STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

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

)

Petitioner, )

)

vs. )

) WILLIAM R. SIMS ROOFING, INC., )

)

Respondent. )

Case No. 06-1169

)

RECOMMENDED ORDER

Pursuant to notice, this case was held before Daniel M. Kilbride, Administrative Law Judge (ALJ) of the Division of Administrative Hearings, on August 8, 2006, in Orlando, Florida.

APPEARANCES

For Petitioner: Colin M. Roopnarine, Esquire

Department of Financial Services Division of Workers' Compensation

200 East Gaines Street Tallahassee, Florida 32399-4229

For Respondent: Patrick John McGinley, Esquire

Law Office of Patrick John McGinley, P.A. 2265 Lee Road, Suite 100

Winter Park, Florida 32789

STATEMENT OF THE ISSUES

Whether Respondent properly secured the payment of workers' compensation insurance coverage, as delineated by Subsection

440.107(2), Florida Statutes (2005),1 and, if not, what penalty for such failure is warranted.

Whether Respondent conducted business operations in violation of a stop-work order, and, if so, what is the correct penalty for such violation, pursuant to Subsection 440.107(7)(c), Florida Statutes.

PRELIMINARY STATEMENT

On December 21, 2004, Petitioner issued and served Stop Work Order and Order of Penalty Assessment No. 04-340-D4 ("Stop Work Order") to Respondent, alleging that Respondent failed to abide by the requirements of the Workers' Compensation Law, by failing to secure the payment of workers' compensation in violation of Subsection 440.107(2), Florida Statutes. The Order required Respondent to cease all business operations. An Amended Order of Penalty Assessment ("Amended Order") was issued and served on Respondent on December 19, 2005, assessing a penalty in the total amount of $49,413.18, due in part to Respondent's failure to cease all business operations. The Order requiring Respondent to cease all business operations remained in effect with the issuance of the Amended Order.

Respondent timely requested an administrative hearing by petition. On April 3, 2006, this matter was referred to the Division of Administrative Hearings ("DOAH") for a formal hearing.

Following discovery and two continuances, which were requested by the parties, the final hearing was conducted on August 8, 2006. Petitioner presented the testimony of two witnesses, Investigator Robert Cerrone and Darlene Talley of Orange County. Petitioner's Exhibits 1 through 18 were offered and received into evidence, including the deposition testimony of Michael Minneck and Robert Szika. Respondent presented the testimony of one witness, William Sims, and Respondent's Exhibit 1 was offered and received into evidence. The

two-volume Transcript of the hearing was filed with DOAH on September 19, 2006.

Petitioner timely filed its Proposed Recommended Order (PRO) on September 28, 2006. Respondent filed its PRO on October 9, 2006. Both parties' proposals have been considered in the preparation of this Recommended Order.

FINDINGS OF FACT

1. 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.

2. Respondent is a corporation domiciled in Florida and engaged in the business of roofing, which is a construction activity.

3. On December 21, 2004, Petitioner's investigator, Hector Vega, visited 951 North Park Avenue, Apopka, Florida, the site of a church, on a referral from his supervisor.

4. Five men were observed engaged in roofing work.

   
   

   William Sims, Respondent's president, agreed to meet at the worksite.

5. Sims, upon inquiry, informed Petitioner's investigator that he had not secured the payment of workers' compensation for the workers. However, Sims testified that for Respondent to

   re-roof the Apopka Church of God, Sims had to calculate the amount of roofing shingles needed, which proved to be difficult due to the architecture of the church's specialty roof. The amount of shingles needed for the job was overestimated in order to avoid running out of shingles during the job. As of December 21, 2004, the Apopka Church of God roofing job was done, so Respondent sold the extra, unused shingles to D&L Trucking, owned and operated by David Lorenzo, who was paying the five men found working on the roof on December 21, 2004.

6. A check of Petitioner's Compliance and Coverage Automated System ("CCAS") database, which contains information on all workers' compensation insurance policy information from the carrier to an insured, determined that Respondent did not have a State of Florida workers' compensation insurance policy to provide workers' compensation coverage of the five workers.

7. Chapter 440, Florida Statutes, allows an individual to apply for an election to be exempt from workers' compensation benefits. Only the named individual on the application is exempt from carrying workers' compensation insurance coverage.

8. Petitioner, which maintains a database of all workers' compensation exemptions in the State of Florida, found a current, valid exemption only for William R. Sims in

   December 2004.

   
   

9. On December 21, 2004, Petitioner issued and served on Respondent a stop-work order for failing to obtain coverage that meets the requirements of Chapter 440, Florida Statutes, and the Insurance Code. Also at that time, a Request for Production of Business Records was issued to Respondent.

10. Employers employing workers on job sites in Florida are required to keep business records that enable Petitioner to determine whether the employer is in compliance with the workers' compensation law. At the time the Stop Work Order was issued, and pursuant to Subsection 440.107(5), Florida Statutes, Petitioner had in effect Florida Administrative Code

    Rule 69L-6.015, which requires employers to maintain certain business records. Respondent failed to comply with the Request for Production.

11. Florida law requires that an employer who has employees engaged in work in Florida must obtain a Florida

workers' compensation policy or endorsement for such employees which utilizes Florida class codes, rates, rules, and manuals that are in compliance with the provisions of Chapter 440, Florida Statutes, as well as the Florida Insurance Code. See

§ 440.10(1)(g), Fla. Stat. Florida Administrative Code Rule 69L-6.019(2) requires that in order for an employer to comply with Subsections 440.10(1)(g) and 440.38(7), Florida

Statutes, any policy or endorsement used by an employer to prove the fact of workers' compensation coverage for employees engaged in Florida work must be issued by an insurer that holds a valid certificate of authority in the State of Florida.

12. Subsections 440.107(3) and 440.107(7)(a), Florida Statutes, authorize Petitioner to issue stop-work orders to employers unable to provide proof of workers' compensation coverage. Failure to provide such proof is deemed "an immediate serious danger to public health, safety, or welfare "

§ 440.107(7)(a), Fla. Stat.

1. Following the follow-up efforts by Sims that extended until February 2005, Respondent believed that the Stop Work Order had been lifted by February 2005.

2. Later in 2005, after Sims understood the Stop Work Order to be lifted, he pulled some permits from Orange County. The permits were called "a permit to work" and this supported,

   in Sims' mind, the conclusion that the Stop Work Order had been lifted.

3. On November 1, 2005, Petitioner received a referral to investigate Respondent. Petitioner's investigator visited Respondent's worksite on November 1, 2005, and observed six men engaged in roofing work. Sims, upon inquiry, informed the investigator that he secured the payment of workers' compensation coverage for the workers through Emerald Staffing Services, an employee leasing company.

4. Chapter 468, Part XI, Florida Statutes, governs employee leasing companies.

5. Respondent contracted with Emerald Staffing for its services in October 2005 and became the client company of Emerald Staffing. Respondent paid invoices for its employees, thus indicating that it was engaged in business activities in October 2005 and November 2005.

6. On November 2, 2005, Petitioner issued a Request for Production of Business Records to Respondent. The request was for business records from December 21, 2004, through November 2, 2005.

7. Respondent remained under the belief that the Stop Work Order had been lifted until Sims was approached by Petitioner's inspector, Robert Cerrone, on November 4 or 5, 2005, and was told by Cerrone that Respondent was still under

   the Stop Work Order. Respondent thereafter stopped working at Cerrone's request.

8. Although Respondent asserts it did not know the Stop Work Order was in place between December 21, 2004, and December 19, 2005, and therefore Respondent believed it

   appropriate to continue working during that time, Sims testified there was a health problem in his immediate family that slowed down his business from working in 2005. His wife was diagnosed with cancer, and this made him very distracted from work.

   Although Sims pulled a few permits in 2005, he reviewed all those permits in his testimony, and it became clear to him that all those permits were for work previously done during the hectic clean-up from the hurricanes. This testimony is not credible.

9. Respondent acknowledges the issuance and receipt of the Stop Work Order, but alleges in its petition that the Stop Work Order should never have been issued because the men at the worksite were not performing roofing work. On November 10, 2005, however, Sims provided a statement to Petitioner's investigator wherein he admitted to having employed four individuals on December 21, 2004, without securing the payment of workers' compensation for any of them.

10. However, Respondent admitted, through its president, by letter, dated November 10, 2005, and signed in the presence

    of Cerrone that four of the persons observed on the Apopka Church of God work site on December 21, 2004, were Petitioner's employees and they were not covered by workers' compensation insurance.

11. Sims' testimony that he was forced to sign the letter or that he was tricked or mislead into signing it, is not credible.

12. From the evidence presented, the four identified men found on the roof of the Apopka Church of God on December 21, 2004, were the employees of Respondent, and Respondent had not complied with the requirements of the workers' compensation law.

13. Therefore, the Stop Work Order was not erroneously issued against Respondent on December 21, 2004.

14. After learning from Cerrone that the Stop Work Order was in place, Respondent worked with Petitioner to come into compliance and agreed to the Order of Conditional Release from Stop-Work Order that Cerrone signed on December 19, 2005, under it, Respondent has been making payments to Petitioner to satisfy the penalty Petitioner has levied against Respondent.

15. On November 16, 2005, Petitioner issued a Request for Production of Business Records for Penalty Assessment, in which Petitioner requested business records from Respondent for the period of December 21, 2001, through December 21, 2004.

16. Respondent complied with the records requests and provided Petitioner with tax ledgers and documents for the years 2002 through 2004, along with permits.

17. Subsection 440.107(7)(c), Florida Statutes, provides: "The department shall assess a penalty of $1,000 per day against an employer for each day that the employer conducts business operations that are in violation of a stop-work order."

18. Documentation specifically showed Respondent was engaged in business activities after December 21, 2004. The Orange County building department records indicate that a number of roofing permits that had been pulled by Respondent after December 21, 2004, the date the Stop Work Order was issued.

19. Sims also stated that he was aware of the need to pull permits as part of his job as a roofer in Orange County, Florida. He alluded at the hearing that Orange County should have informed him of the existing Stop Work Order.

20. Darlene Elaine Talley, contractor certification coordinator with the Orange County building department, testified that Respondent, through Sims, pulled a number of permits after December 21, 2004. Some of the permits were pulled for work performed prior to December 21, 2004.

21. Although Respondent alleges that much of the actual roofing work was done prior to pulling permits and, thus, prior to the issuance of the Stop Work Order, the act of pulling a

    permit is considered "conducting business operations," which is prohibited by Subsection 440.107(7)(c), Florida Statutes, when a stop-work order is in effect.

22. A-1 Construction ("A-1"), a Georgia company, performed roofing services for Respondent in Orlando, Florida, from September 2004 to November 2004, and was paid remuneration for those services.

23. Although Respondent sought to prove that A-1 had Florida workers' compensation coverage through its Georgia workers' compensation and should not be included in the penalty calculation, the credible evidence showed that Georgia workers' compensation coverage, with Key Risk, did not extend to Florida, nor did A-1 purchase extra Florida coverage.

24. Subsection 440.10(1)(c), Florida Statutes, states, "A contractor shall require a subcontractor to provide evidence of workers' compensation insurance."

25. Respondent did not request evidence of workers' compensation coverage from A-1, and Respondent was not aware whether A-1's Florida workers' compensation coverage was purchased or not.

26. Under the Workers' Compensation Law in effect during the penalty period, a subcontractor becomes an "employee" if the subcontractor has not validly elected an exemption as permitted by Chapter 440, Florida Statutes, or has not otherwise secured

    the payment of compensation coverage as a subcontractor.

    
    

    § 440.02(15)(c)2., Fla. Stat.

    
    

27. The entities listed on the Amended Order's penalty worksheet, including the employees of A-1, were Respondent's employees during the relevant period, all of whom Respondent paid, and all of whom had neither valid workers' compensation exemptions nor workers' compensation coverage.

28. To determine the number of days that Respondent was in violation of the Stop Work Order, the payroll records for Respondent were obtained from Emerald Staffing, and the permits pulled by Respondent were gathered. The investigator further discussed the matter with Respondent to determine the number of days Respondent worked in violation of the Stop Work Order.

29. It is determined that Respondent worked for 10 days in violation of the Stop Work Order.

30. Utilizing the records provided, in evidence, the penalty is calculated for Respondent by assigning a class code to the type of work utilizing the SCOPES Manual, multiplying the class code's assigned approved manual rate with the wages paid to the employee per one hundred dollars, and then multiplying all by 1.5.

31. The penalty for violation of the Stop Work Order is

    
    

    $1,000.00 per day for each day of violation, which for 10 days amounts to $10,000.00.

32. The Amended Order, which assessed a penalty of

    
    

    $49,413.18, was personally served on Respondent on December 19, 2005. Sims was not personally calculated into the penalty because he had a current valid workers' compensation exemption. On December 19, 2005, Respondent entered into a Payment Agreement Schedule for Periodic Payment of Penalty and was issued an Order of Conditional Release from Stop-Work Order by Petitioner. Respondent made a down payment of 10 percent of the assessed penalty; provided proof of compliance with Chapter 440, Florida Statutes, by securing the payment of workers' compensation through Emerald Staffing; and agreed to pay the remaining penalty in 60 equal monthly payment installments.

    CONCLUSIONS OF LAW

    
    

33. DOAH has jurisdiction pursuant to Sections 120.569 and 440.107, and Subsection 120.57(1), Florida Statutes.

34. The parties received proper notice of the administrative hearing. Petitioner has the burden of proof in this case and must show by clear and convincing evidence that Respondent violated the Workers' Compensation Law during the relevant period and that the penalty assessments are correct. Department of Banking and Finance Division of Securities and Investor Protection v. Osborne Stern and Co., 670 So. 2d 932 (Fla. 1996).

35. Pursuant to Sections 440.10 and 440.38, Florida Statutes, every "employer" is required to secure the payment of workers' compensation for the benefit of its employees unless exempted or excluded under Chapter 440, Florida Statutes. Strict compliance with the Workers' Compensation Law is, therefore, required of the employer. See C&L Trucking v.

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

    
    

36. Subsection 440.10(1), Florida Statutes, provides in pertinent part:

    (1)(a) Every employer coming within the provisions of this chapter shall be liable for, and shall secure, the payment to his or her employees, or any physician, surgeon, or pharmacist providing services under the provisions of s. 440.13, of the compensation payable under ss. 440.13, 440.15, and

    440.16. 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.

    
    

37. "Employer" is defined as "every person carrying on any employment . . ." § 440.02(16), Fla. Stat. "Employment . . . means 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)2., Fla. Stat.

38. "Employee" is defined in Subsection 440.02(15), Florida Statutes, in pertinent part:

    1. "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. . . .

       
       

39. An employer who elects to secure the payment of workers' compensation by obtaining a commercial insurance policy must assure that the policy comports with Florida law.

40. In pertinent part, the statutes germane to the issue in this case specify as follows:

    Subject to s. 440.38, any employer who has employees engaged in work in this state shall obtain a Florida policy or endorsement for such employees which utilizes Florida class codes, rates, rules, and manuals that are in compliance with and approved under the provisions of this chapter and the Florida Insurance Code.

    
    

    See § 440.10(1)(g), Fla. Stat.

    
    

41. Subsection 440.38(7), Florida Statutes, provides in relevant part as follows:

    Any employer who meets the requirements of subsection (1) through a policy of insurance issued outside of this state must at all times, with respect to all employees working in this state, maintain the required coverage under a Florida endorsement using Florida rates and rules pursuant to payroll reporting that accurately reflects the work performed in this state by such employees.

    
    

42. Subsection 440.10(1)(b), Florida Statutes, states:

    
    

    (b) 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.

    
    

43. Section 468.520, Florida Statutes, which deals with employee leasing companies, states in part:

    Definitions.--As used in this part:

    
    

    1. "Employee leasing" means 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 . . .

       
       

    2. "Employee leasing company" means a sole proprietorship, partnership, corporation, or other form of business entity engaged in employee leasing.

       
       

    3. "Client company" means a person or entity which contracts with an employee leasing company and is provided employees pursuant to that contract.

    
    

44. Florida Administrative Code Rule 69L-6.015 states in relevant part:

    In order for the Division to determine that an employer is in compliance with the provisions of Chapter 440, F.S., every business entity conducting business within

    the state of Florida shall maintain for the immediately preceding three year period true and accurate records. Such business records shall include original documentation of the following, or copies, when originals are not in the possession of or under the control of the business entity:

    
    

    (1) All workers' compensation insurance policies of the business entity, and all endorsements, notices of cancellation, nonrenewal, or reinstatement of such policies.

    
    

    * * *

    
    

    1. Records indicating for every pay period a description of work performed and amount of pay or description of other remuneration paid or owed to each person by the business entity, such as time sheets, time cards, attendance records, earnings records, payroll summaries, payroll journals, ledgers or registers, daily logs or schedules, time and materials listings.

       
       

    2. All contracts entered into with a professional employer organization (PEO) or employee leasing company, temporary labor company, payroll or business record keeping company. If such services are not pursuant to a written contract, written documentation including the name, business address, telephone number, and FEIN or social security number of all principals if an FEIN is not held, of each such PEO, temporary labor company, payroll or business record keeping company; and

       
       

       1. For every contract with a PEO: a payroll ledger for each pay period during the contract period identifying each worker by name, address, home telephone number, and social security number or documentation showing that the worker was eligible for employment in the United States during the contract for his/her services, and a

    description of work performed during each pay period by each worker, and the amount paid each pay period to each worker. A business entity may maintain such records or contract for their maintenance by the PEO to which the records pertain.

    
    

    * * *

    
    

    1. All check ledgers and bank statements for checking, savings, credit union, or any other bank accounts established by the business entity or on its behalf; and

       
       

    2. All federal income tax forms prepared by or on behalf of the business and all State of Florida, Division of Unemployment Compensation UCT-6 forms and any other forms or reports prepared by the business or on its behalf for filing with the Florida Division of Unemployment Compensation.

    
    

45. A-1 admittedly did not comply with the requirement in Subsection 440.38(7), Florida Statutes, and by operation of Subsection 440.10(1)(b), Florida Statutes, its employees became the statutory employees of Respondent, and Respondent failed to secure the payment of workers' compensation.

46. Florida Administrative Code Rule 69L-6.019(3) and (4) provides as follows:

    Policies and Endorsements Covering Employees Engaged in Work in Florida.

    
    

    * * *

    
    

    1. In order to comply with Sections 440.10(1)(g) and 440.38(7), F.S., for any workers' compensation policy or endorsement presented by an employer as proof of workers' compensation coverage for employees engaged in work in this state:

       1. The policy information page (NCCI form number WC 00 00 01 A) must list "Florida" in Item 3.A. and use Florida approved classification codes, rates, and estimated payroll in Item 4.

       2. The policy information page endorsement (NCCI form number WC 89 06 00 B) must list "Florida" in Item 3.A. and use Florida approved classification codes, rates, and estimated payroll in Item 4.

    2. A workers' compensation policy that lists "Florida" in Item 3.C. of the policy information page (NCCI form number WC 00 00 01 A) does not meet the requirements of Sections 440.10(1)(g) and 440.38(7), F.S., and is not valid proof of workers' compensation coverage for employees engaged in work in this state.

    
    

47. A-1 did not secure the payment of workers' compensation through its carrier, Key Risk, that was compliant with the Laws of Florida. By not maintaining State of Florida workers' compensation coverage, the employees of A-1 became the statutory employees of Respondent.

48. Subsection 440.107(7)(a), Florida Statutes, provides in part:

    Whenever the department determines that an employer who is required to secure the payment to his or her employees of the compensation provided for by this chapter has failed to secure the payment of workers' compensation required by this chapter or to produce the required business records under subsection (5) within 5 business days after receipt of the written request of the department, such failure shall be deemed an immediate serious danger to public health, safety, or welfare sufficient to justify service by the department of a stop-work order on the employer, requiring the

    cessation of all business operations . . . .

    The order shall remain in effect until the department issues an order releasing the stop-work order upon a finding that the employer has come into compliance with the coverage requirements of this chapter and has paid any penalty assessed under this section. The department may issue an order of conditional release from a stop-work order to an employer upon a finding that the employer has complied with coverage requirements of this chapter and has agreed to remit periodic payments of the penalty pursuant to a payment agreement schedule with the department. (emphasis added)

    
    

49. Respondent continued its business operations for a period of 10 days when it pulled permits either retroactively for work done prior to obtaining permits, or for work to be performed at a future date. Respondent was, thus, in violation of Subsection 440.107(7)(a), Florida Statutes, and Petitioner properly assessed a penalty of $1,000 per day for 10 days, pursuant to Subsection 440.107(7)(c), Florida Statutes.

50. The penalty included days worked by Respondent in violation of the Stop Work Order, prior to Respondent entering into a Payment Agreement Schedule for Periodic Payment of Penalty and obtaining an Order of Conditional Release from Stop-Work Order from the Department.

51. Respondent also utilized the services of an employee leasing company to provide payroll and to secure workers' compensation for his employees, in violation of the Stop Work Order.

52. Petitioner was under no obligation to inform Orange County that a stop-work order was in effect against Respondent, nor was Orange County under an obligation to investigate whether a stop-work order was in effect against Respondent.

53. Petitioner satisfied its burden of proving that Respondent failed to secure the payment of workers' compensation, as that term is defined in Subsection 440.107(2), Florida Statutes, and correctly assessed the penalty prescribed in Subsections 440.107(7)(c) and 440.107(7)(d), Florida Statutes, for such failure, and for operating in violation of

the Stop Work Order.

RECOMMENDATION

Based on the Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a final order that adopts

the Stop Work Order and Order of Penalty Assessment and the Amended Order of Penalty Assessment; and that assesses a penalty of $49,413.18.

DONE AND ENTERED this 30th day of November, 2006, in Tallahassee, Leon County, Florida.

S

DANIEL M. KILBRIDE

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 30th of November, 2006.

ENDNOTE

1/ All references to Florida Statutes are to Florida Statutes (2005), unless otherwise indicated.

COPIES FURNISHED:

Colin M. Roopnarine, Esquire Department of Financial Services Division of Workers' Compensation

200 East Gaines Street Tallahassee, Florida 32399-4229

Patrick John McGinley, Esquire

Law Office of Patrick John McGinley, P.A. 2265 Lee Road, Suite 100

Winter Park, Florida 32789

Honorable Tom Gallagher Chief Financial Officer

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

Carlos G. Muñiz, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0307

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: 06-001169

Orders for Case No: 06-001169