STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

RECOMMENDED ORDER

Pursuant to notice, a hearing was conducted in this case on March 25, 2008, in Tallahassee, Florida, before Administrative Law Judge June C. McKinney of the Division of Administrative Hearings, pursuant to the authority set forth in Sections 120.569 and 120.57(1), Florida Statutes (2007).1

APPEARANCES

For Petitioner: Claude Harden, Esquire

Carr Allison

305 South Gadsden Street Tallahassee, Florida 32301

For Respondent: Thomas H. Duffy, Esquire

Department of Financial Services Division of Workers’ Compensation

200 East Gaines Street Tallahassee, Florida 32399-4229

STATEMENT OF THE ISSUE

The issue is whether Petitioner violated Chapter 440, Florida Statutes, by not having workers' compensation insurance coverage, and if so, whether the Agency's calculation was proper and accurate based on the methods used to establish the payroll for Petitioner and the resulting penalty.

PRELIMINARY STATEMENT

On August 30, 2007, the Department of Financial Services, Division of Workers' Compensation ("Division"), issued a Stop- Work Order and Order of Penalty Assessment (SWO) against All Florida Tree & Landscape, Inc. ("All Florida" or "Petitioner"), alleging that Petitioner had failed to secure workers' compensation coverage. The Division subsequently provided three Amended Orders of Penalty Assessment to All Florida. All Florida filed a Petition for Administrative Hearing on

December 20, 2007. The matter was forwarded to the Division of Administrative Hearings ("DOAH") in a letter filed on January 4, 2008.

A hearing was scheduled for March 14, 2008. The hearing was canceled and re-scheduled for March 25, 2008, and proceeded as scheduled.

All Florida presented the testimony of the following witnesses: Billy Vaughn, Jr. (by deposition transcript);

Bob Howard (by deposition transcript); Denise McNeal; Alan McPherson; and Russell Perkins. Petitioner's Exhibits 1 through

9 were offered and received into evidence. The Division presented the testimony of two witnesses: Tasha Carter and Denise McNeal. Respondent's Exhibits numbered 1 through 8 were admitted into evidence.

The proceeding was recorded and transcribed. The Transcript of the final hearing (consisting of two volumes) was filed with DOAH on April 8, 2008. The parties were given until April 28, 2008, to file proposed recommended orders. The Division requested an extension of time to file its proposed recommended order May 5, 2008, which was granted. Both Petitioner and Respondent filed Proposed Recommended Orders, which have been considered in the preparation of this Recommended Order.

FINDINGS OF FACT

1. The Division is a component of the Department of Financial Services. It is responsible for enforcing the workers' compensation coverage requirements pursuant to Section 440.107, Florida Statutes.

2. All Florida is a corporation operating as a land clearing and tree trimming or tree debris removal business in Florida. Alan McPherson is the sole owner and president of All Florida.

3. On August 30, 2007, as a result of an anonymous tip, Denise McNeal, a workers' compensation investigator for the Division went to a land clearing site at 4441 Club Estates Drive in Naples, Florida, where an All Florida crew of workers was clearing the land using heavy equipment, to determine whether the workers had workers' compensation coverage. She interviewed approximately 11 employees who were working at the site.

   Ms. McNeal made inquiry into the employment relationships of these workers and attempted to determine whether the workers on the site were covered by appropriate workers' compensation insurance.

4. After Ms. McNeal had been at the site for approximately an hour, Mr. McPherson arrived. Mr. McPherson indicated that All Florida had workers' compensation insurance through AMS Leasing. Ms. McNeal conducted a search in the Coverage and Compliance Automated System (CCAS), a database that reliably reveals whether or not there is coverage by a workers' compensation policy of insurance. The search revealed that All Florida did not have its own workers' compensation insurance and AMS was not covering the workers either. All Florida had failed to fax the employee information to AMS to start the coverage for the employees.

5. Based on the information Ms. McNeal had at the time, and after consulting with her supervisor, Ms. McNeal issued SWO

   number 07-269-D7 to All Florida and a Request for Production of Business Records for Penalty Assessment Calculation ("Request for Business Records"). The Division's request asked All Florida to produce business records for the period of August 30, 2004, through August 30, 2007, including payroll records, tax returns, proof of insurance, and certificates of exemption.

6. The Request for Business Records listed specific records that All Florida should provide the Division so that the Division could determine the workers paid by All Florida during the preceding three years.

7. The Request for Business Records notes that the requested records must be produced within five business days of receipt. All Florida did not respond to the Division's Request for Business Records on time. On or about September 25, 2007, All Florida produced its first set of documents. At that time, Ms. McNeal did not calculate the penalty amount and deemed the records insufficient to calculate penalty.

8. On October 1, 2007, All Florida produced a second set of business records. Ms. McNeal reviewed the records produced by All Florida and calculated a penalty of $466,262.62 for failure to obtain workers' compensation coverage.

9. The next day, Mr. McPherson provided additional business records and Ms. McNeal recalculated the penalty again.

   The new penalty amount was $324,080.01 and Ms. McNeal personally served All Florida with the penalty assessment.

10. On October 2, 2007, All Florida entered into an agreement with the Division, which consisted of putting ten percent of the penalty amount down, demonstrating proof of coverage, and agreeing upon a conditional payment plan. After reaching the agreement, All Florida was conditionally released from the SWO and permitted to resume operations because it had cured all its violations.

11. Subsequently, All Florida provided the Division additional business records. The Division calculated a third amended penalty assessment on October 17, 2007, in the amount of

    $300,450.24.

    
    

12. On November 28, 2007, Ms. McNeal had to recalculate the third amended penalty amount because she discovered an error in her use of class code 5606. She recalculated the penalty amount with the proper class code 6217, changed Alan McPherson's earnings to "payroll/premium cap" and added remuneration for Dana McPherson. The other proper class codes Ms. McNeil used in her calculations were 8742 and 8810.

13. In Ms. McNeal's calculations, she used the business records submitted by All Florida and figured the gross payroll for the period she found to be the period of noncompliance, in the case of each assumed employee, and divided that amount by

1. She multiplied that figure by the approved manual rate (risk of injury) for each claimed employee. This figure was multiplied by 1.5 in order to obtain the penalty for failure to obtain workers' compensation coverage for each employee. The figures for each employee used in the calculation were added and resulted in the total penalty assessment of $281.903.32, which was the ultimate sum reported in the 4th Amended Order of Penalty Assessment at issue in this case. Ms. McNeal used the correct calculation methods to determine the assessed penalty.

   1. Ms. McNeal's calculations for the 4th Amended Penalty amount were accomplished in accordance with the requirements of Subsection 440.107(7), Florida Statutes, and Florida Administrative Code Rule 69L-6.035.

   2. All Florida submitted Account QuickReport business records detailing the checks cut from the business to individuals, the amounts, dates, and a brief description. Ms. McNeal used the records to calculate payroll for the 4th

      Amended Order of Penalty Assessment. She correctly excluded the check if the memo description listed the payment was for something other than payroll, if the check was written to a company name, or if the check was written to a subcontractor that had an exemption.

   3. Ms. McNeal included the payment by All Florida to each individual whose name was highlighted in blue as set forth in

      Petitioner's exhibit 8 (hereinafter referred to as "highlighted subcontractors") as payroll in her calculation of penalty.2 Dana McPherson’s $540,000.00 was also included in the gross payroll calculations.

   4. Mr. McPherson conducted All Florida business by contracting with municipalities to get jobs. Then, All Florida would give the work from the contract to individuals and companies with their own equipment and employees to perform and complete the job for the contract. All Florida hired the highlighted subcontractors by oral contracts and did not have time to check the highlighted subcontractors' statuses because the company was inundated with contract work, on a tight schedule, and wanted to get the jobs started as soon as possible. There was a great demand for debris clearing due to the consecutive hurricanes and their devastation, which provided All Florida numerous land clearing contract opportunities.

   5. Prior to Florida Administrative Code Rule 69L-6.035 becoming effective, the Division determined payroll by reviewing the actual business records that were provided by the employer. If the actual cost of the payroll and materials or equipment rental were separated, the Division would only utilize the amount identified as payroll for payroll. If the payroll was not separated out, the whole amount was used as payroll in the calculation of penalty.

      CONCLUSIONS OF LAW

      
      

   6. The Division of Administrative Hearings has jurisdiction over the subject matter of this proceeding and the parties thereto pursuant to Sections 120.569 and 120.57(1), Florida Statutes.

   7. Because an administrative fine deprives the person fined of substantial rights in property, such fines are punitive in nature. The Department has the burden of proof and must establish through clear and convincing Petitioner violated the law. Department of Banking and Finance, Division of Securities and Investor Protection v. Osborne Stern, Inc., 670 So. 2d 932 (Fla. 1996).

   8. The Division has met its burden to prove that All Florida failed to be in compliance with Chapter 440, Florida Statutes, by not securing the payment of workers' compensation insurance for the period of August 30, 2004, through August 30, 2007.

   9. However, the Division has failed to establish that the fourth amended penalty amount assessed is accurate due to the payroll amounts used in the calculation being made pursuant to Florida Administrative Code Rule 69L-6.035.

   10. In Smiley v. State, 966 So. 2d 330 (Fla. 2007), the Court set forth the appropriate analysis to undertake when determining the retroactive application of a change in law. One

       of the first "key considerations" is to determine whether the change constitutes a procedural/remedial change or is a substantive change in the law. Generally, courts retroactively apply only remedial statutes, which do not create new rights or take away vested rights but operate only in furtherance of the remedy already existing. Id. at 334. If the law constitutes a substantive change, either by creating new rights or taking away vested rights, there is a presumption against the retroactive application of the change in law unless the Legislature has expressly stated to the contrary. Id.; See also Arrow Air, Inc., v. Walsh, 645 So. 2d 422, 424 (Fla. 1994).

   11. Section 120.54(1) (f), Florida Statutes, provides as follows in relevant part:

       An agency may adopt rules authorized by law and necessary to the proper implementation of a statute prior to the effective date of the statute, but the rules may not be effective until the statute upon which they are based is effective. An agency may not adopt retroactive rules, including retroactive rules intended to clarify existing law, unless that power is expressly authorized by statute.

       
       

   12. In this case, the Division used a rule to calculate payroll that went into effect on October 10, 2007, after the SWO had been issued and the violations had been both committed and corrected. Based on the facts of how the method of payroll was determined, the undersigned concludes that the Division applied

       Florida Administrative Code Rule 69L-6.035, retroactively and incorrectly in this case.

   13. In addition to challenging the retroactive application of the rule, All Florida also contends that the total payments to the highlighted subcontractors should not be included in the Division's calculations for payroll when assessing a penalty.

   14. Mr. McPherson was a contractor, as that term is used in Subsection 440.10(1), Florida Statutes:

       1. 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.

          
          

       2. In the 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.

          
          

       3. A contractor shall require a subcontractor to provide evidence of workers' compensation insurance. A subcontractor who is a corporation and has an officer who elects to be exempt as permitted under this chapter shall provide a copy of his or her certificate of exemption to the contractor.

   15. The evidence demonstrates that All Florida contracted with municipalities and farmed the contract work out to highlighted subcontractors to complete. Accordingly, pursuant to Subsection 410.10(b), Florida Statutes, All Florida's highlighted subcontractors are deemed employees. No evidence was presented that any of the highlighted subcontractors had workers' compensation coverage or demonstrated a current valid workers' compensation exemption.

   16. All Florida also contends that industry standards dictate that payroll is not more than 33 and one-third of the contract price in the debris clearing business because the industry dictates the labor component is a small amount of a contract and the bulk amount of money goes toward equipment. The undersigned was not persuaded by All Florida's assertion.

   17. The record is clear that prior to Florida Administrative Code Rule 69L-6.035, the Division calculated the payroll based on the business records and attributed materials and equipment rental to payroll only if it was not broken out in the business records. The record is void of evidence demonstrating equipment rental being separated or distinguished from payroll by All Florida for the highlighted subcontractors. Therefore, the full monetary amounts for each highlighted subcontractor must be included as payroll.

   18. All Florida also claims that Dana McPherson's

       
       

       $540.000.00 should not be included in payroll when calculating the penalty. The Division asserts that the issue can not be addressed since the agency was not put on notice of the claim.

   19. The undersigned finds that under the circumstances, the agency was prejudiced by not being placed on notice of the issue prior to hearing. All Florida did not raise the issue in the Petition for Administrative Hearing, Prehearing Stipulation or Trial Statement. And, even if the agency was not prejudiced, All Florida failed to overcome the evidence presented by the Division and demonstrate that Dana McPherson should not be included in payroll. The testimony related to such is held not to be credible since the business records show she was actually cut six checks that totaled $540,000.00 rather than having been paid with one check as testified. Therefore, All Florida's proposition that Dana McPherson be excluded from payroll is rejected.

   20. All Florida also claims that the fraudulent actions of employee, Scott Schmitt, should prohibit his pay from being calculated as payroll. The undersigned rejects such and finds that Mr. Schmitt received compensation for services and whether he subsequently stole money has no effect on the outcome of this case. Hence, Mr. Schmitt's payments should be part of the payroll calculation for the penalty to be assessed.

   21. Accordingly, the Division should recalculate the penalty in accordance with this recommended order using the law that was in effect at the time the violation took place including the payroll amounts for the highlighted subcontractors, Dana McPherson, and Mr. Schmitt.

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:

1. Finding that All Florida violated Chapter 440, Florida Statutes, by failing to secure the payment of workers' compensation coverage for its employees;

2. Finding that a penalty be imposed for the violation;

   
   

   and

   
   

3. Calculating the penalty amount using the law that was

in effect at the time the violation took place.

DONE AND ENTERED this 16th day of June, 2008, in Tallahassee, Leon County, Florida.

S

JUNE C. McKINNEY

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 16th day of June, 2008.

ENDNOTES

1/ Unless otherwise indicated, all references are to the 2007 Florida Statutes.

2/ Scott Schmitt is an employee highlighted in blue.

COPIES FURNISHED:

Thomas H. Duffy, Esquire Department of Financial Services

200 East Gaines Street, 6th Floor Tallahassee, Florida 32399-4229

Claude M. Harden, Esquire Carr Allison

305 South Gadsden Street Tallahassee, Florida 32301

Honorable Alex Sink Chief Financial Officer

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

Daniel Sumner, 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: 08-000097

Orders for Case No: 08-000097