel besides contract dispatchers. The case came before the STB from the U.S. Court of the Appeals for the D.C. Circuit, which was hearing Rail-Term's appeal after the Railroad Retirement Board (RRB) found that Rail Term was a rail carrier and therefore was required to pay RRB taxes for its employees. The Board's decision also comes nearly two years after the D.C. Circuit stayed the case for STB input on the question of rail carrier status.

The Basis for the Board's decision was that Rail-Term, though providing no transportation services itself, did provide services (i.e. dispatching) which are an "essential component of its clients' holding out of interstate common carrier rail transportation." And, those dispatching services are "required" for the actual rail carrier to provide service to its customers. Ultimately, the Board found that the dispatching contractor has "control" over "a key step in the movement of the trains of its rail common carrier customers."

The dissent filed by STB Vice Chair Begeman, questions the factual and legal basis for the Board finding a contractor that does not hold itself out as common carrier, own, or operate trains, is in fact a rail carrier.

The likely result of this decision is increased costs for small railroads that contract out dispatching services, now that contract dispatchers can be considered "carriers" themselves, and subject to the RRB Act. The decision also raises many questions, including whether this decision makes a contractor liable under the Federal Employer's Liability Act, and just what type of contract services will be considered "integral" or "essential" to a carrier's operations to impose carrier status on independent contractors?

Retired Railroad Workers, Doctors, and former RRB Manager Charged with Fraud

The U.S. Attorney for the Southern District of New York charged 11 individuals with participating in a "massive fraud scheme" from 1998 to present where employees of the Long Island Railroad claimed to be disabled to gain early retirement benefits.

The U.S. Attorney's announcement of the charges are attached in this press release issued today.

Among those charged are two orthopedic physicians, who are accused of preparing fraudulent medical narratives of claimed disabilities to meet occupational restrictions for the employees. One of the physicians was recorded as stating that he had recommended disability "one hundred percent" of the time.

The alleged scheme involved the interplay between the LIRR retirement system and the Railroad Retirement Board (RRB) system, a federal agency which administers the retirement and disability pensions for most rail workers. The accused are alleged to have pre-planned their claim of RRB disability to coincide with their LIRR retirement date. This allowed some LIRR employees to retire as early as age 50 with a LIRR pension in addition to an RRB occupational disability. The U.S. Attorney pointed out that 61% of LIRR employees between age 50 and 55 claimed RRB disability between 2003 and 2004, whereas on 7% of Metro-North employees who where between 50 and 55 received disability awards.

A former RRB branch office employee was also charged as a facilitator to the fraud, as well as several RRB applicants. In one case, a supposedly disabled railroad employee who claimed severe pain in gripping tools, and knee and back pain when bending and crouching, now plays tennis several times a week and signed up to play golf 140 days in a 9-month period in his retirement. Another retired employee claiming severe and disabling back pain also managed a 400 mile bike tour as a disabled retiree.

The RRB system is not well-known outside of the rail industry. It replaces Social Security for rail employees and requires employer contributions that greatly exceed the employee's contribution to fund disability and retirement funds. Employees can also retire at age 60 without loss of benefits if they have 30 years service. Also, the RRB provides a substantial spousal benefit where an employee's pension increases by nearly 50% when a qualifying spouse reaches retirement age.

The pensions at issue here are known as Occupational Disability annuities, which a completely disabled employee can obtain after 10 years service, and an "occupationally" disabled employee after 20 years service. Occupational disability is granted when an employee cannot perform their normal railroad occupation.

The accused of course are innocent until proven guilty. However, the U.S. Attorney's investigation and charges indicate that benefit fraud is being taken seriously.

Finally, an acknowledgement to my partner Luke Lafferre, who was the alert reader in advising TLT of this story.