vs. )
Respondent. )
Case No. 06-2259
Pursuant to notice, a final hearing was conducted in this case on January 23, 2007, in Orlando, Florida, before Administrative Law Judge R. Bruce McKibben of the Division of Administrative Hearings.
For Petitioner: Stephen H. Thomas, Jr., Esquire
Colin M. Roopnarine, Esquire Department of Financial Services Division of Legal Services
The issue in this case is whether Respondent had sufficient or complete workers' compensation coverage for his employees pursuant to Chapter 440, Florida Statutes (2006).1
On or about May 10, 2006, Petitioner served a Stop Work Order and Order of Penalty Assessment on Respondent. This was followed by an Amended Order of Penalty Assessment, then by yet another Amended Order of Penalty Assessment, and the Order of Penalty Assessment was amended again just prior to the final hearing.
Respondent filed a Petition for Hearing under Sections 120.569 and 120.57, Florida Statutes, which was transmitted to the Division of Administrative Hearings on June 23, 2006.
At the final hearing, Petitioner called one witness: Margaret Cavozos, an investigator for the Department of Financial Services. Petitioner offered 11 exhibits, all of which were admitted. Respondent testified on his own behalf and proffered the testimony of Ken Sullivan. Respondent did not offer any exhibits into evidence.
At the close of the evidentiary portion of the final hearing, the parties were given ten days from the filing of the hearing transcript within which to file their respective
proposed recommended orders. A one-volume hearing Transcript was filed on February 21, 2007. Respondent had filed a "Proposed Order" on January 31, 2007, i.e., prior to the filing of the Transcript. Petitioner filed its Proposed Recommended Order on March 5, 2007. The parties' proposals have been carefully considered during the preparation of this Recommended
Order.
Respondent owns and operates a business engaged in the practice of installing flooring, including carpets, tile, hardwood, etc. He is a sole proprietor with no one else on his payroll. His work is performed by subcontractors whom he hires for each individual job.
Respondent has been involved in the construction industry for many years and is generally aware of the concept of workers' compensation coverage. He has always operated under the assumption that an employer is only responsible for providing workers' compensation coverage for persons who are directly employed, i.e., that contracted employees (subcontractors) were exempt or had to pay their own coverage.
Respondent did not make workers' compensation contributions for the subcontractors who did work for him. He acted on a good faith belief that such coverage was not his responsibility.
On April 7, 2006, an investigator for Petitioner conducted a compliance investigation at Pegasus Point apartments in Orlando, Florida, pursuant to a public request. In Apartment J of the complex, the investigator observed a man (later identified as Jeff Menendez), who stated he was installing carpet. When asked about workers' compensation coverage, he replied that he was a subcontractor and did not believe he needed coverage. He said he got this job from "Allied" (the Petitioner in this case).
As a result of this encounter, Petitioner contacted Respondent and asked for certain records in order to determine whether appropriate coverage was in place for its employees. When the requested records were not forthcoming, Petitioner entered a Stop Work Order. This prompted another request for business records so that Petitioner could calculate the appropriate penalty.
Once it received the necessary records from Respondent, Petitioner determined there were several employees (as that term is defined in statute) working for Respondent for whom workers' compensation coverage had not been paid for the period of May 3, 2003, through May 3, 2006. When those workers were checked against Petitioner's data base--called the Coverage & Compliance Automated System, or CCAS--no coverage was found for Respondent or the identified employees for that period of time.
One or more of the named employees had exemptions in place for a portion of the time they did work for Respondent. After taking that into consideration, Petitioner calculated a penalty of $28,619.97 against Respondent. The penalty was calculated using the Scopes Manual, a tool promulgated by rule.
Respondent's business was identified in the Scopes Manual as Code 5478: carpet or flooring installation. The assigned rate for this code was then compared to the designated insurance rate. Once the amount was determined, it was multiplied by 1.5 to ascertain the penalty amount.
The Stop Work Order was lifted by Petitioner after Respondent signed a "Payment Agreement Schedule for Periodic Payment of Penalty" on June 1, 2006. At that time, Respondent made a down payment of $2,867.19 and agreed to pay the sum of
$403.08 per month for 60 months.
Upon reaching agreement with Petitioner to pay the fine, Respondent also terminated all "employees" doing subcontract work for him at that time.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of this proceeding pursuant to Section 120.569 and Subsection 120.57(1), Florida Statutes.
The Department has the burden of proof in this case.
The standard of proof is clear and convincing evidence. See
Department of Banking and Finance Division of Securities and Investor Protection v. Osborne Stern and Co., 670 So. 2d 932 (Fla. 1996).
Pursuant to Section 440.10, Florida Statutes, a contractor is required to secure the payment of workers’ compensation for the benefit of subcontractors if the subcontractor has not secured and paid compensation. Strict compliance with the Workers' Compensation Law is, therefore, required by the employer. See Griggs v. Ryder, 625 So. 2d 950, 951 (Fla. 1st DCA 1993).
Section 440.10, Florida Statutes (2002) (as well as the 2006 version), states, in relevant part:
440.10. Liability for compensation
(1)(a) Every employer coming within the provisions of this chapter shall be liable for, and shall secure, the payment to his or her employees. . . . 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.
In case a contractor sublets any part or parts of his or her contract work to a subcontractor or subcontractors, all of the employees of such contractor and subcontractor or subcontractors engaged on such contract work shall be deemed to be employed in one and the same business or
establishment, and the contractor shall be liable for, and shall secure, the payment of compensation to all such employees, except to employees of a subcontractor who has secured such payment.
A contractor shall require a subcontractor to provide evidence of workers' compensation insurance. A subcontractor who is a corporation and has an officer who elects to be exempt as permitted under this chapter shall provide a copy of his or her certificate of exemption to the contractor.
"Employer" is defined, in relevant part, as "every person carrying on any employment . . ." § 440.02(16), Fla. Stat. (2002) and (2006). "'Employment' . . . means any service performed by an employee for the person employing him or her.
. . . [and] with respect to the construction industry, [includes] all private employment in which one or more employees are employed by the same employer." § 440.02(17)(a) and (b)2., Fla. Stat. (2002) and (2006).
"Employee" was defined in Subsection 440.02(15), Florida Statutes (2002), as:
“Employee” means any person engaged in any employment under any appointment or contract of hire or apprenticeship, express or implied, oral or written, whether lawfully or unlawfully employed. . . .
Subsection 440.02(15), Florida Statutes, was subsequently amended by the Legislature and now provides in pertinent part:
“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.
Subsection 440.02(15), Florida Statutes, further defines “employee” for purposes of the Workers’ Compensation Law and states:
(c) “Employee” includes:
* * *
All persons who are paid by a construction contractor as a subcontractor, unless the subcontractor has validly elected an exemption as permitted by [Chapter 440], or has otherwise secured the payment of compensation coverage as a subcontractor, consistent with s. 440.10, for work performed as a subcontractor.
An independent contractor working or performing services in the construction industry.
Id. at (15)(c)2. and 3. This definition went into effect on January 1, 2004.
Thus, under the law in effect in this case from January 1, 2004, forward, subcontractors and independent contractors in the construction industry are considered to be employees of an employer or contractor who pays them remuneration. Respondent’s contention that his workers were
actually independent contractors is an admission that they were his employees, at least for the purposes of the Workers’ Compensation Law.
Prior to January 1, 2004, Subsection 440.02(15), Florida Statutes (2002), was the effective statutory definition of “employee” for Chapter 440, Subsection 440.02(15), Florida Statutes (2002), which stated, in relevant part:
1. . . . For purposes of this chapter, an independent contractor is an employee unless he or she meets all of the conditions set forth in subparagraph (d)1.
* * *
“Employee” does not include:
1. An independent contractor if:
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. [Emphasis supplied]
Id.
For the portion of the penalty period prior to
January 1, 2004, Respondent has the burden of proving that its workers are independent contractors rather than employees. In Department of Financial Services v. WMW Enterprises, d/b/a Family Flooring, p. 16, Case No. 05-2651 (DOAH February 6, 2006) (Final Order March 28, 2006), it was stated:
Family Flooring contends that the four subcontractors that it hired were not employees, but independent contractors; and, therefore, Family Flooring was not required
to secure workers’ compensation coverage for the subcontractors. Family Flooring’s claim is in the nature of an affirmative defense. As to an affirmative defense, the burden of proof is on the party asserting the defense. See Captain’s Table, Inc. v. Khouri, 208 So. 2d 677 (Fla. 4th DCA 1968). By asserting the affirmative, as to the status of the four contractors, Family flooring has the burden to show that they were independent contractors.
Id.; see also Department of Labor and Employment Security, Div. Of Workers’ Compensation v. Nelly, DOAH Case No. 00- 1748 (DOAH June 5, 2001) (Final Order, p. 9, September 20, 2001). (“A claim that workers are independent contractors rather than employees is in the nature of an affirmative defense. Ordinarily the burden of proof is assigned to the party asserting the affirmative. The facts necessary to establish the exception are more readily obtained by the employer than the Division. . . . Section 440.02(14)(d)1. expresses no Legislative intent to assign the Division the difficult burden of proving the negative.”) appeal dismissed, Fla. 1st DCA Case No. 1D01-4183 (June 5 2002).
Subsection 440.107(5), Florida Statutes, requires Petitioner to “specify by rule the business records that employers must maintain and produce to comply with [Section 440.107].” Florida Administrative Code Rule 69L-6.015(10)(b) requires employers to maintain employment, payroll, and contract
records and produce them at the request of Petitioner, and states, in relevant part:
(10) Contracts. Each employer shall maintain:
Id.
* * *
(b) Any records that establish the statutory elements of independent contractor prescribed in Section 440.02(15)(d), F.S., for each worker who claims to be or who the employer claims to be an independent contractor and not an employee under the workers’ compensation law. [Emphasis added]
"Construction Industry" is defined in Subsection
440.02(8), Florida Statutes, as follows:
"Construction Industry" means for-profit activities involving any building, clearing, filling, excavation, or substantial improvement in the size or use of any structure or the appearance of any land.
However, "construction" does not mean a homeowner's act of construction or the result of a construction upon his or her own premises, provided such premises are not intended to be sold, resold, or leased by the owner within 1 year after the commencement of construction. The division may, by rule, establish standard industrial classification codes and definitions thereof which meet the criteria of the term "construction industry" as set forth in this section.
Classification codes and definitions are found in Florida Administrative Code Rule 69L-6.021, which adopts by reference the Florida Contracting Classification Premium Adjustment
Program, as published in the Florida exception pages of the National Council on Compensation Insurance, Inc. (NCCI) Basic Manual. Included at subpart (jj) of the Rule is the code 5478, defined as "Carpet, Linoleum, Vinyl, Asphalt or Rubber Floor Tile Installation."
Petitioner issued the Stop Work Order and the Amended Stop Work Order under Subsection 440.107(7)(a), Florida Statutes (2006), which states:
Whenever the department determines that an employer who is required to secure the payment to his or her employees of the compensation provided for by this chapter has failed to secure the payment of workers' compensation required by this chapter or to produce the required business records under subsection (5) within 5 business days after receipt of the written request of the department, such failure shall be deemed an immediate serious danger to public health, safety, or welfare sufficient to justify service by the department of a stop-work order on the employer, requiring the cessation of all business operations. . . .
The order shall remain in effect until the department issues an order releasing the stop-work order upon a finding that the employer has come into compliance with the coverage requirements of this chapter and has paid any penalty assessed under this section. The 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. [Emphasis added]
Id.
Petitioner calculated the penalty assessment pursuant to Subsection 440.107(7)(d)1., Florida Statutes, which states:
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.
Petitioner satisfied its burden of proving that Respondent failed to secure the payment of workers’ compensation as that term is defined in Subsection 440.107(7)(2), Florida Statutes, and correctly assessed the penalty prescribed in Subsections 440.107(7)(c) and (d), Florida Statutes, for such failure.
Despite the lack of any traditional employer-employee arrangement between Respondent and his workers, they are by definition "employees" for workers' compensation purposes. It is clear that Respondent was not aware of this fact and did not intentionally fail to provide workers' compensation coverage. However, neither the statutes nor the rules allow a person to be excused due to failure to understand the prescribed definition of employee.
Petitioner, who as the party asserting the affirmative of the issue, has the burden of proof in this matter. Balino v.
Department of Health and Rehabilitative Services, 348 So. 2d 349 (Fla. 1st DCA 1988). Petitioner has met its burden.
RECOMMENDED that a final order be entered by the Department of Financial Services upholding the Penalty assessed against Respondent for failure to provide workers' compensation coverage for employees. Inasmuch as the parties have already agreed to a payment plan, it is RECOMMENDED that the plan remain in effect until the penalty has been paid.
DONE AND ENTERED this 22nd day of March, 2007, in Tallahassee, Leon County, Florida.
R. BRUCE MCKIBBEN Administrative Law Judge
Filed with the Clerk of the Division of Administrative Hearings this 22nd day of March, 2007.
1/ Unless otherwise stated, all references to Florida Statutes herein shall be to the 2006 version.
Stephen H. Thomas, Jr., Esquire Colin M. Roopnarine, Esquire Department of Financial Services Division of Legal Services
Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
Daniel Summer, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0307
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.
