STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL SERVICES, DIVISION OF WORKERS' COMPENSATION,

Petitioner,

vs.

JAX PAINTING AND RESTORATION, INC.,

Respondent.

/

Case No. 17-2010

RECOMMENDED ORDER

A duly-noticed hearing was held in this case on September 1, 2017, via video teleconference with sites in

Tallahassee and Jacksonville, Florida, before Administrative Law

Judge Suzanne Van Wyk.

APPEARANCES

For Petitioner: Leon Melnicoff, Esquire

Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399-4229

For Respondent: Michael Percival

Jax Painting and Restoration, Inc. 4833 De Kalb Avenue

Jacksonville, Florida 32218 STATEMENT OF THE ISSUES

Whether Jax Painting and Restoration, Inc. (“Respondent”), failed to secure the payment of workers’ compensation insurance coverage for its employees; and, if so, whether the Department

of Financial Services, Division of Workers’ Compensation (“Petitioner” or “Department”), correctly calculated the penalty to be assessed against Respondent.

PRELIMINARY STATEMENT

On April 25, 2016, the Department served Respondent with a Stop-Work Order and Order of Penalty Assessment, pursuant to chapter 440, Florida Statutes, for failing to secure workers’ compensation for its employees. On May 24, 2016, after review of records received from Respondent, the Department issued an Amended Order of Penalty Assessment, assessing Respondent a penalty of $59,195.14 for failure to secure workers’ compensation insurance as required by the statute.

On November 2, 2016, Respondent requested a hearing to dispute the Stop-Work Order and Amended Order of Penalty Assessment. On April 4, 2017, Petitioner referred this matter to the Division of Administrative Hearings (“Division”), for assignment of an Administrative Law Judge to conduct a final hearing in the matter.

The final hearing in this case was originally scheduled for June 14, 2017, but was continued at the request of the parties to July 27, 2017, and continued again, due to the illness of the undersigned, to September 1, 2017. The final hearing commenced as rescheduled.

At the final hearing, Petitioner presented the testimony of Department Compliance Investigator, Deryk Gallegos; Department Compliance Facilitator, Pete Vellejo; and Department Lead Audit Manager, Lawrence Pickle. Petitioner’s Exhibits P1 through P13, were admitted in evidence.

Respondent offered the testimony of Michael Percival, Respondent’s President, and introduced no exhibits.

A one-volume Transcript of the proceedings was filed on September 20, 2017. Petitioner timely filed a Proposed Recommended Order, which has been considered by the undersigned in preparing this Recommended Order. Respondent did not make any post-hearing filings.

Unless otherwise indicated, all references to the Florida Statutes herein are to the 2016 version.

FINDINGS OF FACT

1. The Department is the state agency charged with enforcing the requirement of chapter 440, Florida Statutes, that employers in Florida secure workers’ compensation coverage for their employees. § 440.107(3), Fla. Stat.

2. Respondent was a Florida for-profit corporation doing business in Jacksonville, Florida, from May 1, 2014, until it was administratively dissolved on September 23, 2016.

   Michael Percival was Respondent’s President and Registered

   
   

   Agent, with a mailing address of 4833 De Kalb Avenue, Jacksonville, Florida.

3. On April 25, 2016, Deryk Gallegos, the Department’s Compliance Investigator, encountered Mr. Percival and Richard Hill at a home under renovation at 4254 Marquette Avenue in Jacksonville.

4. Mr. Gallegos observed the two men cutting raw wood and installing trim around the doorway.

5. Mr. Gallegos identified himself and requested proof of workers’ compensation insurance.

6. Mr. Percival identified himself as Respondent’s owner, and Mr. Hill as an employee. Mr. Percival indicated both men were exempt from workers’ compensation insurance coverage.

7. Mr. Gallegos consulted the Secretary of State, Division of Corporations “Sunbiz” website and identified Respondent as an active Florida corporation and Mr. Percival as its only corporate officer.

8. Mr. Gallegos consulted the Department’s Coverage Compliance Automated System (“CCAS”) and found Respondent had no workers’ compensation policy. However, CCAS revealed an exemption on file for Mr. Percival.

9. CCAS showed no exemption for Mr. Hill and no coverage for him separately.

   
   

10. After consulting his supervisor via telephone, Mr. Gallegos issued Mr. Percival a Stop-Work Order and a

    Business Records Request (“BRR”). The BRR requested records to establish Respondent’s payroll in order to calculate the penalty for failure to secure workers’ compensation coverage for Respondent’s employees.

11. Some months later, on August 3, 2016, Mr. Percival met with Department Compliance Facilitator, Pete Vallejo, who reviewed the BRR with Mr. Percival and explained the types of business records needed to establish Respondent’s payroll, including bank statements, check images, W-2 forms, tax returns, and a cash ledger, for the audit period of May 7, 2014 through April 25, 2016.

12. Later that month, Mr. Percival emailed Mr. Vallejo a W-2 form for Mr. Hill and two pay stubs for checks issued to Mr. Hill. Mr. Vallejo reviewed the documents and informed

    Mr. Percival that additional records were still needed to establish payroll, including bank statements, check images, and a cash ledger.

13. The W-2 form submitted by Mr. Percival was for

    
    

    Mr. Hill’s employment by “Ally HR, Inc.” for 2016. It reflects total wages paid in the amount of $17,572.70. One of the pay stubs submitted by Mr. Percival was to Mr. Hill from “Southside Paint + More, Inc.,” on May 15, 2015, showing total year-to-date

    
    

    earnings of $3,615. Mr. Percival’s intent was to establish that Mr. Hill did not work full-time for Respondent during the audit period.

14. The documents are insufficient to determine Respondent’s payroll to Mr. Hill during the audit period.

15. At the end of August, Mr. Vallejo received additional records from Mr. Percival, including bank statements, check images, and a cash ledger.

16. Bank statements submitted by Mr. Percival for the audit period were insufficient to establish Respondent’s payroll. The bank statements revealed over $260,000 in cash withdrawals. A cash ledger provided by Mr. Percival allocated the majority of the cash payments to materials.

17. Respondent submitted no backup records to substantiate the cash ledger payments. The Department requested, but did not receive, from Respondent, tax returns, receipts, and invoices from Respondent to verify the listed cash transactions.

18. The cash ledger allocated payroll to Mr. Hill beginning on February 5, 2016, and ending on April 25, 2016, in a total amount of $3,310.

19. The Department’s Lead Auditor, Lawrence Pickle, calculated the penalty assessed in the Department’s Amended Order of Penalty Assessment.

    
    

20. Because the records submitted by Mr. Percival were insufficient to establish Respondent’s payroll for the audit period, Mr. Pickle imputed the payroll based on the statutory formula. See § 440.107(7)(d)1., Fla. Stat.

21. Based upon Mr. Gallegos’ observations of the work being performed at the jobsite, Mr. Pickle determined that the type of construction work performed was carpentry. Mr. Pickle consulted the Scopes Manual published by the National Council on Compensation Insurance and utilized classification code 5645, the carpentry classification for construction or remodeling of residences not exceeding three stories in height, for purposes of calculating the penalty.

22. Mr. Pickle then applied the corresponding approved manual rates for classification code 5645 for the related periods of non-compliance.1/ Mr. Pickle applied the correct approved manual rates and correctly utilized the methodology specified in section 440.107(7)(d)1. and Florida Administrative Code Rules 69L-6.027 and 69L-6.028 to determine the penalty to be imposed.

23. Because Respondent did not provide records sufficient to determine its payroll during the audit period, Mr. Pickle correctly assigned the statewide average weekly wage (“AWW”) to the employees identified on the jobsite on the date in question.

    § 440.107(7)(e), Fla. Stat. Mr. Pickle likewise correctly

    
    

    utilized the AWW multiplied by two when applying the statutory formula for calculating the penalty to be assessed. See § 440.107(7)(d)1., Fla. Stat.

24. On August 3, 2016, the Department hand-delivered

    
    

    Mr. Percival an Amended Order of Penalty Assessment assessing a penalty of $59,195.14, which was fully imputed.

    CONCLUSIONS OF LAW

    
    

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

26. Employers are required to secure payment of workers’ compensation for their employees unless exempted or excluded. See §§ 440.10(1)(a) and 440.38(1), Fla. Stat.

27. “Employer” includes “every person carrying on any employment.” § 440.02(16)(a), Fla. Stat.

28. “Employment” means “any service performed by an employee for the person employing him or her.” § 440.02(17)(a), Fla. Stat.

29. Respondent is an “employer” subject to the statutory requirement to provide workers’ compensation insurance coverage for its employees.

30. Strict compliance with the Workers’ Compensation Law is required by the employer. See C&L Trucking v. Corbett,

    546 So. 2d 1185, 1187 (Fla. 5th DCA 1989).

    
    

31. The Department has the burden of proof in this case and must show by clear and convincing evidence that the employer violated the Workers’ Compensation Law and that the penalty assessments were correct under the Law. See Dep’t of Banking and Fin. v. Osborne Stern and Co., 670 So. 2d 932 (Fla. 1996);

    and Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987).

    
    

32. In Evans Packing Co. v. Department of Agriculture and

    
    

    Consumer Services, 550 So. 2d 112, 116 n.5 (Fla. 1st DCA 1989),

    
    

    the Court defined clear and convincing evidence as follows:

    
    

    [C]lear 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 evidence must be precise and explicit and the witnesses must be lacking in confusion as to the facts in issue. The evidence must be of such weight that it produces in the mind of the trier of fact the firm belief

    or conviction, without hesitancy, as to the truth of the allegations sought to be established. Slomowitz v. Walker,

    429 So. 2d 797, 800 (Fla. 4th DCA 1983).

    
    

33. The Department proved by clear and convincing evidence that Respondent is an employer subject to the Workers’ Compensation statute, and that both Mr. Percival and Mr. Hill were Respondent’s employees required to be covered by, or obtain an exemption from, workers’ compensation insurance during the audit period.

34. The Department demonstrated by clear and convincing evidence that Respondent was engaged in the construction

    
    

    industry in Florida during the audit period and that Respondent failed to secure the payment of workers’ compensation insurance for its employees at times during the audit period as required by Florida’s Workers’ Compensation Law.

35. The Department likewise demonstrated by clear and convincing evidence that it correctly calculated the penalty to be imposed under the law.

36. The undersigned is mindful that the statute is strict, and the penalty harsh, but Petitioner carried its burden and the undersigned has no discretion to adjust the penalty amount without further proof from Respondent.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by the Department of Financial Services, Division of Workers’ Compensation, finding that Jax Painting and Restoration, Inc., violated the workers’ compensation insurance law and assessing a penalty of $59,195.14.

DONE AND ENTERED this 5th day of October, 2017, in Tallahassee, Leon County, Florida.

S

SUZANNE VAN WYK

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 5th day of October, 2017.

ENDNOTE

1/ Mr. Percival did not have a valid exemption until May 28, 2014, so a short period of non-compliance applies to

Mr. Percival between May 7 and 27, 2014.

COPIES FURNISHED:

Leon Melnicoff, Esquire Department of Financial Services

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

Michael Percival

Jax Painting and Restoration, Inc. 4833 De Kalb Avenue

Jacksonville, Florida 32218

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: 17-002010

Orders for Case No: 17-002010