We have a 2013 Expedition and tow a 2004 PT Cruiser on a dolly with a Tekonsha P3 brake controller.
On mine, the brakes lights do not come on when the engine retarder is functioning.
I can tell because the P3's screen shows when and how hard the dolly brakes are being applied when I apply the coach's brakes. By watching the P3's screen I can see that when the engine retarder is functioning the dolly brakes are not being applied.
Harv