STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL ) SERVICES, DIVISION OF WORKERS' ) COMPENSATION, )

)

Petitioner, )

)

vs. )

) ST. JAMES AUTOMOTIVE, INC., )

)

Respondent. )

Case No. 04-3366

)

RECOMMENDED ORDER

Pursuant to notice, this cause came on for final hearing on November 22, 2004, in Tallahassee, Florida, before Fred L. Buckine, a duly-designated Administrative Law Judge of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Joe Thompson, Esquire

Department of Financial Services Division of Workers' Compensation

200 East Gaines Street Tallahassee, Florida 32399

For Respondent: Richard Conrad, pro se

St. James Automotive, Inc. 2867 Oleander Street

St. James City, Florida 33956 STATEMENT OF THE ISSUES

The issues in this enforcement proceeding are whether Respondent failed to comply with Sections 440.10, 440.05, and

1. , Florida Statutes (2003),1 and, if so, whether Petitioner correctly assessed the penalty for said failure.

   PRELIMINARY STATEMENT

   
   

   On August 5, 2004, Petitioner issued to Respondent a Stop Work Order on Penalty Assessment Number 04-0287-D7, asserting that Respondent failed to abide by the requirements of Chapter 440, Florida Statutes.2 The Stop Work Order required Respondent to cease business operations and noticed a penalty assessment to be determined later, pursuant to

   Subsection 440.107(7)(d), Florida Statutes. An Amended Order of Penalty Assessment in the amount of $97,260.75 was subsequently issued. Respondent timely filed a petition for formal hearing pursuant to Subsection 120.57(1), Florida Statutes.

   On September 21, 2004, Petitioner referred the cause3 to the Division of Administrative Hearings (DOAH) for assignment of an Administrative Law Judge to conduct all necessary proceedings required under law and to submit a recommendation to Petitioner.

   On September 22, 2004, the Initial Order was entered, and Petitioner's response was filed on September 28, 2004. On October 5, 2004, the Notice of Hearing, scheduling the final hearing on November 22, 2004, and Order of Pre-hearing Instructions were entered.

   On November 1, 2004, Petitioner filed its witness and exhibit lists, followed by its Pre-hearing Statement on November 16, 2004.

   At the final hearing, Petitioner presented testimony of Kelly Dunning, Workers' Compensation investigator, and offered seven exhibits, which were accepted into evidence.4 Richard Conrad, Respondent/owner of the business, testified on his own behalf and offered no exhibits in evidence.

   The Transcript of this proceeding was filed with DOAH on December 20, 2004. On December 22, 2004, Petitioner filed its Motion to Extend Time to File Proposed Recommended Order, and, by Order of December 23, 2004, the date for filing post-hearing submittals was extended to January 3, 2005, thereby waiving the time requirement for this Recommended Order. See Fla. Admin.

   Code R. 28-106.216. Both parties timely filed Proposed Recommended Orders that have been considered in the preparation of this Recommended Order.

   FINDINGS OF FACT

   
   

   Based upon observation of the demeanor and candor of each witness while testifying; documentary materials received in evidence; evidentiary rulings made pursuant to Section 120.57, Florida Statutes (2004); and stipulations of the parties, the following relevant and material facts, arrived at impartially

   based solely upon testimony and information presented at the final hearing, are objectively determined:

   1. At all times material, Petitioner, Department of Financial Services, Division of Workers' Compensation (Department), is the state agency responsible for enforcement of the statutory requirements that employers secure the payment of workers' compensation coverage requirements for the benefit of their employees in compliance with the dictates of Chapter 440, Florida Statutes. Employers who failed to comply with

      Chapter 440, Florida Statutes, are subject to enforcement provisions, including penalty assessment, of Chapter 440, Florida Statutes.

   2. At all times material, Respondent, St. James Automotive, Inc. (St. James), is a corporation domiciled in the State of Florida and engaged in automobile repair, with known business locations in Pine Island and St. James City, Florida. Both locations are owned by Richard Conrad (Mr. Conrad).

   3. On or about August 5, 2004, a Department investigator conducted an "on-site visit" at the St. James location on Pine Island Road, Pine Island, Florida. The purpose of the on-site visit was to determine whether or not St. James was in compliance with Chapter 440, Florida Statutes, regarding workers' compensation coverage for the workers found on-site. The investigator observed four individuals working on-site in

      automotive repair functions. One employee, when asked whether "the workers had workers' compensation coverage in place," referred the investigator to the "owner," who, at that time, was at the second business location at 2867 Oleander Street,

      St. James City, Florida. The investigator verified the owner's presence at the St. James City location by telephone and met him there.

   4. Upon his arrival at the St. James City location, the investigator initiated a workers' compensation coverage check on two databases. He first checked the Coverage and Compliance Automated System (CCAS) to ascertain whether St. James had in place workers' compensation coverage. The CCAS system contained current status and proof of workers' compensation coverage, if any, and record of any exemptions from workers' compensation coverage requirements filed by St. James' corporate officers. The CCAS check revealed no workers' compensation coverage filed by any corporate officers of St. James. The second system, the National Council on Compensation Insurance (NCCI), contained data on workers' compensation coverage in effect for workers (employees) in the State of Florida. NCCI similarly revealed no workers' compensation coverage in effect for St. James' Florida employees.

   5. The investigator discussed the situation and findings from both the CCAS and NCCI with Mr. Conrad who acknowledged and

      admitted: (1) St. James had no workers' compensation coverage in place; (2) St. James had made inquiry and arranged for an unnamed attorney to file exemptions from workers' compensation coverage on behalf of several St. James employees, but the attorney never filed exemptions; and (3) Mr. Conrad subsequently attempted to file the exemptions himself but was unsuccessful-- "because names of exemption applicants [employees] did not match the corporate information on file for St. James, Inc., at the Division of Corporations." When offered the opportunity by the Department's investigator to produce any proof of workers' compensation coverage or exemption from coverage, Mr. Conrad was unable to do so.

   6. At the conclusion of the August 5, 2004, on-site visit, and based upon a review of the CCAS and NCCI status reports and Mr. Conrad's inability to produce proof of workers' compensation coverage or exemptions, the investigator determined that

      St. James was not in compliance with requirements of

      
      

      Chapter 440, Florida Statutes. The investigator then issued a Stop Work Order on St. James' two business locations. The Stop Work Order contained an initial assessed penalty of $1,000, subject to increase to an amount equal to 1.5 times the amount of the premium the employer would have paid during the period for which coverage was not secured or whichever is greater.

   7. Mr. Conrad acknowledged his failure to conform to the requirements of Chapter 440, Florida Statutes, stating5:

      I guess you could say--I first of all, I am guilty, plain and simple. In other words, I did not conform.

      
      

   8. Subsequent to issuing the August 5, 2004, Stop Work Order, the Department made a written records' request to

      Mr. Conrad that he should provide payroll records listing all employees by name, social security number, and gross wages paid to each listed employee.6 Mr. Conrad provided the requested employee payroll records, listing himself and his wife,

      Cheryl L. Conrad, not as owners, stockholders or managers, but as employees.

   9. Pursuant to Section 440.107, Florida Statutes, the Department is required to link the amount of its enforcement penalty to the amount of payroll (total) paid to each employee.

   10. The persons listed on St. James' payroll records received remuneration for the performance of their work on behalf of St. James and are "employees" as defined in Subsection 440.02(15), Florida Statutes.

   11. Review of the payroll records by the Department's investigator revealed the listed employees for services performed on its behalf. The employee payroll records provided by St. James were used by the Department's investigator to

       reassess applicable penalty and subsequent issuance of the Amended Order of Penalty Assessment in the amount of $97,260.75.7

   12. St. James' payroll records did not list the type of work (class code or type) each employee performed during the period in question. Accordingly, the Department's investigator properly based the penalty assessment on the highest-rated class code or type of work in which St. James was engaged, automotive repair. The highest-rated class code has the most expensive insurance premium rate associated with it, indicating the most complex activity or type of work associated with St. James' business of automotive repair. The Department's methodology and reliance on the NCCI Basic Manual for purpose of penalty calculation is standardized and customarily applied in circumstances and situations as presented herein.8

   13. Mr. Conrad, in his petition for a Chapter 120, Florida Statutes, hearing alleged the 8380 (highest premium rate) class code applied to only three of his employees: himself, Brain Green, and William Yagmin. On the basis of this alleged penalty assessment error by the Department, Mr. Conrad seeks a reduction of the Amended Order of Penalty Assessment amount of $97,260.75. Mr. Conrad presented no evidence to substantiate his allegation that the Department's investigator assigned incorrect class codes to employees based upon the employee information

       Mr. Conrad provided in response to the Department's record request. To the contrary, had he enrolled in workers' compensation coverage or had he applied for exemption from coverage, Mr. Conrad would have known that his premium payment rates for coverage would have been based upon the employees' class codes he would have assigned each employee in his workers' compensation coverage application.

   14. In an attempt to defend his failure to comply with the workers' compensation coverage requirement of Chapter 440, Florida Statutes, Mr. Conrad asserted that the Department's investigator took his verbal verification that certain employees were clerical, but neglected to recognize his statement that he was also clerical, having been absent from the job-site for over three years.

   15. Mr. Conrad's excuses and avoidance testimony was not internally consistent with his earlier stated position of not conforming to the statutory requirements of Chapter 440, Florida Statutes. The above testimony was not supported by other credible evidence of record. This is critical to the credibility determination since Mr. Conrad seeks to avoid paying a significant penalty. For those reasons, his testimony lacks credibility.

   16. Mr. Conrad also attempted to shift blame testifying that--"My attorney did not file exemption forms with the

       Department," and my "personal attempts to file St. James' exemption form failed--[B]ecause the mailing instructions contained in the Department's form were not clear."

   17. In his final defensive effort of avoidance,

       
       

       Mr. Conrad testified that he offered to his employees, and they agreed to accept, unspecified "increases" in their respective salaries in lieu of St. James' providing workers' compensation coverage for them. This defense suffered from a lack of corroboration from those employees who allegedly agreed (and those who did not agree) and lack of documented evidence of such agreement. The intended inference that all his employees' reported salaries included some unspecified "salary increase" is not supported by employee identification or salary specificity and is thus unacceptable to support a finding of fact.

   18. St. James failed to produce credible evidence that the Department's Stop Work Order, the Penalty Assessment, and/or the Amended Penalty Assessment were improper. St. James failed to produce any credible evidence that the Department's use of the NCCI Basic Manual, as the basis for penalty assessment calculation based upon employee information provided by

       St. James, was improper and/or not based upon actual employee salary information provided by St. James.

   19. Prior to this proceeding, the Department and Mr. Conrad entered into a penalty payment agreement as

       authorized by Subsection 440.107(7)(a), Florida Statutes.9 The penalty payment agreement required fixed monthly payments be made by Mr. Conrad and afforded Mr. Conrad the ability to continue operation of his automotive repair business that was, by order, stopped on August 5, 2004.

       CONCLUSIONS OF LAW

       
       

   20. The Division of Administrative Hearings has jurisdiction over the subject matter of this proceeding and over the parties to this proceeding. See §§ 120.569 and 120.57(1), Fla. Stat. (2004).

   21. The Department has the burden of proving by a preponderance of the evidence that an identified employee has violated the Workers' Compensation Statute and that the penalty assessment is correct. Dept. of Labor and Employment Security, Div. of Workers' Compensation v. Genesis Plumbing, Inc., DOAH Case No. 00-3749 (Rec. Order par. 32)(Adopted by Final Order May 24, 2001).

   22. Subsection 440.10(1)(a), Florida Statutes, states that:

       Every employer coming within the provisions of this chapter 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.

       
       

   23. Subsection 440.02(16)(a), Florida Statutes, defines "employer," in relevant part, as "every person carrying on any employment . . ." Further, "employment" is defined in relevant part in Subsection 440.02(17)(a), Florida Statutes, as "any services performed by an employee for the person employing him or her." St. James is an "employer" within the provision of Subsections 440.10(1)(a) and 440.02(16)(a), Florida Statutes.

   24. Subsections 440.02(15)(a),(b) and (b)1., Florida Statutes, state that:

       (15)(a) "Employee" means any person who receives remuneration from an employer for the performance of any work or service while engaged in any employment under any appointment or contract for hire or apprenticeship, express or implied, oral or written, whether lawfully or unlawfully employed, and includes, but is not limited to, aliens and minors.

       (b) "Employee" includes any person who is an officer of a corporation and who performs services for remuneration for such corporation within this state, whether or not such services are continuous.

       1. Any officer of a corporation may elect to be exempt from this chapter by filing written notice of the election with the department as provided in s. 440.05.

   25. Mr. Conrad and his employees provided in response to the Department's records request for correct penalty assessment are "employees" within the above definition.

   26. As an owner/employee of St. James, Mr. Conrad was authorized and entitled to exempt himself, his wife, and his employees, from the provisions of Subsection 440.02(15)(b)1., Florida Statutes, merely by filing written notice of the election with the Department. Mr. Conrad failed to file the election of exemption as required by the statue hereinabove. His assertion that he provided wage increases to his employees, in lieu of providing workers' compensation coverage and/or filing the election for exemption, is not provided for in Chapter 440, Florida Statutes.

   27. St. James is an "employer," under the provision of Subsection 440.10(1)(a), Florida Statutes, and is subject to the penalty assessment for the failure to secure the payment of compensation for his employees.

   28. St. James is an employee for the penalty period of August 5, 2001, through August 5, 2004, because St. James "engaged and remunerated its employees to perform work on behalf" of St. James. St. James had no workers' compensation coverage for its employees on August 5, 2004, the date the Department issued and served the Stop Work Order on St. James.

   29. Subsection 440.107(7)(d)1., Florida Statutes, requires that:

       In addition to any penalty, stop-work order, or injunction, the department shall assess against any employer who has failed to secure the payment of compensation as required by this chapter a penalty equal to 1.5 times the amount the employer would have paid in premium when applying approved manual rates to the employer's payroll during periods for which it failed to secure the payment of workers' compensation required by this chapter within the preceding 3-year period or $1,000, whichever is greater. (emphasis added)

       
       

   30. The NCCI Basic Manual, Rule 2G., Interchange of Labor (2001 ed.), in pertinent part, provides that:

       If payroll records do not show the applicable rate to each classification, the entire payroll of the individual employee must be assigned to the highest rated classification that represents any part of his or her work.

       
       

   31. The Department, using employee information provided by St. James (that did not show the actual payroll applicable to each classification), correctly assigned the highest rated classification that represents any part of his or her work in automobile repair. Calculation of the initial and Amended Penalty Assessment against St. James were correctly computed as required by Chapter 440, Florida Statutes.

   32. Before the final hearing, The Department and St. James entered into a penalty agreement permitting St. James to remit

       periodic payments of the assessed $97,260.75 penalty pursuant to Subsection 440.107(7)(a), Florida Statutes, which provides in pertinent part that:

       . . . [T]he department may issue an order of conditional release from a stop-work order to an employer upon a finding that the employer has complied with coverage requirements of this chapter and has agreed to remit periodic payments of the penalty pursuant to a payment agreement schedule with the department. If an order of conditional release is issued, failure by the employer to meet any term or condition of such penalty payment agreement shall result in the immediate reinstatement of the stop-work order and the entire unpaid balance of the penalty shall become immediately due.

       
       

   33. A secondary goal of St. James' request for an Administrative Hearing challenging the validity of the Department's enforcement action was to secure "a lower monthly payment (than agreed upon)---due to the hardship suffered by business owners as a result of the hurricanes." St. James failed to reach that goal.

   34. The Department proved, by a preponderance of the credible evidence, statutory compliance in securing the name and wage information of each employee from the employer and, based upon the employer's information, correctly used such information as the basis for calculation of the assessed penalty against St. James. See Bloch Brothers Corp. v. Department of Business Regulations, 321 So. 2d 447, 448 (Fla. 2d DCA 1975) citing Kirk

v. Publix Super Markets, 185 So. 2d 161 (Fla. 1966), superseded on other grounds by statute, holding that . . . "It is elemental that when the Legislature provides that an administrative power shall be exercised in a certain way such prescription precludes the doing of it in another way . . ."

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby

RECOMMENDED that the Department of Financial Services, Division of Workers' Compensation, enter a final order that affirms the Stop Work Order and the Amended Order of Penalty Assessment in the amount of $97,260.75, minus any and all periodic payments of the penalty remitted by St. James, pursuant to agreed upon conditional release from the Stop Work Order dated August 5, 2004.

DONE AND ENTERED this 4th day of March, 2005, in Tallahassee, Leon County, Florida.

S

FRED L. BUCKINE

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 March, 2005.

ENDNOTES

1/ All citations are to Florida Statutes (2003) unless otherwise indicated.

2/ Chapter 440, Florida Statutes, is referred to as the "Workers' Compensation Statute."

3/ St. James 's challenge was pursuant to Subsection 440.107(13), Florida Statutes, that provides:

Agency action by the department under this section, if contested, must be contested as provided in chapter 120. All penalties assessed by the department must be paid into the Workers' Compensation Administration Trust Fund.

The referral consisted of the Stop Work Order, Penalty Assessment, Amended Penalty Assessment, Payment Agreement schedule for Periodic Payment of Penalty and Order of Conditional Release from Stop Work Order.

4/ References to exhibits admitted into evidence will be by the number assigned to the exhibits and will be designated as, for example, P-1, etc. Petitioner's Exhibits P-1, P-2, P-3, P-5,

P-18, P-30, and P-31 were admitted into evidence.

5/ Though not sworn before giving his opening statement,

Mr. Conrad's admission was not retracted during his sworn testimony and is considered as a willing and known admission, confirmed by his entry into a penalty agreement with the Department prior to filing this challenge, as is his right to do so to reopen his business pending resolution of the challenge pursuant to a Chapter 120, Florida Statutes, proceeding.

6/ Employees Quarterly Wage Reports are consolidated Petitioner's Exhibits P-3 and P-5. These records consisted of each employee's W-2, Wage and Tax Statement; 941c, Employer's Quarterly Federal Tax Returns; and Florida Department of Revenue Employer's Quarterly Report(s). None of the documents submitted

by St. James identified the actual work assignment performed,

i.e. clerical, management, etc., by each employee.

7/ The Initial Stop Work Order contained a check mark on the paragraph entitled: Order of Penalty Assessment: A penalty against the Employer is hereby Ordered: "[I]n an amount equal to 1.5 times the amount the employer would have paid in premium when applying approved manual rates to the employer's payroll during periods for which it failed to secure the payment of workers' compensation required by this chapter [440] within the preceding 3-year period, or $1,000, whichever is greater." Citing § 440.107(7)(d), Fla. Stat.

8/ The Department's investigator applied Class Code 8380 and its corresponding premium rate to almost all St. James employees; only two employees had the Class Code 8810 applied, with a premium rate that was in all applications less than one- tenth the rate of Class Code 8380.

9/ The penalty payment agreement entered into between the Department and St. James was not made a part of this record. Accordingly, Mr. Conrad's post-hearing "Conclusion of Law" argument that he should "[B]e able to talk down the (monthly) payment to a lower level to something he can live with," even if accepted, is without a basis in fact and is not permitted by Chapter 440, Florida Statutes.

COPIES FURNISHED:

Richard Conrad

St. James Automotive, Inc. 2867 Oleander Street

St. James City, Florida 33956

Joe Thompson, Esquire Department of Financial Services

Division of Workers' Compensation

200 East Gaines Street Tallahassee, Florida 32399

Honorable Tom Gallagher Chief Financial Officer

Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300

Pete Dunbar, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300

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: 04-003366

Orders for Case No: 04-003366