STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL SERVICES, DIVISION OF WORKERS' COMPENSATION,

Petitioner,

vs.

PERMA-SEAL, INC.,

Respondent.

/

Case No. 16-2659

RECOMMENDED ORDER

Pursuant to notice, a formal administrative hearing was conducted before Administrative Law Judge Mary Li Creasy in Bradenton, Florida, on July 22, 2016.

APPEARANCES

For Petitioner: Trevor S. Suter, Esquire

Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399

For Respondent: Felecia Bly, pro se

Perma-Seal, Inc. c/o Glenn Bly

3910 Golf Park Loop, Suite 1

Bradenton, Florida 34203 STATEMENT OF THE ISSUES

Whether Respondent violated the provisions of chapter 440, Florida Statutes (2016), by failing to secure the payment of workers' compensation coverage, as alleged in the Second Amended

Order of Penalty Assessment; and, if so, what penalty is

appropriate.

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 October 22, 2015, Petitioner, Department of Financial Services, Division of Workers' Compensation ("Department"), served an Order of Penalty Assessment ("OPA") on Respondent, Perma-Seal, Inc., for failing to secure workers' compensation for its employees as required by chapter 440. Respondent timely filed a request for a formal administrative hearing. An Amended OPA was issued on January 15, 2016. A 2nd Amended OPA was issued on July 18, 2016, in the amount of $43,542.16.

On May 17, 2016, this matter was referred to the Division of Administrative Hearings ("DOAH"). This matter was transferred to the undersigned on July 14, 2026.

On July 22, 2016, the final hearing was held as scheduled.

The Department presented the testimony of Germaine Green, compliance investigator, and Christopher Richardson, penalty auditor. The Department offered Exhibits 1 through 11, which were admitted into evidence. Felecia Bly, owner of Perma-Seal, Inc., testified for Respondent.

The Transcript of the final hearing was filed with DOAH on October 5, 2016. Both parties timely filed proposed recommended orders, which have been considered in the preparation of this Recommended Order.1/

References to statutes and rules are to the 2016 versions, unless otherwise indicated.

FINDINGS OF FACT

1. The Department is the state agency responsible for enforcing the requirement of chapter 440 that employers in Florida secure the payment of workers' compensation coverage for their employees and corporate officers. § 440.107, Fla. Stat.

2. Respondent sells roof coating and provides installation services in the Bradenton, Florida, area.

   The Investigation

   
   

3. On April 20, 2015, the Department received a public referral that Respondent was operating without a roofing license or workers' compensation coverage. The case was assigned by the Department to Compliance Investigator Germaine Green ("Green").

4. Green first checked the Florida Department of State, Division of Corporations, Sunbiz website to verify Respondent's status as an active corporation. Green then checked the Department's Coverage and Compliance Automated System ("CCAS") to see whether Respondent had a workers' compensation policy or any exemptions.

   
   

5. An exemption is a method in which a corporate officer can exempt himself from the requirements of chapter 440. See

   § 440.05, Fla. Stat.

   
   

6. CCAS is the Department's internal database that contains workers' compensation insurance policy information and exemption information. Insurance providers are required to report coverage and cancellation information, which is then input into CCAS.

7. Green's CCAS search revealed that Respondent had no coverage or exemptions during the relevant period.

8. Because Green was not aware of any specific job site at which Respondent was working, she issued a Business Records Request ("BRR") No. 1 to Respondent seeking records for an audit period of January 1, 2015, through April 29, 2015, to determine compliance.

9. Respondent provided payroll records and bank statements.

   
   

   Respondent's president, Felecia Bly ("Bly"), contacted Green and described the nature of the business as a roof coating business that sells a sealant that coats roofs to seal leaks and extend their longevity.

10. Bly explained that Respondent used commissioned salesmen to review the county assessor's website to determine the square footage of a residence. The salesman then contacted property owners to determine whether they experienced leaks and offered the product and installation. The salesmen did not go on

    
    

    the roofs. Respondent considered its salesmen independent contractors to whom they issued IRS Forms 1099.

11. Respondent used subcontractors to perform the installations. According to Respondent, these workers had their own businesses or exemptions. Respondent also used the services of part-time workers for a short period that addressed and sent post cards marketing Respondent's business.

12. Based on her conversation with Bly, Green determined that the business should be categorized as "roofing," which is classified as National Council on Compensation Insurance ("NCCI") class code 5551 and is considered a type of construction activity under Florida Administrative Code Rule 69L-6.021(2)(cc).

13. Green also determined Respondent was non-compliant with the obligation to secure workers' compensation coverage for its workers. The corporate officers did not have exemptions, and several individuals, identified as sales and roofing subcontractors, did not have their own businesses or exemptions and, therefore, were employees.

14. Petitioner did not issue a Stop-work Order because Respondent came into compliance on June 22, 2015, by securing exemptions for the corporate officers.

15. Petitioner issued a BRR No. 5 for additional records from July 1, 2013, through June 21, 2015, to make a penalty calculation for the two-year period of non-compliance.

    
    

    Penalty Calculation

    
    

16. The Department assigned Penalty Auditor Christopher Richardson ("Richardson") to calculate the penalty assessed against Respondent.

17. Richardson reviewed the business records produced by Respondent and properly identified the amount of gross payroll paid to Respondent's workers on which workers' compensation premiums had not been paid. Richardson researched Respondent's corporate officers and Respondent's subcontractors to determine those periods when they were not compliant with chapter 440 during the audit period. Richardson determined that Respondent was not compliant for the period of June 22, 2013, through

    June 21, 2015. Respondent's compliant subcontractors (those with their own workers' compensation insurance or exemptions) were not included in the penalty.

18. The business records ultimately produced by Respondent were sufficient for Richardson to calculate a penalty for the entire audit period.

19. The initial OPA was in the amount of $257,321.16.

    
    

    After receiving and reviewing additional records supplied by Respondent, an Amended OPA was issued in the amount of

    $51,089.52. After a deposition of Bly's assistant, Sueann Rafalski ("Rafalski"), who provided additional details regarding those individuals and businesses identified in the Amended OPA, a

    
    

    2nd Amended OPA was issued on July 18, 2016, in the amount of

    
    

    $43,542.16.

    
    

20. During the hearing, Respondent disputed a few items that the Department subsequently voluntarily removed in the 3rd Amended OPA. The Department's Motion for Leave to Amend Order of Penalty Assessment was granted on September 29, 2016. Respondent disputed the inclusion of referral fees to Hicks and Campbell, a customer reimbursement payment to Robert Nyilas, payment to House Medic for work done on the Bly's home, and a loan repayment to the Bly's son, Brian Bly. The Department correctly removed any penalties associated with Hicks, Campbell, Robert Nyilas, House Medic, and Brian Bly. The Department also removed $14,200.00 from the penalty that Respondent disputed as repayments toward a

    $150,000.00 loan from its corporate officers.

    
    

21. Respondent continues to dispute the penalty calculation for all others identified in the 3rd Amended OPA, except for the inclusion of the payment to Unexpected Blessings.

22. For the penalty assessment calculation, Richardson consulted the classification codes listed in the Scopes® Manual, which has been adopted by the Department of Financial Services through rules 69L-6.021 and 69L-6.031. Classification codes are assigned to various occupations to assist the calculation of workers' compensation insurance premiums.

    
    

23. Richardson assigned the class codes based on information provided by Bly. Richardson then utilized the corresponding approved manual rates for those classification codes and the related periods of non-compliance.

24. Richardson applied the correct approved manual rates and correctly utilized the methodology specified in section 440.107(7)(d)l. and rules 69L-6.027 and 69L-6.028 to determine the penalty.

    Penalty for the Blys

    
    

25. Respondent admits that during the audit period, the business did not carry workers' compensation insurance coverage, and its corporate officers, Glenn and Felecia Bly ("the Blys"), did not have workers' compensation exemptions.

26. Because neither Mr. nor Mrs. Bly was engaged in the application of the roofing materials, the Department correctly assigned class code 8742, for sales and marketing, to them.

27. However, the Department miscalculated the gross income of the Blys. Respondent provided check stubs and its accountant's itemization of payments to the Blys, which constituted repayment of loans from Respondent to the Blys. No evidence to the contrary was presented to indicate these sums were anything other than loan repayments. The Department erroneously included these sums in its calculation of gross payroll to the Blys. Although the Department made a $14,000.00

    
    

    deduction from gross income for the Blys during this period as "loan repayments," no explanation was provided regarding how this sum was ascertained and why the Department disregarded the information of Respondent's accountant showing repayments during the relevant period in the amount of $19,200.00.

28. The Department obviously accepted the testimony of Bly that, in fact, a portion of what the Department previously concluded was gross income to the Blys, was rather repayments for loans made to Respondent. Accordingly, in the absence of any evidence by the Department of how it parceled out which portion of money paid to the Blys constituted wages and which portion was loan repayments, the Department failed to demonstrate clearly and conclusively that the penalty associated with payments to the Blys is accurate.2/

    Penalty for Postcard Mailers

    
    

29. Three women, Meghan Saulino, Kimberly Kalley, and Stacy Boettner, were identified by Bly as independent contractors she hired to address and mail postcards for Respondent. According to Bly and Rafalski, these workers were college students who did the work at home, on their own time, and were paid by the job. This arrangement did not last long because the women did not like the work, and the task was transferred to Minuteman, a printing and copying business.

    
    

30. These women are included in the Second Amended OPA and are assigned class code 8742 for sales and marketing. Respondent contends they should not be included because they were not employees.

31. No evidence was presented to refute that these three women were merely casual workers whose duties (addressing and mailing postcards) were not in the course of the trade, business, profession, or occupation of Respondent (selling and installing roof coating).

32. Accordingly, the amount included in the penalty for their work, $78.18, should be excluded from the 3rd Amended OPA. Penalty for Commissioned Salesmen

33. Respondent contends that its commissioned sales people are all independent contractors who performed jobs for others. These salespeople included Kevin Kalley, Robert Patton, Gino Barone, Scott De Alessandro, Scott Black, and Tim Paige.

34. However, no evidence was presented of the independent contractor agreements for these individuals, certificates of exemption for them for the penalty period, or evidence that these individuals owned their own businesses. As such, the Department was correct in including the amounts received by the salespeople as gross income for purposes of the penalty calculations.

    
    

    Penalty for Roof Coating Installers

    
    

35. Respondent similarly argues that its roof coating installers were independent contractors. The roof coating installers included Bill Boettner, owner of Unexpected Blessings who did not have an exemption during the penalty period, and his business, Unexpected Blessings.

36. Again, no evidence was presented of certificates of exemption for the penalty period or evidence that Unexpected Blessings had coverage. As such, the Department was correct in including the amounts received by the roof coating installers as gross income for purposes of the penalty calculations.

    Penalty for Other Independent Contractors

    
    

37. Respondent argues that Rafalski and Bobby McGranahan ("McGranahan") should not be included in the penalty calculation because they were independent contractors not directly associated with Respondent's business. Rafalski was hired by Bly to help with personal errands and to respond to the audit which serves as a basis for this action. McGranahan is alleged to have run errands for the roof coating installers and acted as a handyman for Respondent before becoming a salesperson for Respondent.

38. It is undisputed that Rafalski and McGranahan performed duties directly related to Respondent's business. Although Rafalski testified at her deposition that she considered herself an independent contractor, it was clear she worked on-site and

    
    

    was the individual most familiar with Respondent's business operations and internal accounting practices. McGranahan's duties, of shopping for supplies for the roofing installers, and then selling for Respondent, were directly related to Respondent's business.

39. No evidence was presented demonstrating that either Rafalski or McGranahan owned their own business or had an exemption. Accordingly, they were properly included in the Department's 3rd Amended OPA.

    CONCLUSIONS OF LAW

    
    

40. DOAH has jurisdiction over the subject matter of and parties to this proceeding. §§ 120.569 and 120.57(1), Fla. Stat.

41. Chapter 440 is known as the "Workers' Compensation Law." § 440.01, Fla. Stat.

42. Because administrative fines are penal in nature, the Department is required to prove by clear and convincing evidence that Respondent failed to secure the payment of workers' compensation and that it calculated the appropriate amount of penalty owed by Respondent. See Dep't of Banking & Fin. v.

    Osborne Stern & Co., 670 So. 2d 932, 935 (Fla. 1996).

    
    

43. However, on issues for which Respondent is asserting the affirmative, Respondent bears the burden of proof. In particular, to the extent that Respondent claims that its workers were independent contractors, Respondent bears the burden of

proving the statutory criteria for independent contractor status. See Dep't of Fin. Servs., Div. of Workers' Comp. v. Blue Diamond Deco Stone, Inc., Case No. 06-4198 (Fla. DOAH Feb. 21, 2007),

modified on other grounds (Fla. DFS May 22, 2007) (recognizing that after a statutory amendment effective January 1, 2004, the party claiming that workers are independent contractors, so as to be excluded from the definition of a non-construction industry employee, has the burden of proving independent contractor status); see generally Balino v. Dep't of Health & Rehab. Servs.,

348 So. 2d 349 (Fla. 1st DCA 1977) (burden of proof is generally on the party asserting the affirmative of an issue).

44. Pursuant to sections 440.10, 440.107(2), and 440.38, every "employer" is required to secure the payment of workers' compensation for the benefit of its employees unless exempted or excluded under chapter 440. Strict compliance with the Workers' Compensation Law is required by the employer. See C&L Trucking

v. Corbitt, 546 So. 2d 1185, 1187 (Fla. 5th DCA 1989); Dep't of

Fin. Servs. v. L & I Consolidated Servs., Inc., Case

No. 08-5911 (Fla. DOAH May 28, 2009; Fla. DFS July 2, 2009).

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

   
   

2. Florida law defines "employee," in 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. Also included in the definition of "employee" is "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."

   § 440.02(15)(b), Fla. Stat.

   
   

3. "Corporate officer" or "officer of corporation" is defined as "any person who fills an office provided for in the corporate charter or articles of incorporation filed with the Division of Corporations of the Department of State or as permitted or required by chapter 607." § 440.02(9), Fla. Stat. Certain corporate officers can become exempt from the coverage requirements of chapter 440, but must affirmatively make that election. §§ 440.02(15)(b) and 440.05, Fla. Stat.

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

   
   

5. Section 440.02(8) defines "construction industry" as "for-profit activities involving any building, clearing, filling, excavation, or a substantial improvement in the size or use of any structure or the appearance of any land." The Department is given authority to, "by rule, establish standard industrial classification codes and definitions thereof which meet the criteria of the terms 'construction industry' as set forth in this section." The Department has done so, in rule 69L-6.021.

6. The Department proved by clear and convincing evidence that Respondent was engaged in the construction industry and failed to secure workers' compensation insurance during the relevant period.

7. Section 440.107(7)(d)l. provides that the Department:

   
   

   [S]hall assess against any employer who has failed to secure the payment of compensation as required by this chapter a penalty equal to 2 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 2-year period or $1,000, whichever is greater.

   
   

   This statutory provision mandates that the Department assess a penalty for non-compliance with chapter 440 and does not provide any authority for the Department to reduce the amount of the penalty.

   
   

8. Rule 69L-6.027 adopts a penalty calculation worksheet for the Department's penalty auditors to utilize "for purposes of calculating penalties to be assessed against employers pursuant to section 440.107, Florida Statutes."

9. The Department properly utilized the penalty worksheet mandated by rule 69L-6.027 and the procedure mandated by section 440.107(7)(d)1. and (7)(e) to calculate the penalty owed by Respondent as a result of its failure to comply with the coverage requirements of chapter 440.

10. The Department failed to demonstrate that it properly calculated the penalty associated with the payroll attributable to the Blys because it did not accurately deduct for those amounts paid to the Blys by Respondent for loan repayments.

11. Respondent demonstrated that the three postcard mailers were independent contractors who should not have been included in the penalty calculation.

12. The Department proved by clear and convincing evidence that it correctly included the penalty in the amount of

$34,552.203/ in the 3rd Amended OPA, for the roof coating installers, salespeople, Rafalski, and McGranahan, pursuant to section 440.107(7)(d)1. and rule 69L-6.027.

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 assessing a penalty against Respondent in the amount of $34,552.20.

DONE AND ENTERED this 12th day of October, 2016, in Tallahassee, Leon County, Florida.

S

MARY LI CREASY

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 12th day of October, 2016.

ENDNOTES

1/ The Department filed its Proposed Recommended Order on September 23, 2016. Respondent filed its Proposed Recommended Order on September 26, 2016. The due date was ten days after the filing of the Transcript. Apparently the Transcript was delivered to the parties but not simultaneously filed with DOAH. Accordingly, both proposed recommended orders were considered timely.

2/ The penalty associated with the gross payroll for the Blys in the 3rd Amended OPA was $1,467.94.

3/ This amount is calculated by subtracting the penalty for the Blys, in the amount of $1,467.94, and the penalty for the postcard mailers, in the amount of $78.18, from the 3rd amended penalty amount of $36,098.32.

COPIES FURNISHED:

Felecia Bly Perma-Seal, Inc. c/o Glenn Bly

3910 Golf Park Loop, Suite 1

Bradenton, Florida 34203

Trevor S. Suter, Esquire Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399 (eServed)

Julie Jones, CP, FRP, Agency Clerk Department of Financial Services Division of Legal 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: 16-002659

Orders for Case No: 16-002659