STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISIONS OF )

WORKERS' COMPENSATION, )

)

Petitioner, )

)

vs. )

)

EARL MARSHALL AND JUSTIN )

MARSHALL, d/b/a MARSHALL ) AND SON PAINTING COMPANY, )

)

Respondents. )

_ )

Case No. 06-2509

RECOMMENDED ORDER

On October 6, 2006, a hearing was held in Lake City, Florida, pursuant to Sections 120.569 and 120.57(1), Florida Statutes. The case was considered by Lisa Shearer Nelson, Administrative Law Judge.

APPEARANCES

For Petitioner: Douglas D. Dolan

Assistant General Counsel Division of Legal Services

200 East Gaines Street Tallahassee, Florida 32399-6502

For Respondents: Jimmy E. Hunt, Esquire

654 Southeast Baya Drive Post Office Box 3006

Lake City, Florida 32056-6800 STATEMENT OF THE ISSUE

Whether Respondent committed the violations alleged in the Stop Work Order and Second Amended Order of Penalty

Assessment and if so, what penalty should be imposed?

PRELIMINARY STATEMENT

On June 16, 2006, the Department of Financial Services, Division of Workers' Compensation (Division) issued a Stop Work Order and Order of Penalty Assessment, alleging that Respondents failed to obtain workers' compensation coverage that meets the requirements of Section 440.107(2), Florida Statutes. On June 21, 2006, the Division issued an Amended Order of Penalty Assessment, increasing the penalty assessed against Respondents to $53,519.52. On June 26, 2006, Respondents filed a request for a hearing pursuant to Sections

120.569 and 120.57(1), Florida Statutes. The case was forwarded to the Division of Administrative Hearings (DOAH) on July 17, 2006, for assignment of an administrative law judge.

The case was originally noticed for hearing on September 18, 2006. On September 15, 2006, the parties requested a continuance based upon the unavailability of an indispensable witness, and it was rescheduled for October 6, 2006. On October 2, 2006, the Division moved to amend the Order of Penalty Assessment to reduce the amount of penalty

sought. This motion was unopposed and was granted October 4, 2006. The parties also stipulated to certain facts, which have been incorporated into the findings of fact below.

Petitioner presented the testimony of Katina Johnson, and Exhibits numbered 1-8 and 10-14 were admitted into evidence.

Respondents presented the testimony of Earl Marshall, Justin Marshall and Karen Marshall, and Respondents' Exhibit numbered

1 was admitted.

At hearing, it was anticipated that the transcript would be filed October 20, 2006, making the proposed recommended orders due October 30, 2006. The transcript, however, was not filed until October 26, 2006. Petitioner requested an unopposed extension of time until November 10, 2006, to file the proposed recommended orders. Given that on November 10, 2006, state offices were closed in observation of Veteran's Day, an extension was granted until Monday, November 13, 2006.

Petitioner timely submitted a Proposed Recommended Order. Respondents did not. Petitioner's Proposed Recommended Order has been considered in the preparation of this Recommended Order.

FINDINGS OF FACT

1. The Department of Financial Services, Division of Workers' Compensation is the state agency charged with enforcement of workers' compensation compliance pursuant to Chapter 440, Florida Statutes.

2. Respondents Earl Marshall and Justin Marshall were partners in ownership of Marshall and Son Painting Company on June 16, 2006.

3. Respondents were working in the construction industry at Lot 12, Oak Meadows III, Lake City, Florida 32615, on

   June 16, 2006, for which they received payment.

   
   

4. On June 16, 2006, Respondents had not secured the payment of workers' compensation as that term is defined in Chapter 440, Florida Statutes.

5. Respondents do not dispute liability for failure to secure workers' compensation insurance. They contend that the calculation of the penalty to be imposed is inaccurate.

6. Marshall and Son Painting Company came to the attention of the Division through a random site visit by one of its investigators. The Division's investigator, Katina Johnson, requested proof of workers' compensation coverage after observing Earl and Justin Marshall painting a new house. She was informed that Respondents previously held exemptions from workers' compensation coverage that had expired at the end of 2003.

7. Ms. Johnson issued a Stop Work Order and Order of Penalty Assessment on June 16, 2006. She also issued a request to Respondents for written business records, including bank statements for the business, federal tax returns, and

   copies of checks from their business ledger. Respondents supplied the requested records.

8. On June 21, 2006, the Division issued an Amended Order of Penalty Assessment (Amended Order). The Amended Order imposed a penalty of $53,519.52.

9. Respondents entered into a payment agreement whereby they paid 10 percent of the penalty assessment and agreed to pay the remainder over a 60-month period. Upon execution of the payment agreement, the Division issued an Order of Conditional Release from Stop Work Order.

10. On October 3, 2006, the Division issued a Second Amended Order of Penalty Assessment, reducing the amount of the penalty assessment to $43,649.40. A second Payment Agreement Schedule for Periodic Payments was entered, reducing the amount of the monthly payments to be made by Respondents.

11. Earl Marshall and Justin Marshall have dissolved Marshall and Son Painting Company and have formed a new limited liability company, Marshall and Son Painting, LLC. Each has obtained workers' compensation exemptions under the new business, and are considered to be in compliance with Chapter 440, Florida Statutes.

12. Ms. Johnson's calculation for the penalty assessment was based upon the checks written to Earl Marshall and Justin Marshall (individually) for the period at issue. She did not

    go back a full three years, but began with January 1, 2004, the point in time that the Marshalls' previous exemptions from workers' compensation coverage expired. Ms. Johnson used the Scopes Manual published by the National Council on Compensation Insurance and assigned occupation code 5474, which is the appropriate code for painting within the construction industry.

13. Ms. Johnson based her final calculations on the amount evidenced by canceled checks payable to Earl Marshall or Justin Marshall, and upon their admission that these amounts represented their salaries as partners in the business. Ms. Johnson multiplied one percent of the payments to Earl Marshall and Justin Marshall for the relevant period by the manual rate assigned to the class code for painting, giving the premium Marshall and Son Painting Company would have paid for workers' compensation insurance. This number was then multiplied by 1.5.

14. The Respondents' dispute with the penalty calculation is that it includes all of the partnership's profits as wages for the purpose of determining the rate of pay for insurance coverage. They contend that the Division should, instead, base the calculations on an industry standard for painters in the Lake City area.

15. While the Respondents believe that the penalty assessment should be based upon a $12 an hour industry standard for painters in the Lake City area, Earl Marshall described the checks paid to Respondents as salary checks. These checks are, quite simply, the only evidence of actual payroll presented to Ms. Johnson in response to her request for records or presented at hearing. The methodology used by Investigator Johnson is mandatory.

    CONCLUSIONS OF LAW

    
    

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

17. Given the penal nature of these proceedings, Petitioner has the burden of proof in this case and must demonstrate by clear and convincing evidence that Respondents violated the Workers' Compensation Law during the relevant period and that the penalty assessments are correct. Department of Banking and Finance v. Osborne Stern & Co., 670 So. 2d 932 (Fla. 1996).

18. 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. §§ 440.10 and 440.38, Fla. Stat. "Employer"

    is defined in part as "every person carrying on any employment." § 440.02(16), Fla. Stat. An "employee" is defined as including "a partner or partnership that is engaged in the construction industry." § 440.02(15)(c)4., Fla. Stat.

19. Pursuant to the authority in Section 440.02(8), Florida Statutes, the Division has adopted construction industry classification codes contained in the Basic Manual (Scopes Manual) published by the National Council on Compensation Insurance. Fla. Admin. Code R. 69L-6.021. The Scopes Manual lists painting as part of the construction industry.

20. Marshall and Son Painting Company was an employer engaged in employment in a construction company, and Earl Marshall and Justin Marshall were employees who received remuneration during a time when the partnership had not secured workers' compensation for them. The Division acted within its authority both in issuing the Stop Work Order and in assessing the penalty.

21. Section 440.107(7), Florida Statutes, provides in pertinent part:

    (7)(a) Whenever the department determines that an employer . . . 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 cessation of all business operations. . . . 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. .

    . .

    
    

    * * *

    
    

    (d)1. In addition to any penalty, stop- work order, or injunction, the department shall assess against any employer who has failed to secure the payment of compensation as required by this chapter a penalty equal to 1.5 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 3-year period or $1,000, whichever is greater.

    
    

22. The method used by Ms. Johnson for assessing the penalty is mandated by Section 440.107, Florida Statutes. Respondents contend that the method of calculation penalizes them because it includes any profit the partnership makes. Section 440.107 does not authorize calculation of a penalty based upon an industry standard where the employer has provided business records. It only authorizes calculation of penalty based on payroll. Respondent Earl Marshall testified

that the checks made out to Earl or Justin Marshall reflected their salary. The evidence presented demonstrates that issuance of the Stop Work Order was warranted and the penalty as calculated in the Second Amended Order of Penalty Assessment was consistent with the requirements of Section 440.107.

RECOMMENDATION

Upon consideration of the facts found and conclusions of law reached, it is

RECOMMENDED:

That a Final Order be entered approving the Stop Work Order and Second Amended Order of Penalty Assessment that assessed a penalty of $43,649.40.

DONE AND ENTERED this 17th day of November, 2006, in Tallahassee, Leon County, Florida.

S

LISA SHEARER NELSON

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 17th day of November, 2006.

COPIES FURNISHED:

Douglas D. Dolan Assistant General Counsel

Division of Legal Services Division of Workers' Compensation

200 East Gaines Street Tallahassee, Florida 32399-6502

Jimmy E. Hunt, Esquire 654 Southeast Baya Drive Post Office Box 3006

Lake City, Florida 32056-6800

Honorable Tom Gallagher Chief Financial Officer

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

Carlos G. Mu?niz, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300

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: 06-002509

Orders for Case No: 06-002509