STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL SERVICES, DIVISION OF WORKERS' COMPENSATION,

Petitioner,

vs.

CIELO RESIDENTIAL DESIGN AND CONSTRUCTION, INC.,

Respondent.

/

Case No. 15-4525

RECOMMENDED ORDER

Pursuant to notice, a final hearing was held in this case on October 9, 2015, before Garnett W. Chisenhall, a duly- designated Administrative Law Judge of the Division of Administrative Hearings, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Trevor S. Suter, Esquire

Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399-4229

For Respondent: Kathleen A. Larriviere, President

Cielo Residential Design & Construction, Inc.

10090 Deerwood Club Road Jacksonville, Florida 32256

STATEMENT OF THE ISSUES

The issues are whether the Respondent, Cielo Residential Design and Construction, Inc. (Cielo), failed to secure workers’

compensation insurance as required by chapter 440, Florida Statutes (2014); and, if so, what penalty should be imposed.

PRELIMINARY STATEMENT

This proceeding arose out of the requirement in Florida’s Workers’ Compensation Law that employers must secure the payment of workers’ compensation insurance for their employees.

On April 24, 2015, the Department of Financial Services, Division of Workers’ Compensation (the Department), issued a Stop-Work Order requiring Cielo to cease all business operations in Florida due to the Department’s determination that Cielo had failed to obtain workers’ compensation insurance. Pursuant to section 440.107(7)(d), the Department also required Cielo to pay a penalty equal to two times the premiums Cielo would have paid to secure coverage during periods within the preceding two years when it had failed to do so, or $1,000, whichever was greater.

After reviewing business records provided by Cielo, the Department issued an Amended Order of Penalty Assessment on June 1, 2015, assessing a penalty of $162,106.06. Upon reviewing additional documentation from Cielo, the Department issued a 2nd Amended Order of Penalty Assessment on July 10, 2015, reducing the assessed penalty to $91,023.60. Cielo disagreed with that determination, and the Department referred the case to the Division of Administrative Hearings on

August 13, 2015, for assignment of an Administrative Law Judge.

The case was assigned to the undersigned, who scheduled the case to be heard on October 9, 2015.

The final hearing proceeded as scheduled with both parties present. During the final hearing, the Department presented testimony from two of its employees: Jose Bird, an investigator for workers’ compensation compliance; and Lawrence Pickle, a penalty audit supervisor. In addition, the Department’s Exhibits 1, 2, and 4 through 12 were admitted into evidence.

However, with regard to Exhibit 10, only two pages within the composite exhibit have been considered. Furthermore, statements by the Department’s attorney set forth in e-mails within Exhibit

11 have been disregarded.

The one-volume Transcript of the final hearing was filed on October 26, 2015, and due consideration was given to the Proposed Recommended Orders filed by Cielo and the Department.

Unless indicated otherwise, all references will be to the 2014 version of the Florida Statutes.

FINDINGS OF FACT

1. The Department is the state agency charged with enforcing the requirement in chapter 440, that employers in Florida secure workers’ compensation coverage for their employees.

2. While an exemption can be obtained for up to three corporate officers, any employer in the construction industry

   
   

   with at least one employee must have workers’ compensation coverage. § 440.02(15), Fla. Stat.

3. At all times relevant to the instant case, Cielo was a Florida-based corporation with its principal office located at 10090 Deerwood Club Road, Jacksonville, Florida 32256.

4. Jose Bird is a Department investigator who visits construction sites and verifies whether workers’ compensation coverage has been secured.

5. On April 24, 2015, Mr. Bird visited a construction site at 1844 Packard Avenue in Jacksonville, Florida and observed John Hockenberry, Jesse Brown, Robert Singleton, and Coty Moore doing carpentry work there.

6. After speaking with those four individuals and learning that they were employed by Cielo, Mr. Bird returned to his car and accessed the Department’s Coverage and Compliance Automated System (CCAS) to ascertain whether Cielo had obtained workers’ compensation coverage for the aforementioned individuals. CCAS indicated that Cielo had no coverage.

7. After relaying this information to his supervisor,

   
   

   Mr. Bird received authorization to serve Mr. Hockenberry with a Stop-Work Order, and he did so on April 24, 2015.

8. That Stop-Work Order required Cielo to “cease all business operations for all worksites in the State” based on the

   
   

   Department’s determination that Cielo had failed to obtain workers’ compensation coverage.

9. In addition, the Department notified Cielo that it would be penalized an amount, “equal to 2 times the amount [Cielo] would have paid in premium when applying approved manual rates to the employer’s payroll during periods for which it [had] failed to secure the payment of compensation within the preceding 2-year period.”

10. Along with the Stop-Work Order, Mr. Bird also served a “Request for Production of Business Records for Penalty Assessment Calculation” (the BRR). In order to ascertain Cielo’s payroll disbursements during the relevant time period and the resulting penalty for Cielo’s failure to obtain workers’ compensation coverage, the BRR requested Cielo to remit several different types of business records covering the period from July 15, 2013 through April 24, 2015 (i.e., the audit period). The business records sought by the Department included items such as time sheets, payroll summaries, check journals, certificates of exemption, and evidence that any Cielo subcontractors had obtained workers’ compensation coverage.

11. Section 440.107(7)(e) provides that if an employer failed to provide business records sufficient to enable the Department to ascertain the employer’s actual payroll for the time period in question, then the Department would impute the

    
    

    employer’s payroll based on the statewide average weekly wage, multiplied by two.

12. After Cielo responded to the BRR, the Department reviewed the provided records and served an Amended Order of Penalty Assessment on June 1, 2015, stating that the Department was seeking to impose a penalty of $162,106.06.

13. Cielo then provided additional records which led to the Department issuing a 2nd Amended Order of Penalty Assessment, stating that the proposed penalty had been reduced to $91,023.60.

14. Cielo continued to provide records that led to the preparation and issuance of a Fourth Amended Order of Penalty Assessment on the day prior to the final hearing in this matter. Through that Order, the Department notified Cielo that it was seeking to impose a penalty of $23,447.60.

15. Lawrence Pickle, a penalty auditor for the Department, calculated the penalties set forth in the aforementioned Orders of Penalty Assessment.

16. With regard to the Fourth Amended Order of Penalty Assessment, Mr. Pickle testified that he utilized a penalty calculation worksheet which the Department has incorporated by reference through Florida Administrative Code Rule 69L-6.027.

17. Mr. Pickle was able to use the business records provided by Cielo to identify the people employed by Cielo during

    
    

    the audit period and listed those employees in the penalty calculation worksheet.

18. Through review of the business records provided by Cielo, Mr. Pickle was also able to ascertain the nature of those employees’ work and assigned each employee a classification code from the Scopes® Manual, which has been adopted by the Department through rule 69L-6.021.

19. Classification codes pertain to various occupations or types of work, and each one has an approved manual rate used by insurance companies to assist in the calculation of workers’ compensation insurance premiums.

20. An approved manual rate corresponds to the risk associated with a particular occupation or type of work. For example, class code 8810 pertains to clerical work and has a lower manual rate than class code 5645 for carpentry.

21. Using the approved manual rates and the wages paid during the audit period, Mr. Pickle determined the individual insurance premiums Cielo would have paid for the employees identified by Mr. Pickle if Cielo had procured workers’ compensation coverage during the audit period.

22. Then, and as required by section 440.107(d)(1),

    
    

    Mr. Pickle multiplied each individual premium by two in order to calculate the penalty associated with each employee for whom records were available.

    
    

23. With the exception of April 24, 2015, Mr. Pickle was able to use the records provided by Cielo to ascertain the payroll amounts. As for the penalty associated with April 24, 2015, Mr. Pickle followed the same process set forth above. However, and as required by section 440.107(7)(e), Mr. Pickle calculated the wages from April 24, 2015, by using the statewide average weekly wage for the time period in question and then multiplying that number by two.

24. Kathleen Larriviere, the president and managing partner of Cielo, appeared on Cielo’s behalf at the final hearing.

25. While testifying, Ms. Larriviere described the nature of Cielo’s business as renovations and additions to homes. In addition, she acknowledged that Cielo is in the construction industry.

26. Ms. Larriviere asserted during the final hearing and in her Proposed Recommended Order that she had decided against procuring workers’ compensation coverage at Cielo’s inception based on the advice of her accountant and on her own interpretation of section 440.02(15)(d).

27. Specifically, Ms. Larriviere concluded that Cielo’s employees were independent contractors and exempt from the workers’ compensation requirement because they satisfied many of the criteria enumerated under section 440.02(15)(d).

    
    

28. However, and as discussed in the Conclusions of Law below, Ms. Larriviere clearly misread the statute. Even if Cielo’s employees are independent contractors within the meaning of section 440.02(15)(d), the statute clearly specifies that an independent contractor engaged in the construction industry is an “employee” for purposes of chapter 440.

29. The Department has proven by clear and convincing evidence that Cielo was required to have workers’ compensation coverage during the time period in question and violated chapter 440 by failing to do so.

30. As for the $23,447.60 penalty sought by the Department, Ms. Larriviere stated during the final hearing that if Cielo had been required to have workers’ compensation insurance during the time period in question, then Mr. Pickle’s calculations were accurate.

    CONCLUSIONS OF LAW

    
    

31. The Division of Administrative Hearings has jurisdiction over the subject matter and the parties to this action in accordance with sections 120.569 and 120.57(1), Florida Statutes (2015).

32. Chapter 440 is known as the “Workers’ Compensation Law.” § 440.01, Fla. Stat. (2015).

33. In this case, the Department is seeking an administrative fine. Accordingly, the Department bears the

    
    

    burden of proof and must establish its case by clear and convincing evidence. Dep't of Banking and Fin. v. Osborne Stern & Co., 670 So. 2d 932, 935 (Fla. 1996); Ferris v. Turlington,

    510 So. 2d 291 (Fla. 1987).

    
    

34. Clear and convincing evidence “requires more proof than a ‘preponderance of the evidence’ but less than ‘beyond and to the exclusion of a reasonable doubt.’” In re Graziano, 696 So. 2d 744, 753 (Fla. 1997). As stated by the Florida Supreme Court:

    Clear and convincing evidence requires that the evidence must be found to be credible; the facts to which the witnesses testify must be distinctly remembered; the testimony must be precise and lacking in confusion as to the facts in issue. The evidence must be of such a weight that it produces in the mind of the trier of fact a firm belief or conviction, without hesitancy, as to the truth of the allegations sought to be established.

    
    

    In re Henson, 913 So. 2d 579, 590 (Fla. 2005)(quoting Slomowitz

    
    

    v. Walker, 429 So. 2d 797, 800 (Fla. 4th DCA 1983)). “Although this standard of proof may be met where the evidence is in conflict, it seems to preclude evidence that is ambiguous.” Westinghouse Electric Corp. v. Shuler Bros., 590 So. 2d 986, 989 (Fla. 1991).

35. To meet this burden, the Department must demonstrate that: (a) Respondent was required to comply with the Workers' Compensation Law; (b) that Respondent failed to comply with the

    
    

    requirements of the Workers' Compensation Law; and that (c) the penalty assessed by the Department is appropriate.

36. As for the first requirement, every employer is required to secure workers' compensation coverage for the benefit of its employees, unless exempted or excluded under chapter 440. Indeed, the Legislature has declared that “the failure of an employer to comply with the workers’ compensation coverage requirements under [chapter 440] poses an immediate danger to public health, safety, and welfare.” § 440.107(1), Fla. Stat. (2015).

37. Employment is defined in section 440.02(17)(a) as "any service performed by an employee for the person employing him or her" and includes "with respect to the construction industry, all private employment in which one or more employees are employed by the same employer.” § 440.02(17)(b)2., Fla. Stat.

38. An employee is defined in pertinent part as "any person who receives remuneration from an employer for the performance of any work or service while engaged in any employment "

    § 440.02(15)(a), Fla. Stat.

    
    

39. The term "employee" also includes "[a]n independent contractor working or performing services in the construction industry." § 440.02(15)(c)3., Fla. Stat.

40. Thus, in the construction industry, the "employee" definition "eliminates any legal significance in the distinction

    
    

    between an employee and an independent contractor under the Workers' Compensation Law." Bend v. Shamrock Servs., 59 So. 3d 153, 155 (Fla. 1st DCA 2011).

41. With regard to the instant case, there is no dispute that Cielo compensated individuals for work or services associated with the construction industry.

42. Nevertheless, Cielo asserts that it was not required to comply with the Workers' Compensation Law because the aforementioned individuals were independent contractors rather than “employees.”

43. However, Cielo’s argument is completely contrary to the plain language of section 440.02(15)(c). Cielo’s argument is also contrary to section 440.02(15)(d), which provides that the term “employee” does not include “[a]n independent contractor who is not engaged in the construction industry.”

44. Accordingly, the Department has satisfied its burden of demonstrating that Cielo was required to comply with the Workers’ Compensation Law and failed to do so.

45. As for the penalty the Department is seeking to impose, Cielo agreed that the Department’s calculations were accurate if it were ultimately determined that Cielo was required to have workers’ compensation coverage in place during the time period in question.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services, Division of Workers’ Compensation, enter a final order finding that Cielo Residential Design & Construction, Inc., failed to secure the payment of workers’ compensation insurance coverage at certain times between July 15, 2013 through

April 24, 2015, in violation of section 440.107, and imposing a penalty of $23,447.60.

DONE AND ENTERED this 24th day of November, 2015, in Tallahassee, Leon County, Florida.

S

G. W. CHISENHALL Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675

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

Filed with the Clerk of the Division of Administrative Hearings this 24th day of November, 2015.

COPIES FURNISHED:

Trevor S. Suter, Esquire Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399-4229 (eServed)

Kathleen A. Larriviere, President

Cielo Residential Design & Construction, Inc. 10090 Deerwood Club Road

Jacksonville, Florida 32256 (eServed)

Julie Jones, CP, FRP, Agency Clerk Division of Legal Services Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399-0390 (eServed)

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: 15-004525

Orders for Case No: 15-004525