J. D., INC., d/b/a SUPERIOR ) FALLS FLOOR COVERINGS, )
Respondent. )
Case No. 04-1595
Administrative Law Judge (ALJ) Daniel Manry conducted the administrative hearing in this proceeding on behalf of the Division of Administrative Hearings (DOAH), on July 7, 2004, in
Fort Myers, Florida.
For Petitioner: David C. Hawkins, Esquire
Law Offices of Michael F. Tew Building 800, Suite 2
The issues are whether nine workers were employees of Respondent, during part of the audit period; whether Respondent failed to secure the payment of workers' compensation coverage in violation of Section 440.107, Florida Statutes (2003); and whether Petitioner should impose a penalty against Respondent in the amount of $123,960.23.
This proceeding has an extensive procedural history.
Because the procedural history may be relevant to Respondent's request for attorney's fees and costs, the ALJ addresses the procedural history more specifically in the Findings of Fact.
In summary, Petitioner issued three orders assessing different amounts of penalties against Respondent, the last of which assessed a penalty in the amount of $123,960.23.
Respondent requested an administrative hearing, and Petitioner referred the matter to DOAH to conduct the hearing.
At the hearing, Petitioner and Respondent each presented the testimony of two witnesses, and submitted 13 exhibits for admission into evidence. The identity of the witnesses and exhibits and the rulings regarding each are reported in the one-volume Transcript of the hearing filed with DOAH on August 4, 2004.
Petitioner timely filed its proposed recommended order (PRO) on August 13, 2004. Respondent timely filed its PRO on July 15, 2004.
Respondent preserved its right in this proceeding to challenge in another forum the constitutionality of relevant statutes. Although the ALJ has permitted Respondent to preserve its constitutional challenges on the record, DOAH has no jurisdiction to resolve the issues of constitutionality asserted by Respondent.
Respondent also requests attorney's fees and costs pursuant to Sections 57.111 and 120.569, Florida Statutes (2003). For reasons stated in the Conclusions of Law, DOAH lacks jurisdiction to award attorney's fees and costs under the former statute, and the ALJ has no factual predicate for an award of attorney's fees and costs under the latter statute.
Petitioner is the state agency responsible for enforcing the statutory requirement that employers secure the payment of workers' compensation for the benefit of their employees. § 440.107, Fla. Stat. (2002). Respondent is a closely held corporation domiciled in Florida and engaged in the sale and installation of floor coverings.
Mr. Dennis Davison and Mrs. Lynne Davison, a married couple, own all of the outstanding stock of Respondent (the
owners). Respondent has five in-office employees, including the owners, and had a net worth of approximately $100,000 before paying the proposed penalty.
On April 2, 2004, Petitioner's compliance officer conducted a random site inspection of a single-family residence at 213 Northwest 3rd Place, Cape Coral, Florida. Mr. John Walega and Mr. Mike Stephens were laying carpet in the residence (Walega and Stephens, respectively).
Walega was a sole proprietor who employed Stephens.
The compliance officer determined that Walega was an employee of Respondent because Walega had an expired exemption and no proof of workers' compensation insurance coverage.
The compliance officer issued separate stop work orders against Walega and Respondent. The stop work order against Walega is not at issue in this proceeding.
The compliance officer issued the stop work order against Respondent even though: she knew that Respondent had compensation coverage for Respondent's five employees through a leasing company; and she had no knowledge that Respondent had subcontractors other than Walega working for Respondent.
The compliance officer requested Respondent's business records for the three years from April 2, 2001, through April 2, 2004 (the audit period). Respondent fully complied with the request in a timely manner.
The stop work order issued against Respondent on
April 2, 2004, also assessed a penalty stated as the greater of
$1,000 or 1.5 times the premium Respondent would have paid in premium charges during the period Respondent allegedly failed to secure the payment of workers' compensation insurance. Sometime between April 2 and 16, 2004, Petitioner amended the penalty assessment to $137,820.72.
On April 16, 2004, the owners mortgaged their personal residence to pay the amended penalty assessment. Petitioner released the stop work order, but the owners lost business in an unspecified dollar amount while the stop work order was in effect and continue to incur monthly interest expense in the amount of $500 to service the mortgage on their home.
On June 28, 2004, Petitioner issued a Seconded Amended Order of Penalty Assessment No. 04-157-D7-2 that reduced the assessed penalty to $123,960.23 (the Seconded Amended Order). Respondent is entitled to a refund in the amount of $13,860.49, but Petitioner had not paid the refund as of the date of hearing.
The Second Amended Order is the proposed agency action at issue in this proceeding. The compliance officer is the only employee for Petitioner who investigated and developed the substantive information that forms the basis of Petitioner's
proposed agency action. Other employees calculated the actual amounts of the proposed penalties.
Respondent does not challenge the mathematical accuracy of the penalty calculations by Petitioner, but challenges the legal and factual basis of Petitioner's determination that nine workers were Respondent's employees.
The nine workers are identified in the record as Walega; Messrs. James Allan, Bertin Flores, Cliff Hill, David Lancaster, Earl Lancaster, Jeff Dozier, Anthony Gioe; and Ms. Patricia Lancaster.
The statutory definition of an employee for that part of the audit period before January 1, 2004 (the relevant period), was different than the statutory definition that became effective on January 1, 2004. Factual findings concerning the nine workers at issue are driven by one statutory definition during the relevant period and another statutory definition thereafter.
Any of the nine workers that satisfied the statutory definition in former Subsection 440.02(15)(d)1, Florida Statutes (2003), of an independent contractor should not have been included in that part of the proposed penalty attributable to the relevant period. Effective January 1, 2004, however, Subsection 440.02(15)(d)1, Florida Statutes (2003), no longer excludes independent contractors in the construction industry
from the definition of an employee. Thus, a determination of whether a worker was an independent contractor is not relevant to that portion of the proposed penalty covering any part of the audit period after December 31, 2003.
Effective January 1, 2004, Subsection 440.02(15)(c)2, Florida Statutes (2003), no longer excludes a subcontractor, including those that would have satisfied the former definition of an independent contractor, from the definition of an employee unless the subcontractor either executes a valid exemption election or otherwise secures payment of compensation coverage as a subcontractor. There is insufficient evidence to support a finding that any of the nine workers at issue in this proceeding either elected a valid exemption or otherwise secured payment for compensation coverage after December 31, 2003.
The nine workers at issue in this proceeding are not excluded from the definition of an employee after December 31, 2004, even if they were independent contractors throughout the audit period. Except for constitutional arguments raised by Respondent over which DOAH has no jurisdiction, Respondent owes that part of the penalty attributable to any period after December 31, 2003.
It is undisputed that the nine workers included in that part of the penalty assessment attributable to the relevant period were subcontractors throughout the audit period.
Respondent's ledger clearly treated the workers as subcontractors and reported their earnings on Form 1099 for purposes of the federal income tax. Petitioner treated the workers as subcontractors in the penalty calculation. Customers of Respondent paid Respondent for installation of floor coverings they purchased from Respondent, and Respondent paid each of the nine workers to install the floor coverings.
The Workers' Compensation Law in effect during the relevant period did not expressly exclude from the definition of an employee those subcontractors who executed a valid exemption election or otherwise secured payment of compensation coverage as a subcontractor. Findings concerning the existence of an exemption election or payment of compensation coverage are neither relevant nor material to the statutory definition of an employee during the relevant period.
During the relevant period, the nine workers at issue were excluded from the definition of an employee only if they satisfied the definition of an independent contractor in former Subsection 440.02(15)(d)1, Florida Statutes (2003). Each of the nine workers were required to satisfy all of the following requirements:
The independent contractor maintains a separate business with his or her own work facility, truck, equipment, materials, or similar accommodations;
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;
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;
The independent contractor incurs the principal expenses related to the service or work that he or she performs or agrees to perform;
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;
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;
The independent contractor may realize a profit or suffer a loss in connection with performing work or services;
The independent contractor has continuing or recurring business liabilities or obligations; and
The success or failure of the independent contractor's business depends on the relationship of business receipts to expenditures.
The preponderance of evidence shows that each of the nine workers at issue was an independent contractor during the relevant period. Respondent conducted the ordinary course of its trade or business with each of the nine workers in substantially the identical manner.
None of the workers shared office space with Respondent. Each worker used his or her own truck, equipment, and tools to transport the floor coverings sold by Respondent and to install them in a customer's premises.
Petitioner admits that Walega was a sole proprietor.
Each of the other workers either held a federal employer identification number or was a sole proprietor who was not required to obtain a federal employer identification number.
Each worker agreed to perform specific services or work for specific amounts of money and controlled the means of performing the services or work. Each worker incurred his or her own expenses to install floor coverings.
Each worker transported floor coverings and necessary materials to the work site in the worker's own truck and used his or her own tools to perform the work. Each worker exercised independent professional judgment to perform the work. Respondent did not perform any pre-installation site inspection and did not perform any site preparation. Respondent did not train workers, instruct workers on how to perform their work,
did not supervise their work while it was being performed, and did not perform any post-installation site inspection unless Respondent received a customer complaint.
Each worker was responsible for the satisfactory completion of work or services that he or she performed. Each worker was liable to Respondent and the customer for any failure to complete the work or services or for inferior workmanship. Each worker warranted his or her work to the customer's satisfaction and absorbed the costs of rework and any damage to the customer's premises.
Respondent paid each worker for work or services performed on a per-job or competitive-bid basis rather than any other basis. Respondent negotiated the price paid to a worker on a square-foot basis. The price did not change regardless of the amount of time the job required or the number of helpers the worker paid to assist the worker on the job.
Each worker realized a profit or suffered a loss in installing floor coverings sold by Respondent. Each worker performed work for other vendors and had continuing or recurring business liabilities or obligations apart from installing floor coverings for Respondent. Each worker depended on the relationship of business receipts of expenditures for the success or failure of the worker's business.
Each worker maintained his or her own occupational and professional licenses. Each worker maintained his or her own liability insurance.
Respondent required each worker to sign a written form stating that the worker was an independent contractor. The form acknowledged the workers' warranty obligations and his or her obligations for their own taxes and insurance. Each form disclosed the workers' social security number or federal employer identification number. Respondent did not withhold federal income taxes from the payments to workers.
Petitioner did not explicate the basis for reducing the proposed assessment in the Second Amended Order. However, the evidence reveals that the penalty reduction resulted from the exclusion of corporate subcontractors from the penalty base. The business relationship between Respondent and its corporate subcontractors during the relevant period was substantially the same as that between Respondent and the nine workers at issue.
Early in this administrative proceeding on April 8, 2004, the compliance officer advised the owners that she was unable to release the stop work order against Respondent unless she could verify in Petitioner's data base, in relevant part, that the nine workers at issue each had a valid exemption or had insurance. However, Petitioner's database would not have
disclosed compensation coverage maintained by a subcontractor through a leasing company.
The compliance officer's advice to the owners did not reflect the law in effect during the relevant period. The Workers' Compensation Law in effect during the relevant period did not expressly exclude from the definition of an employee those workers who executed a valid exemption election or otherwise secured payment of compensation coverage as a subcontractor. The law excluded subcontractors from the definition of an employee only if the subcontractors satisfied the statutory definition of an independent contractor. The compliance officer made no effort to determine whether any of the workers she included in the penalty base satisfied the definition of an independent contractor.
The compliance officer never advised the owners that establishing a subcontractor as an independent contractor would avoid part of the assessment against Respondent during the relevant period. The compliance officer never advised the owners that Respondent was free to choose to be represented by counsel during the audit process. The compliance officer told the owners that the only thing Respondent could do to avoid the assessment was to provide a certificate of insurance or an exemption for each of the subcontractors included in the penalty base.
The compliance officer admitted that she was unaware that a subcontractor who was an independent contractor during the relevant period was legally excluded from the penalty base. Counsel for Respondent advised the compliance officer of the correct legal standard on April 12, 2004, but the compliance officer refused to release the stop work order unless Respondent paid the assessed penalty.
The compliance officer knew that Walega had held a valid exemption at various times in the past as a sole proprietor. She knew Walega had renewed the exemption on October 29, 2003, for five years. However, Petitioner's database showed the exemption had expired on January 1, 2004, by operation of new law.
Walega provided Respondent with a copy of the exemption he renewed on October 29, 2003. The exemption stated on its face that it was effective for five years. The owners had no actual knowledge that the exemption expired on January 1, 2004, as a result of a change in the Workers' Compensation Law.
Petitioner admits that it issued the exemption to Walega knowing that the exemption would expire on January 1, 2004. Petitioner issued the exemption so that Walega could use it until January 1, 2004.
CONCLUSIONS OF LAW
DOAH has jurisdiction over the parties and subject matter of this proceeding pursuant to Subsections 120.57(1) and 120.569, Florida Statutes (2003). The parties received adequate notice of the administrative hearing.
Petitioner has the burden of proof in this case.
Petitioner must show by a preponderance of the evidence that Respondent violated the Workers' Compensation Law during the audit period and that the penalty assessments are correct.
Department of Labor and Employment Security, Division of
Workers' Compensation v. Bobby Cox, Sr., d/b/a C H Well Drilling, DOAH Case No. 99-3854 (Recommended Order para. 34)(adopted in part by Final Order June 7, 2000);
Department of Labor and Employment Security, Division of
Workers' Compensation v. Eastern Personnel Services, Inc., DOAH Case No. 99-2048 (Recommended Order para. 24)(adopted by Final Order Nov. 30, 1999), appeal dismissed, Case No. 1D99-4839 (Fla. 1st DCA April 10, 2000); § 120.57(1)(j), Fla. Stat. (2002).
Petitioner satisfied its burden of proof for that part of the penalty assessment attributable to the audit period that began on January 1, 2004. Petitioner did not satisfy its burden of proof for the penalty assessment attributable to the relevant period.
During the relevant period, Respondent did not employ the nine workers at issue. Each worker was an independent contractor, and Respondent was not a statutory employer within the meaning of Subsection 440.02(15), Florida Statutes (2003).
Respondent is legally entitled to attorney's fees and costs, pursuant to Subsection 120.569(2)(e), Florida Statutes (2003), for that part of the proposed agency action attributable to the relevant period. There was no justiciable issue of law or fact on which Petitioner could have prevailed to require Respondent to provide Petitioner with proof that the nine subcontractors had exemptions or insurance coverage during the relevant period. The only legal basis for exclusion was that the nine workers were independent contractors. The proposed agency action for the relevant period was not based on applicable law.
There is insufficient evidence to support an award of attorney's fees and costs pursuant to Subsection 120.569(2)(e), Florida Statutes (2003). Respondent submitted no evidence of the amount of attorney's fees and costs that it incurred to defend that part of the proposed agency action attributable to the relevant period or the reasonableness of the pretermitted amount.
DOAH lacks jurisdiction over Respondent's claim for attorney's fees and costs pursuant to Section 57.111, Florida
