vs. )
Respondent. )
Case No. 04-1723
Pursuant to notice, Administrative Law Judge Carolyn S. Holifield conducted the administrative hearing in this proceeding on behalf of the Division of Administrative Hearings on August 23, 2004, by video teleconference between Tampa and
Tallahassee.
For Petitioner: Colin M. Roopnarine, Esquire
For Respondent: Stephen H. Haskins, Esquire
The issues are whether the individuals included in the Amended Order of Penalty Assessment were employees of Respondent during the penalty period designated therein and, if so, whether Respondent failed to secure workers' compensation coverage in violation of Section 440.107, Florida Statutes (2003); and whether Petitioner should impose a penalty against Respondent in the amount of $156,880.87.
On April 7, 2004, Petitioner, the Department of Financial Services, Division of Workers' Compensation (Petitioner), issued a Stop Work Order and Order of Penalty Assessment No. 04-076-D37 (the Order) alleging that Respondent failed to comply with the requirements of the Workers' Compensation Law. The Order required Respondent, David Roquet Construction Specialist, Inc. (Respondent), to cease business operations and assessed a penalty pursuant to Subsection 440.107(7)(d), Florida Statutes (2003). Petitioner subsequently amended the amount of the penalty to $156,880.87 pursuant to the Amended Order of Penalty Assessment No. 04-076-D32 (the Amended Order or Amended Order of Penalty Assessment). Respondent challenged the penalty assessment and timely requested an administrative hearing.
At the hearing, Petitioner presented the testimony of two witnesses: John Sullivan, an investigator with Petitioner; and
Steven Anderson, an expert in corporate taxation. Petitioner offered and had 18 exhibits received into evidence. Respondent presented the testimony of four witnesses: David Roquet, Respondent's sole officer and shareholder; Tom Ballard, Respondent’s certified public accountant; Rodney Holderbau, marketing specialist with Southeast Personnel Services, Inc. (Southeast Personnel); and Raudel Carrizales, one of Respondent’s workers. Respondent offered and had 12 exhibits received into evidence.
A Transcript of the final hearing was filed on September 9, 2004, and proposed recommended orders were due on September 20, 2004. Prior to that date, Petitioner, on behalf of both parties, filed a motion requesting that the time for filing proposed recommended orders be extended until October 15, 2004. By Order issued September 14, 2004, the parties' Motion for Extension of Time was granted. The Order granting the Motion for Extension of Time for filing proposed recommended orders waived the time requirement for issuance of this Recommended Order. See Fla. Admin. Code R. 28-106.216. Petitioner timely filed its Proposed Recommended Order on October 13, 2004, and Respondent filed its Proposed Recommended Order on October 22, 2004. Both Proposed Recommended Orders have been considered in the preparation of this Recommended Order.
Petitioner is the state agency responsible for enforcing the statutory requirement that employers secure the payment of workers' compensation for the benefit of their employees. § 440.107, Fla. Stat. (2002).
Respondent is an "S" corporation domiciled in Florida and engaged in the construction industry. The company was incorporated in late October 2003 and began operating at or near that time. At all times relevant to this proceeding, David Roquet was the president and sole shareholder of the company.
On April 7, 2004, Petitioner conducted an investigative sweep of areas in Pasco County, including the Lexington Oaks Subdivision. While in the Lexington Oaks Subdivision, one of Petitioner's investigators observed five individuals working on a residence under construction. These individuals were framing the house and performing other carpentry work.
At the time of the investigation, John Sullivan, an investigator for Petitioner, spoke to Maurilio Carrizales, one of the five individuals working at the site. Later,
Mr. Sullivan also spoke with Mr. Roquet after he arrived at the construction site.
On April 7, 2004, Mr. Sullivan issued a Stop Work Order against Respondent after he determined that Maurilio Carrizales and other individuals working on the construction project did
not have workers' compensation insurance. That same day, Petitioner issued to Mr. Roquet, as Respondent's president, a Request for Production of Business Records for Penalty Assessment Calculation.
On April 12, 2004, pursuant to the Division's request, Mr. Roquet provided the Division with copies of Respondent's business records, which included check stubs, payroll records, tax records, and workers' compensation documents.
Respondent's business records revealed that Respondent made direct payments to Maurilio Carrizales, Raudel Carrizales, Victor Carrizales, and George Betz for the construction work they performed for the company. According to the check stubs and tax records, Respondent treated these individuals as subcontractors and did not withhold any taxes from the direct payments that were made to them.
Respondent did not have workers' compensation coverage on the individuals named in paragraph 7 during the penalty periods covered in the Amended Order of Penalty Assessment. There was no documentation in Respondent's business records which indicated that Maurilio Carrizales, Raudel Carrizales, Victor Carrizales, and George Betz had workers' compensation coverage or exemptions from such coverage during the penalty period. Moreover, Petitioner, which maintains a database of all workers' compensation exemptions in the State of Florida,
determined that there were no exemptions from workers' compensation coverage for Mr. Roquet,1/ Raudel Carrizales, Maurilio Carrizales, Victor Carrizales, and George Betz for the time periods which are at issue in this proceeding.
Based on Petitioner's review of its records and on the business records provided by Respondent, Petitioner issued an Amended Order of Penalty Assessment which assessed a penalty of
$156,880.87 against Respondent for failing to secure workers' compensation as required by Subsection 440.107(2), Florida Statutes (2003). The penalty amount of $156,880.87 was determined by multiplying the payroll amount by the workers' compensation approved manual rate for carpentry of $37.91.
That amount was then multiplied by 1.5. See Subsection 440.107(7)(d), Florida Statutes (2003), for the method of calculating penalties.
The penalty assessed in the Amended Order is based on Petitioner's determination that Mr. Roquet, Maurilio Carrizales, Raudel Carrizales, Victor Carrizales, and George Betz were Respondent's employees during designated time periods and on the gross payments Respondent made to those employees.
The Penalty Assessment Worksheet, upon which the total penalty amount is based, listed Respondent's employees and its gross payments to the employees and the periods which Petitioner determined the employees had no workers' compensation coverage
or exemptions, as follows: (1) from October 30, 2003, until December 17, 2003, Mr. Roquet was paid $22,994; (2) from October 31, 2003, until December 31, 2003, Maurilio Carrizales
was paid $33,536; (3) from October 31, 2003, through
December 31, 2003, Raudel Carrizales' was paid $33,536; (4) from January 1, 2004, until April 7, 2004, Maurilio Carrizales was
paid $57,023; (5) from February 1, 2004, through April 7, 2004, Raudel Carrizales was paid $24,666; (6) from January 4, 2004, until April 7, 2004, Victor Carrizales was paid $99,938; and
(7) from January 16, 2004, until January 23, 2004, George Betz was paid $4,190.
During this proceeding, Respondent stipulated that during the time period at issue in this proceeding George Betz did not have either workers' compensation coverage or a valid exemption from such coverage.2/
Respondent's net or ordinary income for 2003, as reported on its Internal Revenue Service Form 1120S (IRS Form 1120S) for the tax year 2003, was $22,994. Based on its review of this document, Petitioner determined that in 2003, Mr. Roquet received compensation of $22,994 from the company. Contrary to Petitioner's conclusion, the $22,994 was not compensation to Mr. Roquet and should not have been attributed to him as such.
The ordinary income of Respondent, a corporation, reported on IRS Form 1120S prepared for the tax year 2003, does
not represent compensation that was paid to Mr. Roquet, the sole shareholder and officer in the company. Because the corporation had initiated operations in late October 2003 and operated only the last two months of 2003, Mr. Roquet had not begun compensating himself in 2003 and had performed no services for the company for which he expected or received remuneration. In mid-October 2003, when Mr. Roquet filed for the corporation's federal identification number, he indicated on the form that he would begin receiving compensation in January 2004. That form was received and approved by IRS on or about October 21, 2003, and consistent with the intent stated therein, Mr. Roquet began receiving compensation from Respondent in January 2004.
In 2003, Respondent made a distribution of $6,700 to Mr. Roquet. However, this distribution was not compensation to Mr. Roquet, but was reimbursement to him for expenses he had paid out of his personal funds for some of the company's day-to- day operating costs and was also a withdrawal of dividend distributions from the company.
For the reasons stated in paragraphs 13, 14, and 15 above, Respondent's ordinary income of $22,994, and no part thereof, is compensation to Mr. Roquet for purposes of determining any penalty assessment against Respondent.
Mr. Roquet, as Respondent's president, entered into an oral agreement with three brothers: Maurilio Carrizales, Raudel
Carrizales, and Victor Carrizales. Pursuant to the oral agreement, each brother was a subcontractor of the company and would be paid $1.67 per square foot for the framing work that he completed. With the funds that the company paid, each of the brothers had to buy whatever supplies and materials were needed to complete the job. However, there was no written agreement to describe or define the business relationship between Respondent and each of the brothers.
Prior to Respondent's hiring the Carrizales brothers, Mr. Roquet requested information regarding their workers' compensation coverage. Based on information provided,
Mr. Roquet mistakenly believed that both Raudel Carrizales and Maurilio Carrizales had workers' compensation coverage through an employee leasing company and that Victor Carrizales had an exemption from such coverage. However, at the time periods relevant to this proceeding, these individuals had neither workers' compensation coverage nor exemptions from coverage.
Victor Carrizales, as a sole proprietor of a construction business, had a valid exemption from workers' compensation coverage from October 25, 2000, to October 25, 2002, and from February 15, 2003, until December 31, 2003.
The letter of exemption for Victor Carrizales was initially valid from February 15, 2003, until February 14, 2005, but became invalid after December 31, 2003, and individuals
previously exempt had to re-apply for exemption. That change in the law became effective January 1, 2004. See Fla. Admin. Code R. 69L-6.012.
The portion of the penalty assessment attributable to Victor Carrizales was January 1, 2004, to April 7, 2004, a time period in which he had no workers' compensation coverage or exemption.
During this proceeding, Respondent contended that Raudel Carrizales, Maurilio Carrizales, and Victor Carrizales had workers' compensation coverage through a personnel leasing company, Southeast Personnel Services, Inc. (Southeast Personnel).
Pursuant to Subsection 468.520(5), Florida Statutes (2003), an employee leasing company is a business entity engaged in employee leasing. "Employee leasing" is an arrangement whereby a leasing company assigns its employees to a client and allocates the direction of and control over the leased employees between the leasing company and the client. § 468.520(4), Fla. Stat. (2003). When the employee leasing company accepts a client, the client becomes an employee of the employer's leasing company.
An employee leasing company is the employer of the leased employees and is responsible for providing workers' compensation pursuant to Chapter 440, Florida Statutes (2003).
§ 468.529(1), Fla. Stat. (2003). Additionally, an employee leasing company assumes responsibility for the payment of wages to the leased employees without regard to payments by the client and for the payment of payroll taxes and collection of taxes from the payroll of leased employees. § 468.525(4)(b) and (c), Fla. Stat. (2003).
Records from Southeast Personnel provided to Petitioner reflect that at one time, Raudel Carrizales, through his company, Carrizales Brothers Framing, was associated with that personnel leasing company pursuant to a written agreement (Agreement) entered into on or about October 27, 2003.3/ At the time the Agreement was executed, both Raudel Carrizales and Maurilio Carrizales were listed by Southeast Personnel as employees of Carrizales Brothers Framing.
Pursuant to the Agreement, as the leasing company, Southeast Personnel was responsible for providing workers' compensation coverage for its leased employees, who were paid through the leasing company. The Agreement, which refers to leased employees as "assigned employees," provides in relevant part the following:
Client "represents and warrants that all wages (including bonuses) paid to any assigned employee are to be paid through SPLI [Southeast Personnel] and that any such assigned employee will receive no additional wages in any form from Client. Client agrees that it will be solely responsible
for damages of any nature arising out of Client's failure to report to SPLI [Southeast Personnel] the payment to an assigned employee of any remuneration for services rendered for Client. In addition, SPLI [Southeast Personnel] shall not be considered to be an employer of any individual for who required payroll information is not supplied during any pay period (except as may be required by law). Client assumes full responsibility for workers' compensation claims, . . . and any and all other obligations or claims pertaining in any way to any individual for whom payroll information is not supplied during any payroll period (except as may be required by law), or who is paid in whole or part by Client, as an employee, independent contractor, or in any other capacity.
For workers' compensation coverage to apply through the leasing company, the "assigned employees" must be paid through the leasing company. In this case, none of the employees listed on the Penalty Worksheet were paid by Southeast Personnel for the construction work they did for Respondent. Instead, they were paid directly by Respondent. There is no evidence that these direct payments were ever reported to Southeast Personnel.
Rodney Holderbau, a marketing specialist with Southeast Personnel, testified that Raudel Carrizales, Maurilio Carrizales, and Victor Carrizales had workers' compensation coverage through Southeast Personnel, even though they were paid directly by Respondent for the work they did for that company and received no payments for that job from Southeast Personnel.
However, no documentary evidence was presented to support this position.
Mr. Holderbau's testimony that Raudel Carrizales, Maurilio Carrizales, and Victor Carrizales had workers' compensation coverage during all the alleged periods noted on the Amended Order of Penalty Assessment is neither credible nor persuasive. As a marketing specialist responsible for recruiting companies to become clients of Southeast Personnel, Mr. Holderbau failed to establish that he possessed the qualifications or position within Southeast Personnel to speak on behalf of the company and to interpret the terms of the contract.
The claim of Mr. Holderbau is inconsistent with and contradicts the meaning of employee leasing companies within the meaning of Chapter 468, Part XI, Florida Statutes (2003), and the terms of the Agreement between Raudel Carrizales' company, Carrizales Brothers Framing, and Southeast Personnel.
Raudel Carrizales allowed the Agreement between Carrizales Brothers Framing and Southeast Personnel to expire on January 31, 2004. Raudel Carrizales, on behalf of his new company, signed another contract with Southeast Personnel on April 13, 2004, six days after the Stop Work Order was issued. Therefore, between January 31, 2004, and April 13, 2004, Raudel
Carrizales had no workers' compensation coverage through the employee leasing company.
Maurilio Carrizales, who was listed on Southeast Personnel documents as an employee of Carrizales Brothers Framing, had no workers' compensation coverage through Southeast Personnel on January 31, 2004, when the contract between Carrizales Brothers Framing and Southeast Personnel expired. Maurilio Carrizales again became eligible for workers' compensation coverage through Southeast Personnel, as a leased employee, effective April 13, 2004, almost a week after the Stop Work Order was issued.
Between January 31, 2004, and April 12, 2004, Raudel Carrizales had no workers' compensation coverage through Southeast Personnel.
During the time period alleged in the Amended Order of Penalty Assessment, Raudel Carrizales and Maurilio Carrizales received direct payments from Respondent, thus, circumventing Southeast Personnel and the coverage that they may have had through that employee leasing company.
Respondent did not intend to violate the law. Rather, he mistakenly believed that Raudel Carrizales, Maurilio Carrizales, and George Betz had workers' compensation coverage; that Victor Carrizales had an exemption from workers' compensation coverage; and/or that the aforementioned
individuals were subcontractors to whom he had no insurance- related responsibility. Nonetheless, these individuals did not have workers' compensation coverage or exemptions from coverage. Thus, they were employees of Respondent and, as such, Respondent was required to provide workers' compensation coverage for them.
Petitioner correctly calculated the penalty assessment based on the money paid to Respondent's employees, Raudel Carrizales, Maurilio Carrizales, Victor Carrizales, and George Betz; the class code assigned to each employee utilizing the SCOPES Manual; and the statutory guidelines in Subsection 440.107(d), Florida Statutes (2003). Based on that calculation, the correct penalty assessment in this case is $143.805.33.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction of the subject matter and the parties to this proceeding. §§ 120.57(1) and 120.565, Fla. Stat. (2004)
Pursuant to Sections 440.10 and 440.38, Florida Statutes (2003), every "employer" is required to secure the payment of workers' compensation for the benefit of its employees unless exempted or excluded under Chapter 400, Florida Statutes (2003).
"Employer" is defined, in part, as "every person carrying on any employment . . . ." § 440.02(16), Fla. Stat. (2003). "Employment" is "any service performed by an employee
for the purpose of 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), Fla. Stat. (2003).
The term "employee" is defined in Subsection 440.02(15), Florida Statutes (2003), which provides, in pertinent part, the following:
(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.
"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.
* * *
"Employee" includes:
* * *
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.
Petitioner has the burden of proof in this
case. Petitioner must show by a preponderance of the evidence that Respondent violated the Workers' Compensation Law during the relevant period and that the penalty assessments are correct. Department of Labor and Employment Security, Div. Of Workers’ Compensation v. Genesis Plastering, Inc., Case
No. 00-3749 (DOAH April 27, 2001) (adopted Final Order May 24, 2001); Department of Labor and Employment Security, Division of Workers' Compensation v. Bobby Cox, Sr., d/b/a C H Well Drilling, Case No. 99-3854 (DOAH March 20, 2000) (adopted in part by Final Order June 7, 2000); Department of Labor and Employment Security, Division of Workers' Compensation v.
Eastern Personnel Services, Inc., Case No. 99-2048 (DOAH
October 12, 1999) (adopted by Final Order Nov. 30, 1999), appeal
dismissed, Case No. 1D99-4839 (Fla. 1st DCA 2000);
§ 120.57(1)(j), Fla. Stat. (2002).
The evidence established that Respondent was an employer within the meaning of Subsection 440.02(16), Florida Statutes (2003), during the period specified in the Amended Order of Penalty Assessment.
At this proceeding, Respondent conceded and does not dispute that at the time noted in the Amended Order of Penalty Assessment, George Betz performed construction work for Respondent; Mr. Betz did not have workers' compensation coverage
or an exemption from such coverage; and Respondent did not provide workers' compensation coverage for Mr. Betz.
The evidence established that for the relevant time periods, Maurilio Carrizales, Raudel Carrizales, and Victor Carrizales were employees within the meaning of Subsection 440.02(15)(a) and (c)2., Florida Statutes (2003). Also, the evidence established that, at times relevant to this case, none of Respondent's employees held valid workers' compensation exemptions or had otherwise secured workers' compensation coverage, which would have relieved Respondent of its obligation to provide workers' compensation insurance. Thus, pursuant to Sections 440.10 and 440.38. Florida Statutes (2003), Respondent was obligated to secure the payment of workers' compensation coverage for the benefit of its employees.
Petitioner failed to prove that David Roquet was an employee within the meaning of Subsection 440.02(15), Florida Statutes (2003), and that Respondent was, therefore, required to provide workers' compensation coverage for the time period included in the Amended Order.
Mr. Roquet, as an officer and sole shareholder of Respondent, is an "employee" within the meaning of Subsection 440.02(15)(b), Florida Statutes (2003), only if he performed "services for remuneration for the corporation." Here, the undisputed evidence established that Mr. Roquet performed
limited services during the last two months of 2003, when the company began its operations; that those services were not performed for remuneration; and that Mr. Roquet received no remuneration for those services. Therefore, Mr. Roquet was incorrectly included in the penalty base utilized by Petitioner in calculating the appropriate penalty assessment against Respondent.
Petitioner established by a preponderance of the evidence that Raudel Carrizales, Maurilio Carrizales, and Victor Carrizales were employees of Respondent and were not "leased employees." Because Respondent disputes this position, the burden then shifted to Respondent to prove its assertion that the individuals were not Respondent's employees, but were "leased employees" who had workers' compensation coverage through an employee leasing company. Respondent failed to present evidence to support this claim. The evidence presented by Respondent was not credible, consistent, reliable, or persuasive.
Because the evidence established that Respondent failed to secure the payment of workers’ compensation for its employees: Raudel Carrizales, Maurilio Carrizales, Victor Carrizales, and George Betz, they were correctly included in the penalty base and with regard to those employees, Petitioner
correctly assessed the penalty as prescribed in Section 440.107, Florida Statutes (2003).
RECOMMENDED that the Department of Financial Services, Division of Workers' Compensation, enter a final order confirming the Stop Work Order and imposing a penalty in the amount of $143,805.33.
DONE AND ENTERED this 28th day of December, 2004, in Tallahassee, Leon County, Florida.
CAROLYN S. HOLIFIELD
Filed with the Clerk of the Division of Administrative Hearings this 28th day of December, 2004.
1/ Mr. Roquet had an exemption from workers' compensation coverage from December 17, 2003, through December 31, 2003, and
from January 1, 2004, through December 2004.
2/ Mr. Roquet allowed Mr. Betz to begin working for Respondent after Mr. Betz assured him he had workers' compensation coverage. After Mr. Betz had worked two weeks and still had not provided proof of coverage, Mr. Roquet insisted that Mr. Betz bring in documentation of workers' compensation if he wanted to continue to work. After this, Mr., Betz left the work site and never returned. This action took place about two months before the Stop Work Order was issued on April 7, 2004.
3/ Some time after January 31, 2004, Raudel Carrizales formed another company, RAC Construction Framing (RAC), which was associated with Southeast Personnel. A Certificate of Insurance was issued to Respondent reflecting that RAC had workers' compensation coverage through Southeast Personnel, effective April 13, 2003, almost a week after the Stop Order in this case was issued.
Colin M. Roopnarine, Esquire Department of Financial Services Division of Workers' Compensation
Capp P. Taylor, Esquire
Law Offices of Capp P. Taylor, P.A. 3023 Eastland Boulevard, Suite 104
Stephen H. Haskins, Esquire 775 County Road 1
Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
Pete Dunbar, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
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.
