STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

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

)

Petitioner, )

)

vs. ) Case No. 06-4198

) BLUE DIAMOND DECO STONE, INC., )

)

Respondent. )

________ )

RECOMMENDED ORDER

Robert E. Meale, Administrative Law Judge of the Division of Administrative Hearings, conducted the final hearing on December 14, 2006. Respondent's corporate representative and attorney and Petitioner's investigator attended the hearing by videoconference in Miami, Florida, and the Administrative Law Judge and Petitioner's counsel attended the hearing by videoconference in Tallahassee, Florida.

APPEARANCES

For Petitioner: Colin M. Roopnarine

Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399-4229

For Respondent: Michael A. Shaffir

Carlton Fields, P.A.

100 Southeast Second Street, Suite 4000 Miami, Florida 33131

STATEMENT OF THE ISSUES

The issues are whether Respondent failed to obtain required workers' compensation insurance and, if so, the penalty that should be imposed.

PRELIMINARY STATEMENT

By Amended Order of Penalty Assessment dated April 12, 2006, Petitioner recited that it issued a stop-work order on Respondent on March 24, 2006, for its failure to obtain workers' compensation coverage, as required by Section 440.107(2), Florida Statutes, and assessed Respondent a penalty of

$13,835.37, pursuant to Section 440.107(7)(d), Florida Statutes. Respondent timely requested a hearing.

At the hearing, Petitioner called one witness and offered into evidence 13 exhibits: Petitioner Exhibits 1-13.

Respondent called one witness and offered into evidence no exhibits. All exhibits were admitted.

The court reporter filed the transcript on December 19, 2006. The parties filed their Proposed Recommended Orders by

January 12, 2007.

FINDINGS OF FACT

1. Manuel Farinas owns Respondent, which has been in existence since 2001 or 2002. He is an officer of the company, as is his wife. Respondent provides construction services-- specifically, the installation of decorative tiles and stones in

   residences--as a subcontractor to residential contractors. Prior to forming Respondent, Mr. Farinas performed similar services, but he has never previously owned a corporation such as Respondent.

2. On March 24, 2006, an investigator of Respondent visited a worksite at 6620 Holmberg Road in Coconut Creek. The investigator saw several contractors enter and exit the residence. Among them was Respondent and another man, who were installing stone at the residence. During the course of their work, they went back and forth from the residence to a work van marked with Respondent's name.

3. The investigator approached the two men, who were Mr. Farinas and his assistant, Christopher Crespo. The

   investigator asked Mr. Farinas for proof of workers' compensation coverage, but he was unable to provide it because Respondent had not obtained any workers' compensation insurance.

4. Clearly, Mr. Farinas was an employee of Respondent.

   
   

   For purposes of withholding taxes and paying Social Security, Respondent treated Mr. Farinas's assistants as independent contractors, issuing them Form 1099s at the end of the year. However, they were clearly involved in the construction industry, although the evidence fails to establish that they were not independent contractors, for the purpose of workers' compensation coverage, prior to 2004.

5. By Amended Order of Penalty Assessment dated April 12, 2006, Petitioner noted that it had issued a stop-work order to Respondent on March 24, 2006, determined that Respondent had failed to obtain workers' compensation insurance, and assessed a penalty of $13,835.37. Attached to the Amended Order is a worksheet that lists a dozen payees on which Petitioner relies in calculating the total penalty.

6. Mr. Farinas candidly testified that the following payees were, from time to time, assistants who helped him install decorative stone and tile: Mr. Crespo, Jahmar Suarez, Michael Sanchez, Roberto Carvahal, Roberto Arquello, Guillermo Gonzalez, Mikel Gonzalez, and Yunier Nunez. The penalty attributeable to these persons totals $3172.10.

7. Mr. Farinas is also a payee on the worksheet. The penalty attributeable to him totals $2554.72.

8. The worksheet lists three other payees: Martineax Stone Service, for which the penalty is $5602.80; "subcontractors," for whom the penalty is $2482.62; and Ana Gonzalez, for whom the penalty is $23.13. However, Martineax was a supplier of stone and tile, not an employee or independent contractor, so Petitioner improperly used the payments to Martineax to calculate the penalty. Ms. Gonzalez was not a stoneworker, but an officeworker, so Petitioner used an excessively high rate to calculate the unpaid premium.

   "Subcontractors," though, is a legitimate inclusion because, during the January 1 to June 1 period covered by this category, no other listed payee received any payments from Respondent.

9. After reducing the proposed penalty for the amounts of the penalty improperly attributed to Martineax and Ms. Gonzalez, the penalty is $8209.44. However, for the reasons set forth in the Conclusions of Law, Petitioner has failed to prove that the penalty should be based on any payments to independent contractors prior to 2004. Excluding from this adjustment two payments to Martineax (to avoid a double reduction), the portion of the penalty improperly attributed to these pre-2004 payments is

   $2676.50. The correct penalty is thus $5532.94.

   
   

   CONCLUSIONS OF LAW

   
   

10. The Division of Administrative Hearings has jurisdiction over the subject matter. §§ 120.569, 120.57(1), and 440.107(13), Fla. Stat. (2006).

11. Except as noted below, the burden of proof is on Petitioner. Department of Banking and Finance v. Osborne Stern

    and Company, Inc., 670 So. 2d 932 (Fla. 1996) and Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987). Petitioner concedes in its proposed recommended order that the standard of proof is clear and convincing evidence, but the result would be the same if the standard were merely a preponderance of the evidence, so it is unnecessary to determine the proper standard of proof.

12. Section 440.10(1)(a), (b), and (c), Florida Statutes, (2005), provides:

    1. 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.

    2. 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.

    3. 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.

       
       

13. Section 440.02(15), Florida Statutes, discusses the treatment of employees and independent contractors:

    (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.

    1. "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.

       2. As to officers of a corporation who are engaged in the construction industry, no more than three officers of a corporation or of any group of affiliated corporations may elect to be exempt from this chapter by filing written notice of the election with the department as provided in s. 440.05. . . .

       3. An officer of a corporation who elects to be exempt from this chapter by filing a written notice of the election with the department as provided in s. 440.05 is not an employee.

          
          

          * * *

          
          

    2. "Employee" includes:

       1. A sole proprietor or a partner who is not engaged in the construction industry, devotes full time to the proprietorship or partnership, and elects to be included in the definition of employee by filing notice thereof as provided in s. 440.05.

       2. All persons who are being paid by a construction contractor as a subcontractor, unless the subcontractor has validly elected an exemption as permitted by this chapter, or has otherwise secured the payment of compensation coverage as a subcontractor, consistent with s. 440.10, for work performed by or as a subcontractor.

       3. An independent contractor working or performing services in the construction industry.

       4. A sole proprietor who engages in the construction industry and a partner or partnership that is engaged in the construction industry.

    3. "Employee" does not include:

       1. An independent contractor who is not engaged in the construction industry.

    
    

    * * *

    
    

    c. Notwithstanding anything to the contrary in this subparagraph, an individual claiming to be an independent contractor has the burden of proving that he or she is an independent contractor for purposes of this chapter.

    
    

14. The above-cited provisions treat independent contractors in the construction industry differently from other independent contractors. Once determined to qualify as independent contractors under the several statutory criteria, independent contractors outside the construction industry are not employees for the purpose of workers' compensation coverage. But independent contractors within the construction industry are employees for the purpose of workers' compensation coverage, unless they are subcontractors who have elected an exemption or provided workers' compensation coverage of their own. Likewise, officers who perform services are employees for workers' compensation purposes, unless they have elected to be exempt. The last-quoted provision clearly imposes the burden on the independent contractor of proving his status as such.

15. In Chapter 2003-412, § 2, Laws of Florida, effective

    
    

    January 1, 2004, the Legislature amended Section 401.02(15)(c)(3) and (d)1 and (d)1.c, Florida Statutes, so as generally to require

    workers' compensation coverage for independent contractors in the construction industry and to impose the burden of proving independent contractor status on the person claiming to be an independent contractor. Thus, former law applies to the portion of the worksheet that bases penalties on payments to independent contractors prior to 2004. The Legislature changed the law because, under the prior law, persons could avoid workers' compensation coverage by claiming they were independent contractors, even in the construction industry, and the burden was on Petitioner to prove that they were not.

16. Petitioner has failed to prove that the pre-2004 payees were not independent contractors, so the penalty must be reduced by the amounts generated from payments prior to 2004. The portion of the penalty derived from pre-2004 payments--not already excluded as payments to Martineax--is $2676.50.

17. Section 440.107(7)(d)1., Florida Statutes (2005), authorizes Petitioner to impose a penalty equal to 1.5 times what the employer would have paid in workers' compensation premium, based on the rate applicable to the omitted employees. Except for the failure to provide the proper rate for Ms. Gonzalez, Petitioner calculated the penalty in accordance with this statute, subject, of course, to the other adjustments set forth above.

18. Section 440.107(7)(a), Florida Statutes (2005), authorizes Petitioner to issue a stop-work order for a failure to

obtain workers' compensation insurance and to maintain the stop- work order until the employer comes into compliance with the workers' compensation laws.

RECOMMENDATION

Based on the foregoing, it is

RECOMMENDED that the Department of Financial Services enter a final order finding Respondent guilty of failing to obtain workers' compensation insurance, imposing a penalty of $5532.94 on Respondent, and maintaining the stop-work order until Respondent complies with all applicable workers' compensation laws.

DONE AND ENTERED this 21st day of February, 2007, in Tallahassee, Leon County, Florida.

S

ROBERT E. MEALE

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 21st day of February, 2007.

COPIES FURNISHED:

Honorable Alex Sink Chief Finacial Officer

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

Daniel Sumner, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahssee, Florida 32399-0307

Colin M. Roopnarine

Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399-4229

Michael A. Shaffir Carlton Fields, P.A.

100 Southeast Second Street, Suite 4000 Miami, Florida 33131

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 must be filed with the agency that will issue the final order in this case.

Docket for Case No: 06-004198

Orders for Case No: 06-004198