STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF LABOR AND ) EMPLOYMENT SECURITY, DIVISION ) OF WORKERS' COMPENSATION, )

)

Petitioner, )

)

vs. ) Case No. 00-4177

)

A. J. INTERIORS, INC., )

)

Respondent. )

__________________________________)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was held in this case on December 12, 2000, in Fort Lauderdale, Florida, before

J. D. Parrish, a designated Administrative Law Judge of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: David C. Hawkins, Esquire

Department of Labor and Employment Security

Division of Workers' Compensation 2012 Capital Circle Southeast Suite 307 Hartman Building Tallahassee, Florida 32399-2189

For Respondent: Christopher C. Cloney, Esquire

The Advocate Building

315 Southeast 7th Street Suite 200

Fort Lauderdale, Florida 33301

STATEMENT OF THE ISSUES

Whether the Respondent was required to carry workers' compensation insurance coverage for its employees and, if it failed to do so, whether the Amended Notice and Penalty Assessment Order is correct.

PRELIMINARY STATEMENT

On August 29, 2000, the Department of Labor and Employment Security, Division of Workers' Compensation, Bureau of Compliance (Department), issued a Notice of Penalty and Assessment Order against the Respondent, A. J. Interiors, Inc. Such assessment notified the Respondent that pursuant to Section 440.02(7), Florida Statutes, it was required to carry workers' compensation insurance coverage for all its "employees" as that term is defined by law. The Respondent was ordered to remit a penalty for failure to secure the workers' compensation insurance. The Department calculated the penalty as twice the workers' compensation insurance premium the Respondent would have paid during the period reviewed. Subsequently, the Department reduced the amount claimed and issued an Amended Notice of Penalty and Assessment Order.

The Respondent, by letter dated September 18, 2000, and

by Petition for Formal Hearing filed with the Department on September 25, 2000, challenged the assessment. More

specifically, the Respondent disagreed with the Department's classification of individuals as "employees" of the company, challenged that such workers were "employees" for all periods of time at issue, and disputed the amount of the "evaded premium."

At the hearing, the Petitioner presented the testimony of Robert Barnes, a workers' compensation investigator, employed by the Department's office in West Palm Beach, Florida. The Department's Exhibits numbered 1 through 19 were admitted into evidence. The Respondent presented the testimony of James Chandler, its sole officer and director. The Respondent's Exhibits numbered 1 and 2 were admitted into evidence. The Petitioner's objection to portions of the Respondent's numbered Exhibit 1 (hearsay) was sustained. Those portions of the exhibit constituting hearsay that are not supported by other evidence in this record have not been relied upon to establish a finding of fact. Moreover, the inherent unreliability of portions of the Respondent's Exhibit numbered

1 have precluded or greatly diminished the value of the exhibit as a business record.

The transcript of the proceeding was filed with the Division of Administrative Hearings on January 12, 2001. Thereafter, the parties filed a Joint Motion for Extension of Time to File Proposed Recommended Orders. By order entered

January 23, 2001, the parties were granted leave until February 16, 2001, to file their proposed orders. The parties timely filed proposed orders that have been considered in the preparation of this order.

FINDINGS OF FACT

1. At all times material to this case, the Petitioner, the Department of Labor and Employment Security, Division of Workers’ Compensation was the state agency charged with the responsibility of administering compliance with state laws governing workers’ compensation (WC).

2. The Respondent, A. J. Interiors, Inc., is a Florida corporation doing business at 1825 Mears Parkway, Margate, Florida.

3. At all times material to this case, Robert Barnes was an investigator employed by the Department to perform compliance investigations for WC.

4. On July 6, 2000, Investigator Barnes performed a random construction site inspection at a new construction project located at 16687 Jog Road, Delray Beach, Florida.

5. While at that location, Investigator Barnes observed two men wearing T-shirts bearing the company name "A. J. Interiors, Inc." along with its telephone number. The men were installing metal framing in order to hang and finish drywall.

6. The field interview with the two men, identified in this record as Sergio and Jaime Gonzalez, revealed that neither was covered by WC insurance. This information was later confirmed by Investigator Barnes. Additionally, neither man had obtained an exemption from coverage as the sole proprietor of a business.

7. Based upon the field interview of the two men, a review of Department records, and contact with the Respondent's insurance agent, Investigator Barnes correctly determined that the men were the Respondent’s "employees” as that term is defined by the WC law.

8. The men did not supply materials to the job site but agreed to perform work based upon a price described as a "per board" industry standard rate. In other words, the men would hang the drywall at a flat rate (established by and consistent with the local industry standard) for each job accepted through the Respondent. If the work were completed, the men expected to be paid by the Respondent. The men did not contract with or work for the general contractor of the job. The only requirement for payment was the performance of the work. The only risk incurred by the workers related to their relationship with the Respondent.

9. Having concluded that the workers were not covered by WC and were not exempt, Investigator Barnes caused a stop work

   order to be issued against the Respondent. In conjunction with that order, the Department requested copies of the Respondent's business records.

10. A review of the "vendor accounts” supplied by the Respondent established that its workers were paid amounts presumably based upon the number of boards hung per job identified. The payments were not always the same amount as the number of boards hung for a given job could vary. Additionally, the Respondent allowed workers to receive "draws" against the expected payments for uncompleted jobs.

11. The Respondent’s claim that the workers were independent contractors has not been deemed credible. Based upon the testimony of the Respondent's witness all of the workers performed as outlined by the men interviewed by Investigator Barnes.

12. The Respondent did not have a valid WC policy during the three years preceding the stop work order.

13. The Amended Notice and Penalty Assessment Order prepared by Investigator Barnes accurately calculates the amounts owed by the Respondent for the three-year period.

    CONCLUSIONS OF LAW

    
    

14. The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of these proceedings.

15. Section 440.10(1)(a), Florida Statutes, provides:

    
    

    (1)(a) Every employer coming within the provisions of this chapter, including any brought within the chapter by waiver of exclusion or of exemption, shall be liable for, and shall secure, the payment to his or her employees, or any physician, surgeon, or pharmacist providing services under the provisions of s. 440.13, of the compensation payable under ss. 440.13, 440.15, and 440.16. Any contractor or subcontractor who engages in any public or private construction in the state shall secure and maintain compensation for his or her employees under this chapter as provided in s. 440.38.

    
    

16. Section 440.38(1), Florida Statutes, requires every employer to secure WC as outlined by the chapter.

17. An "employer" as defined by the WC law specifies "every person carrying on any employment." The terms "employment" and "employee" are also set forth by law. See Sections 440.02 (14), (15), and (16), Florida Statutes.

18. In this case the Respondent maintains that the individuals identified as its "employees" were not. The Respondent argues that all of the alleged "employees" were, in fact, "independent contractors." Moreover, the Respondent claims that the burden of proof rests with the Petitioner to establish that the workers were not "independent contractors."

19. Section 440.02(14)(d)1, Florida Statutes, provides that the term "employee" does not include an "independent contractor" if:

    1. The independent contractor maintains a separate business with his or her own work facility, truck, equipment, materials, or similar accommodations;

    2. The independent contractor holds or has applied for a federal employer identification number, unless the independent contractor is a sole proprietor who is not required to obtain a federal employer identification number under state or federal requirements;

    3. The independent contractor performs or agrees to perform specific services or work for specific amounts of money and controls the means of performing the services or work;

    4. The independent contractor incurs the principal expenses related to the service or work that he or she performs or agrees to perform;

    5. The independent contractor is responsible for the satisfactory completion of work or services that he or she performs or agrees to perform and is or could be held liable for a failure to complete the work or services;

    6. The independent contractor receives compensation for work or services performed for a commission or on a per-job or competitive-bid basis and not on any other basis;

    7. The independent contractor may realize a profit or suffer a loss in connection with performing work or services;

    8. The independent contractor has continuing or recurring business liabilities or obligations; and

    9. The success or failure of the independent contractor's business depends on the relationship of business receipts to expenditures.

       
       

20. In order for an individual to be considered an "independent contractor" all nine of the statutory elements must be reviewed. During his examination of the two workers

    on site on the day the stop work order was entered, Investigator Barnes utilized a worksheet that tracked the responses of the workers as to all nine statutory elements. He correctly concluded that the men were not independent contractors.

21. Undoubtedly, the Respondent intended to avoid the requirements of the workers' compensation laws. Nevertheless the record is clear as to the manner of doing business in this case. The Respondent obtained the work with the general contractor, that is, the Respondent procured the job. Further, it retained workers to perform the work, supplied the materials to the various job sites, and paid an industry rate to the workers for the work performed. The number of boards hung by the worker for each job (verified against the number of boards the Respondent had delivered to the job site), determined the amount of the compensation. The workers had an on-going relationship with the Respondent and could obtain advances toward unperformed work. In this case the Petitioner established by a preponderance of the evidence that the workers were not "independent contractors." The burden then shifted to the Respondent to establish that they were. The Respondent was in a unique position to bring forth evidence regarding the workers. In the absence of documentation to support exemptions held by any of the workers or otherwise

    establishing that the workers met the criteria to be considered "independent contractors," the workers must be considered "employees."

22. The workers identified in the Respondent's vendor records could not be considered "sole proprietors" of a business because the individuals did not hold valid workers' compensation exemptions. All workers cited by the Department for the time periods identified did not hold valid exemptions. Thus, in the absence of the exemption, they must be considered "employees."

23. Since, as a matter of law, the workers must be deemed "employees," the Petitioner was required to secure WC coverage. It is undisputed the Petitioner did not have WC to cover the workers identified in this cause. Accordingly, by statute, the Department is obligated to use an established formula to compute the penalty to be incurred by the Petitioner. Based upon the information set forth in this record, the Department has correctly assessed the Respondent with a penalty in the amount of $376,947.53.

Based upon the foregoing findings of fact and conclusions of law, it is

RECOMMENDED:

That the Department enter a final order confirming the stop work order entered in this cause and imposing a penalty

as set forth in the amended notice and penalty assessment order.

DONE AND ENTERED this 4th day of April, 2001, in Tallahassee, Leon County, Florida.

___________________________________

J. D. Parrish Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675 SUNCOM 278-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 4th day of April, 2001.

COPIES FURNISHED:

David C. Hawkins, Esquire Department of Labor and

Employment Security

Division of Workers' Compensation 2012 Capital Circle Southeast Suite 307 Hartman Building Tallahassee, Florida 32399-2189

Christopher C. Cloney, Esquire The Advocate Building

315 Southeast 7th Street, Suite 200 Fort Lauderdale, Florida 33301

Sherri Wilkes-Cape, General Counsel Department of Labor and

Employment Security

2012 Capital Circle Southeast Suite 307 Hartman Building Tallahassee, Florida 32399-2189

Mary B. Hooks, Secretary Department of Labor and

Employment Security

2012 Capital Circle Southeast Suite 303 Hartman Building Tallahassee, Florida 32399-2152

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.

Docket for Case No: 00-004177

Orders for Case No: 00-004177