STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

RECOMMENDED ORDER

Pursuant to notice, this case was heard before Daniel M. Kilbride, Administrative Law Judge of the Division of Administrative Hearings, on March 26, 2008, in Ft. Myers, Florida.

APPEARANCES

For Petitioner: Brian Galvin, Pro se

Brian’s Painting and Wall Papering, Inc.

206 South East 5th Avenue Cape Coral, Florida 33990

For Respondent: Anthony B. Miller, Esquire

Kristian Dunn, Esquire Department of Financial Services

Division of Workers’ Compensation

200 East Gaines Street Tallahassee, Florida 32399-4229

STATEMENT OF THE ISSUES

Whether Petitioner, Brian’s Painting and Wall Papering, Inc., conducted operations in the State of Florida without obtaining workers’ compensation coverage, meeting the requirements of Chapter 440, Florida Statutes (2007),1 in violation of Subsection 440.107(2), Florida Statutes.

If so, what penalty should be assessed by Respondent, Department of Financial Services, Division of Workers’ Compensation, pursuant to Section 440.107, Florida Statutes, and Florida Administrative Code Chapter 69L.

PRELIMINARY STATEMENT

On December 4, 2007, Respondent issued and served a Stop-Work Order (SWO) and Order of Penalty Assessment,

number 07-367-07, to Petitioner alleging that Petitioner failed to abide by the requirements of the Workers’ Compensation Law. The SWO required Petitioner to cease all business operations.

Respondent then requested business records from Petitioner, which when reviewed, caused Respondent to assess a penalty against Petitioner. An Amended Order of Penalty Assessment (Amended Order) was issued and served on Petitioner on December 13, 2007, which assessed a penalty in the amount of

$45,363.76. The SWO requiring Petitioner to cease all business operations remained in effect with the issuance of the Amended Order. On December 18, 2007, a 2nd Amended Order of Penalty

Assessment (2nd Amended Order) was issued and served, which revised the assessed penalty down to $19,943.08. Petitioner timely requested an administrative hearing and on

January 18, 2008, Respondent filed the petition and other documents with the Division of Administrative Hearings (DOAH). Petitioner raised the issue of whether the penalty is excessive. The petition was not amended prior to the final hearing. Prior to the hearing, Respondent served Petitioner with an interlocking discovery request which included requests for admissions.

The final hearing took place on March 26, 2008. Petitioner was represented by its owner/operator. Respondent’s Motion to Deem Matters Admitted was granted without objection, and admissions 1, 2, 3, 4, 5, 6, 7, 8, and 10 were deemed admitted, and the facts admitted were treated as conclusively established. Respondent presented the testimony of one witness, Investigator Ira Bender. Petitioner presented the testimony of one witness, Brian Galvin. Respondent’s Exhibits lettered A through N were offered and received into evidence and marked as Respondent’s Composite Exhibit 1. Petitioner did not offer any documents into evidence. The parties were directed to file proposed findings of fact and conclusions of law within ten days of the filing of the transcript. A one-volume Transcript of the hearing was filed with DOAH on April 9, 2008.

Petitioner has not filed proposed findings of fact or conclusions of law as of the date of this Recommended Order. Respondent filed its Proposed Recommended Order on

April 21, 2008.

FINDINGS OF FACT

1. Respondent 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. Petitioner is a corporation domiciled in Florida and engaged in the construction industry, providing painting and wallpapering services to private residences in Florida.

3. On December 4, 2007, Investigator Ira Bender conducted a random workers’ compensation compliance check of a new home construction site located at 4009 Twenty-second Street, Southwest, in Lehigh Acres, Florida. Investigator Bender observed two men painting. He later identified the two men as Larry Zoelner and Brian Zack, who were later determined to be Petitioner’s employees.

4. Investigator Bender continued the investigation of Petitioner, utilizing the Respondent’s Compliance and Coverage Automated System (“CCAS”) database that contained all workers’ compensation insurance policy information from the carrier to an insured and lists all the workers’ compensation exemptions in

   the State of Florida. Based on his search of CCAS, Investigator Bender determined that for the period, December 3, 2004, through December 4, 2007 (“assessed penalty period”), Petitioner did not have a State of Florida workers’ compensation insurance policy or a valid, current exemption for any of Petitioner’s employees, including Zoelner and Zack. Based on his search of CCAS, he also determined that Petitioner did not have a State of Florida workers’ compensation insurance policy or a valid, current exemption for Brian Galvin, Petitioner’s owner and operator, for the assessed penalty period. Galvin admitted that he did not have an exemption prior to December 4, 2007.

5. Section 440.05, Florida Statutes, allows a corporate officer to apply for a construction certificate exemption from workers’ compensation benefits or compensation. Only the named individual on the application is exempt from carrying workers’ compensation insurance coverage. Petitioner was not in possession of a current, valid construction industry exemption for its corporate officer, Galvin, during the three-year search period.

6. To be eligible for the exemption in the construction industry, an employer must pay a $50 processing fee and file a “notice of election to be exempt” application with Respondent for each corporate officer and have that application processed and approved by it.

7. Subsections 440.107(3) and 440.107(7)(a), Florida Statutes, authorized Respondent to issue SWOs to employers unable to provide proof of workers’ compensation coverage, including proof of a current, valid workers’ compensation exemption. Failure to provide such proof is deemed “an immediate serious danger to public health, safety, or welfare . . .” § 440.107(7)(a), Fla. Stat.

1. Based on the lack of worker’s compensation coverage and a current, valid workers’ compensation exemption for its employees, including Galvin, Respondent issued a SWO on Petitioner on December 4, 2007. The SWO ordered Petitioner to cease all business operations for all worksites in the State of Florida.

2. On the day the SWO was issued, Investigator Bender also served Petitioner with a “Request for Production of Business Records for Penalty Assessment Calculation,” for the purpose

   of enabling Respondent to determine a penalty under Subsection 440.107(7), Florida Statutes. Pursuant to Florida Administrative Code Rule 69L-6.015, Investigator Bender requested business records from Petitioner for the assessed penalty period. The requested records included payroll documents, copies of certificates of exemptions, employee leasing records, and other business records.

3. Investigator Bender was satisfied that the records produced by Petitioner were an adequate response to the business records request.

4. Based on Investigator Bender’s review of the business records, he determined that Galvin was dually-employed during the assessed period. Dual employment occurs when an employee is paid remuneration by two different employers. Galvin was simultaneously employed by SouthEast Personnel Leasing, Inc., as a painter and by Petitioner as its chief operating officer.

5. In calculating the assessed penalty, Investigator Bender only took into account Petitioner’s payroll. It was determined that the payroll from the leasing company demonstrated secured payment of workers’ compensation coverage for the two painters and for Galvin, when he was operating as a painter.

6. Pursuant to Florida Administrative Code Rule 69L- 6.035, Investigator Bender included “dividends” paid by Petitioner to Galvin during the assessed penalty period, in calculating Petitioner’s total payroll amount used in the calculation of the assessed penalty. Galvin argued that dividends paid to him by Petitioner should be excluded from the calculation. However, the dividends that Petitioner paid to Galvin constituted unsecured payment for workers’ compensation

   coverage, in violation of Chapter 440, Florida Statutes, and the Florida Insurance Code.

7. Through the use of the produced records, Respondent calculated a penalty for the assessed period. The Amended Order, which assessed a penalty of $45,363.76, was issued and served to Petitioner on December 13, 2007.

8. Based on business records Investigator Bender received from SouthEast Personnel Leasing, Inc., on December 17, 2007, Investigator Bender determined that the classification code assigned for Galvin should be changed from 5474 to 5606. Classification code 5474 represented the designation for a painter while classification code 5606 represented the designation for a manager. In the course of his investigation, Investigator Bender also deleted Charlie Galvin after he determined Charlie Galvin was not Petitioner’s employee.

9. Investigator Bender assigned the new class code to the type of work performed by Galvin while working as a manger for Petitioner, utilizing the SCOPES Manual. He multiplied the class code’s assigned approved manual rate with the payroll per

   $100, and then multiplied all by 1.5. Consequently, the 2nd Amended Order, which was issued and served to Petitioner on December 18, 2007, assessed a penalty in the amount of

   $19,943.08. The recalculated penalty, as calculated, was

   consistent with the method in which the investigator had calculated the previous penalties.

   CONCLUSIONS OF LAW

   
   

10. The Division of Administrative Hearings has jurisdiction over the subject matter of and the parties to these proceedings, pursuant to Section 120.569 and Subsection 120.57(1), Florida Statutes. The parties received adequate notice of the administrative hearing.

11. Respondent has the burden of proof in this case and must show by clear and convincing evidence that Petitioner violated the Workers' Compensation Law during the relevant period and that the penalty assessment is correct. Department

    of Banking and Finance Division of Securities and Investor Protection v. Osborne Stern and Co., 670 So. 2d 932 (Fla. 1996).

12. 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 by the employer.

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

    1. Every employer coming within the provisions of this chapter shall be liable for, and shall secure, the payment to his or

       her employees . . . of the compensation payable under the workers' compensation statute. . . .

       
       

14. The policy or endorsement for such employees must utilize 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 § 440.02(17)(b)(2), Fla. Stat.

    
    

15. "Employer" is defined as "every person carrying on any employment. . . . If the employer is a corporation, parties in actual control of the corporation including, but not limited to, the president, . . . are considered the employer . . .” .

    § 440.02(16), Fla. Stat.

    
    

16. "Employment" is defined, in pertinent part as, ". . .

    
    

    any service performed by an employee for the person employing him or her.” “Employment includes: All private employments in which four or more employees are employed by the same employer, or with respect to the construction industry all private employment in which one or more employees are employed by the same employer.” § 440.02(17)(a) and (b)(2), Fla. Stat.

17. "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. . . .

       
       

       * * *

       
       

    2. "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.

       
       

       1. Any officer of a corporation may elect to be exempt from this chapter by filing written notice of the election with the department as provided in

       § 440.05.

       
       

18. Section 440.107, Florida Statutes, also sets out the Respondent’s duties and powers to enforce compliance with the requirement to provide for the payment of workers’ compensation. Subsection 440.107(3)(g), Florida Statutes, authorizes Respondent to issue SWOs and penalty assessment orders in its enforcement of worker’s compensation coverage requirements.

19. 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.

    
    

20. As to penalties, Subsection 440.107,(7)(d)1., Florida Statutes, states:

    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.

    
    

21. By Florida Administrative Code Rule 69L-6.027, Respondent adopted a penalty calculation worksheet to use in calculating penalties to assess against employers who do not secure the payment of workers’ compensation.

22. The evidence was clear and convincing that Petitioner was an employer that was required to secure the payment of workers' compensation for its employees. Petitioner secured the payment of workers' compensation as required by statute for its employees through a contract with a PEO. However, Petitioner did not possess a current, valid workers' compensation exemption for its owner/operator, Galvin. Instead of paying him a salary, it paid him in “dividends.”

23. Respondent is required by Section 440.107, Florida Statutes, to assess the penalty for Petitioner’s failure to secure workers’ compensation coverage for its employee, Galvin, Petitioner’s president, owner and registered agent.

24. By clear and convincing evidence, Respondent has proven that Petitioner violated Sections 440.10 and 440.38, Florida Statutes, for the assessed penalty period, by not securing the payment of workers’ compensation for its employee, Brian Galvin, or in the alternative, because Petitioner did not have a valid, current workers’ compensation exemption for its corporate officer, Galvin.

25. Petitioner paid remuneration to its employees during the assessed penalty period. Therefore, during the assessed penalty period, Petitioner was an “employer” engaged in the construction industry for workers’ compensation purposes, as

    that term is defined in Subsection 440.02(16), Florida Statutes.

    
    

    §§ 440.02(16)(a) and 440.02(17)(b)2., Fla. Stat.

    
    

26. Subsection 440.107(7)(a), Florida Statutes, states in relevant 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 . . . 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. If the department makes such a determination, the department shall issue a stop-work order within 72 hours.

    
    

    The SWO issued in this case, therefore, was not only justified, it was statutorily mandated.

27. Further, Florida Administrative Code Rule 69L- 6.035(1)(e) states:

    (1) For purposes of determining payroll for calculating a penalty pursuant to Subsection 440.107(7)(d)1., Fla. Stat., the Department shall when applicable include any one or more of the following as remuneration to employees based upon evidence received in its investigation:

    
    

    * * *

    
    

    (e) Payments made to employees by or on behalf of the employer on any basis other than time worked, such as piecework, profit sharing, dividends, income distributions, or incentive plans. (Emphasis added)

28. Respondent proved that the proper methodology was applied in calculating the assessed penalty, which was based on records Investigator Bender received in the course of investigating Petitioner. Contrary to Petitioner’s contention, Investigator Bender properly included the dividends that Petitioner paid to Brian Galvin as part of the total payroll used in calculating the penalty for the assessed penalty period. Petitioner presented no witnesses or other evidence to rebut Respondent’s methodology.

29. Petitioner failed to secure the payment of workers’ compensation and did not possess a valid, current workers’ compensation exemption certificate for its employees, including its corporate officer, Galvin during the assessed penalty period. Therefore, Respondent correctly assessed the penalty prescribed in Section 440.107, Florida Statutes.

30. Respondent satisfied its burden of proving, clear and convincingly, that (a) Petitioner failed to secure payment of workers’ compensation as that term is defined in

Subsection 440.107(2), Florida Statutes, for the assessed penalty period, and (b) Respondent correctly issued the SWO and the 2nd Amended Order, assessing the penalty prescribed in Subsection 440.107(7)(d), Florida Statutes, for such failure.

is,

RECOMMENDATION

Based on the Findings of Fact and Conclusions of Law, it

RECOMMENDED that Petitioner enter a final order, as

follows:

1. Petitioner failed to secure workers’ compensation coverage for its employees, including its corporate officer, as required by statute; and

2. Petitioner be assessed a penalty of $19,943.08.

DONE AND ENTERED this 22nd day of May, 2008 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 22nd day of May, 2008

ENDNOTE

1/ All references to Florida Statutes are to Florida Statutes (2007), unless otherwise indicated.

COPIES FURNISHED:

Brian Galvin

Brian’s Painting and Wallpapering, Inc.

206 Southeast 5th Avenue Cape Coral, Florida 33990

Anthony B. Miller, Esquire Kristian Dunn, Esquire Department of Financial Services

Division of Workers’ Compensation

200 East Gaines Street Tallahassee, Florida 32399-4229

Honorable Alex Sink Chief Financial Officer

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

Daniel Y. Sumner, 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: 08-000350

Orders for Case No: 08-000350