vs. ) CASE NO. 80-2026
Respondent. )
This matter came on for hearing in Tallahassee, Florida, before the Division of Administrative Hearings and its duly designated Hearing Officer, Sharyn L. Smith, on December 22, 1980. The parties were represented by counsel:
For Petitioner: Marvin E. Barkin, Esquire
Trenam, Simmons, Kemker, Scharf, Barkin, Frey and O'Neill, P.A.
For Respondent: Douglas P. Chanco, Esquire
2562 Executive Center Circle, East Suite 117, Montgomery Building Tallahassee, Florida 32301
The issue for determination in this proceeding is whether the State of Florida, Department of Labor and Employment Security may revoke the self-insurer status of Ponderosa System, Inc. which was granted by the Department for purposes of self insurance under Florida's Workers' Compensation Law, Chapter 440, Florida Statutes.
Proposed Recommended Orders have been submitted by the parties and considered by the Hearing Officer. Those proposed findings not included in this Recommended Order were not considered relevant to the issues, were not supported by competent and substantial evidence, or were considered immaterial to the results reached.
The Petitioner, Ponderosa System, Inc. (hereafter "Petitioner" or "Ponderosa") is a publicly held corporation listed on the New York Stock Exchange which operates a chain of steak houses in 30 states and nine Canadian provinces. Ponderosa operates or licenses 694 restaurants including 23 in Florida and a portion control and freezer plant in Tampa to service its Florida enterprises. Ponderosa's Florida restaurants and processing plant employed several hundred persons during the past fiscal year.
On June 21, 1979, Ponderosa was granted self-insurer status by the Bureau of Workmen's Compensation, Florida Department of Labor and Employment Security (hereafter "Department"), effective July 1, 1979. The approval was based on available financial information which was submitted by Ponderosa to the Department for 1977-75 and which showed a ratio of current assets to current liabilities or "current ratio" for 1975 of $26,465,000 to $25,495,000 or approximately 1.04 to 1.00.
A later financial statement was submitted by Ponderosa in August 1980, which revised the current ratio figures previously supplied the Department for fiscal year 1977-75. The revised financial statement showed a current ratio of
$25,860,000 to $25,948,000 or approximately .966 to 1.00.
The revised figure is attributable to a change in accounting principles prompted by the Petitioner's belief that its continued utilization of a one to one current ratio was an unnecessary business expense, rather than an effort to mislead or misinform the Division at the time of the initial application and approval.
The financial data contained in the Petitioner's 1979 and 1980 annual reports and 1951 interim report show current ratios of $39,177,000 to
$39,504,000 or approximately .99 to 1, $37,398,000 to $46,899,000 or approximately .80 to 1 and $32,386,000 to $36,592,000 or approximately .89 to 1, respectively.
On September 16, 1980, the Department notified Ponderosa that unless a hearing was requested, its self-insurer status would be revoked effective October 17, 1980, for failure to maintain a current ratio of one to one as required by Rule 38F-5.10(2)(a), Florida Administrative Code. No other violation of Chapter 440, Florida Statutes, or any regulations promulgated thereunder was alleged by the Department in any subsequent written notice.
The decision to revoke the Petitioner's self-insurer status was based solely on information furnished to the Department by Ponderosa concerning the one to one current ratio, and no independent investigation was made by the Department of Ponderosa's financial position.
On September 30, 1980, Ponderosa requested and the Department subsequently denied a waiver of the one to one current ratio requirement of Rule 38F-5.10(2)(a), Florida Administrative Code. The Department has never granted a request for a waiver of the current ratio requirement from any restaurant; its waiver approvals have so far been confined to public utilities.
Since it has been granted self-insurer status, Ponderosa has paid and adequately serviced all workers' compensation claims arising in Florida.
Additionally, Petitioner has posted a $25,000 surety bond conditioned upon abiding by and performing the requirements of Florida's Workers' Compensation Law with reference to paying or furnishing compensation, medical or surgical services, etc.
Ponderosa has obtained an excess liability insurance policy with a retention threshold of $250,000 and a limit of ten million dollars for May 1980 through 1981 which covers its operations in Florida, Indiana, Michigan, Missouri and Pennsylvania.
The Petitioner has placed an emphasis on safety in its operations and in order to implement this has established an ongoing safety program and employed consultants to conduct safety programs and inspections.
At the time of its application and approval for self-insurance status through the present, Ponderosa has had a net worth of more than $250,000 and more than three times its annual loss fund.
Since being approved for self-insurer status on June 21, 1979, Petitioner has not encountered any significant financial problems and its financial condition has not weakened in any material sense.
Ponderosa has entered into revolving credit agreements with five financial institutions which require a current ratio of not less than .75 to 1. Pursuant to its revolving credit agreement, Ponderosa has the ability to secure up to $20,008,088 upon demand. Petitioner presently has the financial ability to borrow the funds necessary to create a current ratio of one to one if it were prudent or necessary to do so.
Ponderosa has chosen not to borrow from its revolving credit fund in order to have a one to one current ratio because of a number of factors including the significant expense in borrowing, a one to one ratio is not required by its institutional lenders and a one to one current ratio is neither necessary nor prudent from a business perspective.
In the industry in which Ponderosa competes, fast food restaurants, generally recognized accounting principles do not require a one to one current ratio, and many major fast food corporations no longer maintain such a requirement. The peculiarities of the fast food industry are such that it is a current cash business with virtually no receivables and often operates on deficit capital. Because of the large sums of cash generated in this industry, fast food restaurants have ample funds to meet current obligations even with a deficit current ratio. For example, fast food restaurants whose financial statements reflect a current ratio of less than one to one include Wendy's (.78 to 1), Gino's (.80 to 1), Horn and Hardart (.97 to 1) and McDonald's (.74 to 1). Only three chains in Florida, New England Oyster House, Denny's and Shoney's, are currently self-insured and meet the one to one ratio. McDonald's has applied for and been denied self-insurer status by the Department.
The lack of a current one to one ratio does not indicate that a fast food corporation is in poor financial condition. As indicated, supra, companies which are among the leaders in the industry have current ratios of well under one to one.
For the fiscal year ending February 28, 1980, Ponderosa had total revenues of $328,423,000, net income of $13,496,000 and a net worth of
$69,309,000.
Ponderosa has working capital in an amount that reflects the financial strength and liquidity of its business and is and has been able to pay workers' compensation claims promptly. The Petitioner has the ability to provide workers' compensation benefits to its employees as a self-insurer.
Ponderosa is a self-insurer for purposes of workers' compensation in a number of major industrial states including Illinois, Michigan, Pennsylvania, Ohio, Indiana, New York and Missouri. The Petitioner has attempted to self- insure in as many areas as possible in order to limit its insurance costs.
CONCLUSIONS OF LAW
Pursuant to Section 440.38, Florida Statutes, every private employer of three or more employees is required to secure the payment of workers' compensation by either insuring payment with a stock or mutual company or exchange or by furnishing satisfactory proof of the employer's ability to pay such compensation and receiving authorization from the Division Workers' Compensation to pay benefits directly as a self-insurer. As a condition for authorization as a self-insurer, the Division shall require an employer to demonstrate proof that it has provided for competent personnel to deliver benefits and provide a safe working environment and require an employer to carry reinsurance at levels that will insure the actuarial soundness of the self- insurer. Additionally, the Division may require an employer to deposit an indemnity bond or securities which can be sold or proceeded against to ensure sufficient funds are available to procure prompt payment of compensation. See Section 440.38(1)(b), Florida Statutes. The Division is authorized at Section 440.35(3)(b), Florida Statutes, to ". . . suspend or revoke any authorization to a self-insurer for good cause." (e.s.) "Good cause" is defined at Rule 38F- 5.08(1), Florida Administrative Code, in pertinent part, as follows:
Failure to comply with any of
the foregoing rules or with any order of the Division within the time pre- scribed shall be considered good cause for revocation or termination of the self-insurance privilege, within the meaning of Section 440.38(3), Florida Statutes. Non-compliance with any
of the provisions of the Workmens Compensation Law, particularly those relating to time and method of com- pensation payments, the furnishing of medical treatment, a filing of accident and compensation reports, any failure to pay any assessment or penalty,
shall likewise be deemed such cause . . . (e.s.)
No testimony or documentary evidence was presented which demonstrated that Ponderosa failed to comply with any order of the Division or with Rules
38F-5.01 through 5.07, the "foregoing rules" contained in Part I of Chapter 38F- 5, Florida Administrative Code, "Self-insurers in Workers' Compensation Law." Rules 38F-5.01 through 5.07, Florida Administrative Code, do not authorize the Division to revoke Ponderosa's self-insurer status for failure to comply with a one to one current ratio. The one to one current ratio requirement is found in Part II of Chapter 38F-5, specifically, Rule 38F-5.10(2)(a), Florida
Administrative Code, which lists the information required to be furnished to the Division in conjunction with an application for individual self-insurer status. Pursuant to Rule 38F-5.10(2)(a), Florida Administrative Code, an application must be accompanied by a current financial statement showing a net worth of at least $25,000 and a current ratio of not less than one to one and a working capital in an amount establishing financial strength and liquidity of the business to pay normal claims promptly. Rule 38F-5.10(2)(a), Florida Administrative Code, does not place a continuing duty on a self-insurer to maintain one to one current ratio or face revocation of self-insurer status.
Accordingly, the rule does not authorize the Division to revoke an employer's self-insurer status for failing to maintain such a ratio. See and compare State Board of Education v. Nelson, 372 So.2d 114 (1st DCA 1979) and Department of Health and Rehabilitative Services v. Florida Psychiatric Society, Inc., 382 So.2d 1280 (1st DCA 1980). The Department's position, that Rule 38F-5.10(2)(a) Florida Administrative Code, requires the maintenance of a one to one current ratio and the failure to maintain such a ratio constitutes "good cause" for revocation as a matter of law, is inconsistent with well-settled principles applicable to administrative agencies and officials. Administrative agencies have no common law or inherent powers, they are creatures of the legislature and the powers they have are limited to the statutes that create them. City of Cape Coral v. GAC Utilities, 381 So.2d 493 (Fla. 1973); State ex rel. Greenberg v.
Board of Dentistry, 297 So.2d 628 (1st DCA 1974), cert. dismissed, 300 So.2d 900 (Fla. 1974). If there is reasonable doubt as to the lawful existence of the power to revoke an employer's self-insurer status for failure to maintain a one to one ratio, the further exercise of that power should be arrested. Edgerton
v. International Co., 89 So.2d 488 (Fla. 1956)
Similarly, no testimony or documentary evidence was presented to demonstrate that Ponderosa has failed to comply with any provision of Chapter 440, Florida Statutes, the Workers' Compensation Law and particularly those relating to time and method of compensation payments, the furnishing of medical treatment, the filing of accident and compensation reports, and failure to pay any assessment or penalty. Further, it does not appear that Petitioner's failure to maintain a current ratio constitutes "non-compliance" with the Workers' Compensation Law within the meaning of Rule 38F-5.08(1), Florida Administrative Code. The Rule relating to revocation for good cause addresses non-compliance with the rules and statutes in separate provisions. Therefore, it logically follows that the phrase "Workers' Compensation Law" as used in the rule was intended to apply to Chapter 440, Florida Statutes, rather than the rules promulgated thereunder which are addressed in a prior provision.
The sole ground stated by the Bureau of Self-Insurance as the basis for its attempted revocation is the failure of Ponderosa to comply with the one to one requirement of Rule 38F-5.10(2)(a), Florida Administrative Code. Additionally, the notice of intent to revoke noted that Ponderosa's current ratio had steadily decreased over the past three years. 1/ The Bureau's position, that in order to remain self-insured an employer shall maintain a one to one current ratio and the failure to maintain such a ratio must result in revocation, is contradicted by the Department's omen rules. Rule 38F-5.11, Florida Administrative Code, authorizes the Division to require a surety bond or security deposit in excess of the minimum of $25,000 if it determines that:
the self-insurer has experienced
a deterioration in financial condition such as a worsening of current ratio, a lessening of net worth or a net loss of income. (E.S.)
Additionally, the one to one current ratio may be waived
. . . in those instances where generally recognized accounting principles peculiar to a particular industry make this require- ment unreasonable. Rule 38F-5.10(2)(a), Florida Administrative Code.
In the instant case Ponderosa demonstrated that accepted accounting principles peculiar to the fast food industry make the imposition in all cases of a one to one ratio unreasonable. Companies in an extremely strong financial position such as McDonald's and Wendy's do not maintain a one to one ratio yet unquestionably possess the ability to pay any and all workers' compensation claims promptly and efficiently. Similarly, Ponderosa is a financially strong and viable company with the ability to pay normal workers' compensation claims, and as such it is unreasonable to deny it self-insurer status for failure to maintain a one to one current ratio. The purpose of the current ratio requirement is to insure that only those companies in a sound financial position be allowed to apply for self-insurer status. It is but one factor in determining the ability of a company to pay claims and in the fast food industry should not be considered a necessary requirement in all cases.
However, Rule 38F-5.10, Florida Administrative Code, contemplates the waiver of the current ratio requirement at the time of application and generally addresses matters which must be met prior to approval. 2/ Once approved, self- insurer status can be revoked by statute only upon a showing of "good cause."
3/ Section 440.38(3)(b), Florida Statutes. Since the Department has not promulgated a rule defining "good cause" as the failure to maintain a one to one current ratio, it must be determined for purposes of this bearing whether Ponderosa's failure to presently maintain a one to one current ratio constitutes good cause for revocation pursuant to Section 440.38(2)(b), Florida Statutes.
Under such circumstances "good cause" must be defined with the purpose of Chapter 440 Florida Statutes and the intent of the drafters in mind.
Foremost in the inquiry must be a determination as to a self-insurer's Financial ability to pay workers' compensation claims now and in the foreseeable future.
Petitioner has suggested that good cause be defined as a "substantial reason and legally sufficient grounds for concern about the employer's ability to continue self-insurer status. Such an approach serves both the State's interest in ensuring the financial viability of a self-insurer's program and the self- insurer's right to require that the State act only when sufficient cause exists to believe that employees and/or the proper administration of the program are being jeopardized. Applying this test to the facts of this case, the Department has failed to show a substantial reason for concern regarding Ponderosa's ability to continue as a self-insurer. It has been a successful self-insurer since July 1, 1979, and has not experienced any substantial financial reverses since that time. There is no evidence that this will change in the foreseeable future. Accordingly, the Department has failed to demonstrate that Ponderosa's failure to maintain a one to one current ratio constitutes "good cause" for revocation of its self-insurer status.
In summary, I find (1) Rule 38F-5.10(2)(a), Florida Administrative Code, requires at the time of application for self-insurer status a current ratio of assets to liabilities of one to one which may be waived or required prior to approval; (2) Neither Rule 38F-5.08(1) nor 38F-5.10(2)(a), Florida Administrative Code, defines the failure to maintain a current ratio of one to
one as good cause for revocation of self-insurer status; and (3) "Good cause" as used at Section 440.38(3), Florida Statutes contemplates a substantial reason and legally sufficient ground For concern about an employer's ability to continue as a self-insurer.
Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED:
That a final order be entered by the State of Florida, Department of Labor and Employment Security continuing the self-insurer status of Ponderosa System, Inc. and denying the application to revoke that status.
DONE and ENTERED this 21st day of January, 1981, in Tallahassee, Florida.
Filed with the Clerk of the Division of Administrative Hearings this 21st day of January, 1981.
1/ This allegation is inconsistent with the latest financial data submitted by the petitioner which shows an increase in its current ratio for the latest audited period ending November 6, 1980.
2/ An exception to this is found at Subsection (4) which authorizes the Division to require proof on an annual basis that the self-insurer is in compliance with Rule-5.07(1)(a) Florida Administrative Code, relating to servicing of claims.
3/While Ponderosa did not have a one to one current ratio at the time it applied for and was granted self-insurer status this is attributable to a subsequent change in accounting principles applicable to that fiscal year rather than an intent on the part of Petitioner to mislead or misinform the Department.
Marvin E. Barkin, Esquire Trenam, Simmons, Kemker, Scharf,
Douglas P. Chanco, Esquire State of Florida, Department of
Labor and Employment Security 2562 Executive Center Circle, East Suite 117, Montgomery Building Tallahassee, Florida 32301
