STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL SERVICES, DIVISION OF WORKERS' COMPENSATION,

Petitioner,

vs.

CUSTOMS LOGISTICS SERVICES, INC.,

Respondent.

/

Case No. 15-1809

RECOMMENDED ORDER

A hearing was conducted in this case pursuant to sections 120.569 and 120.57(1), Florida Statutes,1/ before Cathy M. Sellers, an Administrative Law Judge of the Division

of Administrative Hearings ("DOAH"), on June 5, 2015, by video teleconference sites in Miami, Florida, and Tallahassee, Florida.

APPEARANCES

For Petitioner: Trevor Suter, Esquire

Department of Financial Services Division of Workers' Compensation

200 East Gaines Street Tallahassee, Florida 32399

For Respondent: Astrid Escalona

Customs Logistics Services, Inc. 6940 Northwest 12th Street Miami, Florida 33126

STATEMENT OF THE ISSUES

The issues in this case are whether Respondent, Customs Logistics Services, Inc., failed to secure the payment of workers' compensation coverage for its employees in violation of chapter 440, Florida Statutes, and if so, the penalty that

should be imposed.

PRELIMINARY STATEMENT

On September 29, 2014, Petitioner, Department of Financial Services, Division of Workers' Compensation, issued a Stop-Work Order, alleging that Respondent failed to secure the payment

of workers' compensation in violation of chapter 440 and the Insurance Code, and assessing a penalty. On October 14, 2014, Respondent timely requested an administrative hearing challenging Petitioner's determination regarding the alleged violation and penalty assessment. After receiving business

records from Respondent, Petitioner issued a Third Amended Order of Penalty Assessment on January 12, 2015, seeking to impose a penalty of $3,205.70. The matter was referred to DOAH for an administrative hearing under sections 120.569 and 120.57(1).

The final hearing was held on June 5, 2015. Petitioner presented the testimony of Hector Fluriach and Eric Ruzzo, and Petitioner's Exhibits 1 through 10 were admitted into evidence without objection. Astrid Escalona testified on Respondent's

behalf. Respondent did not offer any exhibits for admission into evidence.

The one-volume Transcript was filed on June 11, 2015. The proposed recommended orders were due to be filed on or before June 21, 2015, but pursuant to motion, the time for filing was extended to June 29, 2015. The parties' timely filed proposed recommended orders were duly considered in preparing this Recommended Order.

FINDINGS OF FACT

The Parties

1. Petitioner is the state agency charged with enforcing the requirement in chapter 440 that employers in Florida secure workers' compensation coverage for their employees.

2. At all times relevant to this proceeding, Respondent was a corporation registered to do business in Florida. Respondent is a family-owned-and-operated customs brokerage service with its principal office located at 6940 Northwest 12th Street, Miami, Florida 33126.

3. At the time of the inspection giving rise to this proceeding, Respondent employed seven or eight employees.2/ The Compliance Inspection

4. On September 29, 2014, Petitioner's compliance inspector, Hector Fluriach, conducted an onsite inspection at Respondent's principal office to determine whether Respondent

   
   

   was in compliance with the workers' compensation coverage requirements established in chapter 440.

5. At that time, Respondent's co-owners, Astrid Escalona and Carlos Henoa, told Fluriach that Respondent employed six employees and two corporate officers, and also paid two family members who did not work at the principal office.

6. Upon inquiry, Escalona and Henoa informed Fluriach that Respondent did not have workers' compensation insurance coverage for its employees.

7. Using Petitioner's Coverage and Compliance Automated System ("CCAS") and the National Council for Compensation Insurance ("NCCI") insurance coverage verification system, Fluriach confirmed that Respondent had not obtained workers' compensation insurance coverage for its employees, and that it was not in compliance with chapter 440 during certain periods within the two years preceding the inspection.

8. Under the NCCI basic occupational classification system and Scopes Manual, six of Respondent's employees are classified as clerical (Code 8810), and one is classified as a driver (Code 7380). None of Respondent's employees is classified as employed within the construction industry.

9. As a private entity employing four or more employees in a non-construction industry occupation, Respondent was required

   
   

   under chapter 440 to provide workers' compensation coverage for its employees.

10. Respondent's corporate officers were eligible under section 440.05 to elect to be exempt from the workers' compensation coverage requirements of chapter 440; however, none had elected to be exempt.

11. Fluriach issued Stop-Work Order No. 14-329-D5 ("Stop- Work Order"), personally served it on Respondent, and explained it to Escalona.

12. The Stop-Work Order included an Order of Penalty Assessment, ordering assessment of a penalty against Respondent in an amount equal to two times the amount Respondent would have paid in workers' compensation coverage premiums when applying the approved manual rates to Respondent's payroll during the periods for which it had failed to secure workers' compensation coverage during the preceding two years (for convenience, hereafter referred to as the "look-back period").

13. Fluriach also served a business records request, requesting Respondent to provide specified business records3/ for Petitioner's use in determining the penalty.

14. In a series of submittals, Respondent provided the requested business records to Petitioner.

15. The evidence showed that during the two-year look- back period, Respondent did not have workers' compensation

    
    

    coverage for its employees during a substantial portion of the period in which it employed four or more employees, and none of its corporate officers were exempt from the workers' compensation coverage requirement.

16. As such, Respondent violated chapter 440 and, therefore, is subject to penalty under that statute. Petitioner's Computation of Penalty Amount

17. To calculate the applicable penalty, Petitioner must determine, from a review of the employer's business records, the employer's gross payroll for the two-year look-back period. For days during the look-back period for which records are not provided, Petitioner imputes the gross payroll based on the average weekly wage for the state of Florida.

18. Here, the look-back period for purposes of calculating the applicable penalty commenced on September 30, 2012, and ended on September 29, 2014, the day on which the compliance inspection was conducted.

19. Respondent's business records revealed that Respondent had fewer than four employees between January 1 and March 31, 2013, so Respondent was not required to have workers' compensation coverage for that period. Thus, Petitioner did not assess a penalty against Respondent for that period.

20. For the rest of the look-back period, Respondent employed four or more employees, so was required to obtain

    
    

    workers' compensation coverage for those employees for that portion of the period.

21. Respondent provided business records sufficient for Petitioner to determine Respondent's gross payroll for all but September 30, 2012. For that day, Petitioner imputed Respondent's gross payroll using Florida's statewide average weekly wage.

22. On the basis of Respondent's business records submittals, Petitioner's auditor, Eric Ruzzo, recalculated the penalty to be assessed against Respondent. Petitioner issued an Amended Order of Penalty Assessment on October 17, 2014, imposing a total penalty of $5,617.04. On November 7, 2014, following receipt of additional records, Petitioner issued

    a Second Amended Order of Penalty Assessment, reducing the penalty to $3,982.52. Finally, after receiving more records, Petitioner issued a Third Amended Order of Penalty Assessment on January 12, 2015, further reducing the penalty to $3,205.70.

    Each of these penalty assessments was served on Respondent.

    
    

23. Petitioner seeks to impose a $3,205.70 penalty against Respondent in this proceeding.

24. In calculating the penalty, Ruzzo examined three-month (i.e., quarterly) periods within the two-year look-back period.

25. Ruzzo identified the occupational class code applicable to each of Respondent's employees. As stated above,

    
    

    all but one of Respondent's employees were classified as clerical, and one of Respondent's employees was classified as a driver. For each employee, Ruzzo determined the gross payroll paid to that employee for the specific quarter in which Respondent was non-compliant during the look-back period, divided the employee's gross payroll by 100 pursuant to Petitioner's calculation methodology, then multiplied that amount by the numeric rate set by NCCI for that employee's specific occupational class code. This calculation yielded the workers' compensation coverage premium for that specific

    employee for the specific quarter for which Respondent was non- compliant during the look-back period. The premium amount then was multiplied by two, as required by statute, to yield the penalty to be imposed for failure to provide workers' compensation coverage for that specific employee.

26. As previously noted, Respondent did not provide gross payroll records covering September 30, 2012; thus, for that day, Ruzzo imputed the gross payroll for each of Respondent's employees using the statewide average weekly wage as defined in section 440.12(2)4/ multiplied by two. Ruzzo then performed the same computations to yield the penalty amount to be imposed for Respondent's failure to provide workers' compensation on September 30, 2012.

    
    

27. Ruzzo then added each penalty amount determined for each employee using actual gross payroll and imputed payroll, to yield the total penalty amount of $5,286.70.

28. Because Respondent had not previously been issued a stop-work order, pursuant to section 440.107(7)(d)1., Petitioner applied a credit toward the penalty in the amount of the initial premium Respondent paid for workers' compensation coverage. Here, the premium payment amount for which Respondent received credit was $2,081.00. This was subtracted from the calculated penalty of $5,286.70, yielding a total penalty of $3,205.70. Respondent's Defense

29. At the final hearing, Escalona testified that she and the other co-owners of Respondent always have attempted to fully comply with every law applicable to Respondent's business, and have never had compliance problems. She testified that neither she nor the other co-owners of Respondent realized

    that Respondent was required to have workers' compensation coverage for its employees, and they did not intentionally violate the law.

30. Petitioner apparently mailed a memorandum regarding verifying workers' compensation coverage requirements to businesses in the area before it conducted compliance inspections. The memorandum was dated October 8, 2014, and Escalona testified Respondent received it on October 13, 2014,

    
    

    approximately two weeks after the compliance inspection that Fluriach conducted. Escalona asserted that had Respondent received the memorandum before the compliance inspection was conducted, she would have called Petitioner to determine if Respondent needed to obtain workers' compensation coverage, would have asked how to obtain it, and would have obtained coverage for its employees and exemptions for its corporate officers.

31. Escalona testified that the $3,205.70 penalty is a substantial amount that Respondent, a small family-owned business, cannot afford to pay.

    Findings of Ultimate Fact

    
    

32. Petitioner has shown, by clear and convincing evidence, that Respondent violated chapter 440, as charged in the Stop-Work Order, by failing to secure workers' compensation coverage for its employees.

33. Petitioner has shown, by clear and convincing evidence, that the $3,205.70 penalty proposed to be assessed against Respondent pursuant to the Third Amended Penalty Assessment is the correct amount of the penalty to be assessed in this proceeding.

    
    

    CONCLUSIONS OF LAW

    
    

34. DOAH has jurisdiction over the parties to, and subject matter of, this proceeding pursuant to sections 120.569 and 120.57(1).

35. Pursuant to sections 440.10, 440.107(2), and 440.38, every employer is required to obtain workers' compensation insurance coverage for the benefit of its employees unless exempted or otherwise excluded under chapter 440. Strict compliance with the workers' compensation law by the employer is required. See C & L Trucking v. Corbett, 546 So. 2d 1185, 1187

(Fla. 5th DCA 1989); Dep't of Fin. Servs. v. L & I Consol. Servs., Inc., Case No. 08-5911 (Fla. DOAH May 28, 2009; Fla. DFS

July 2, 2009).

1. "Employer" is defined in section 440.107(16) to include "any person carrying on any employment."

2. "Employment" is defined in section 440.102(17) to mean "any service performed by an employee for the person employing him or her," and includes "all private employments in which four or more employees are employed by the same employer."

3. "Employee" is defined in section 440.102(15) to mean

   
   

   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.

   
   

4. Petitioner has the burden to prove, by clear and convincing evidence, that Respondent committed the violations of chapter 440 alleged in the Stop-Work Order and that the penalty proposed to be assessed is correct. Dep't of Fin. Servs., Div. of Workers' Comp. v. That's Right Enters., LLC, Case No. 12-1564

   (Fla. DOAH Aug. 31, 2012; Fla. DFS Oct. 5, 2012); Dep't of Fin.

   
   

   Servs., Div. of Workers' Comp. v. Hickman Tile, Inc., Case No.

   
   

   12-0759 (Fla. DOAH July 24, 2012; Fla. DFS Oct. 5, 2012).

   
   

   Clear and convincing evidence requires "more proof than a 'preponderance of the evidence' but less than 'beyond and to the exclusion of a reasonable doubt.'" In re Graziano, 696 So.

   2d 744, 753 (Fla. 1997).

   
   

5. Petitioner proved, by clear and convincing evidence, that Respondent was an employer for workers' compensation coverage purposes because it conducted business in Florida and employed four or more employees to perform services for remuneration in a non-construction industry during the period from September 30, 2012, to September 29, 2014.

6. Petitioner further proved, by clear and convincing evidence, that Respondent violated chapter 440, as charged in the Stop-Work Order, by failing to provide workers' compensation coverage for its employees as required by chapter 440.

   
   

7. Section 440.107(7)(d)1. establishes the method for calculating the penalty to be assessed by Petitioner for an employer's failure to secure workers' compensation coverage in violation of chapter 440 when the employer has provided gross payroll information. That statute states in pertinent part:

   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

   2 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 2-year period or $1,000, whichever is greater. For employers who have not been previously issued a stop-work order, the department must allow the employer to receive a credit for the initial payment of the estimated annual workers’ compensation policy premium, as determined by the carrier, to be applied to the penalty.

   
   

8. Petitioner proved, by clear and convincing evidence, that it correctly applied this penalty computation method in determining the penalty applicable to Respondent for the portion of the two-year look-back period in which Respondent was required to provide workers' compensation coverage but failed to do so and for which Respondent provided gross payroll records.

9. When the employer has not provided actual gross payroll records for use in computing the penalty as provided in section 440.107(d)1., Petitioner imputes the employer's payroll,

   
   

   pursuant to section 440.107(7)(e), for the specific dates for which gross payroll information was not provided.

   Section 440.107(7)(e) states:

   
   

   When an employer fails to provide business records sufficient to enable the department to determine the employer’s payroll for the period requested for the calculation of the penalty provided in paragraph (d), for penalty calculation purposes, the imputed weekly payroll for each employee, corporate officer, sole proprietor, or partner shall be the statewide average weekly wage as defined in s. 440.12(2) multiplied by 2.

   
   

10. Petitioner proved, by clear and convincing evidence, that pursuant to section 440.107(7)(e), it correctly imputed the payroll amount applicable to Respondent's employees for September 30, 2012, the portion of the two-year look-back period for which Respondent was required to provide workers' compensation coverage but failed to do so and for which Respondent did not provide gross payroll records.

11. Petitioner proved, by clear and convincing evidence, that $3,205.70 is the correct amount of the penalty that should be assessed in this case pursuant to sections 440.107(7)(d)

    and (e).

    
    

12. Escalona was a credible and sympathetic witness. The undersigned did not question her testimony that Respondent's owners did not know that Respondent was required to provide workers' compensation insurance coverage for its employees and

    
    

    that they would have ensured that Respondent complied with the law had they known. The undersigned also is sympathetic to the fact that Respondent is a small family-owned business for which the imposition of the penalty will work a significant hardship. Regardless, chapter 440 does not excuse non-compliance on the basis of lack of knowledge regarding the statute's requirements, and it does not provide for a reduced penalty on the basis of the non-complying employer's inability to pay the penalty assessed pursuant to section 440.107(7).

13. The undersigned notes that Florida Administrative Code Rule 69L-6.025 authorizes Petitioner to enter into a Payment Agreement Schedule, under which the employer pays ten percent of the total penalty or $1,000.00, whichever is greater, as a down payment and thereafter pays off the penalty pursuant to an installment schedule. Here, the evidence shows that Respondent is a small, family-owned business with no non-compliance history, that its non-compliance was unintentional, that it took immediate steps to comply with the law by obtaining workers' compensation coverage effective within three days of being determined non-compliant, and that the assessed penalty will work a substantial hardship on Respondent. Given these circumstances, the undersigned strongly urges Petitioner to enter a Payment Agreement Schedule with Respondent to enable it to pay off the penalty over a period of time.

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 determining that Respondent, Customs Logistics Services, Inc., violated the requirement in chapter 440 to secure workers' compensation coverage and imposing a total penalty of $3,205.70.

DONE AND ENTERED this 11th day of August, 2015, in Tallahassee, Leon County, Florida

S

CATHY M. SELLERS

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 11th day of August, 2015.

ENDNOTES

1/ All references are to the 2014 version of the Florida Statutes unless otherwise stated.

2/ Respondent's co-owners told Fluriach that Respondent had eight employees; however, the list of employees provided to Petitioner identified only seven employees. As discussed

herein, that difference is not material because non-construction industry employers having four or more employees are required to obtain workers' compensation insurance coverage for their employees.

3/ Here, Petitioner requested that Respondent provide documents identifying the legal business name and business form, employer licenses or certifications and business tax receipts, payroll records for employees, accounting documents, business disbursement documents, workers' compensation policies, independent contractor records, and documentation of exemptions from the requirement to secure workers' compensation coverage.

4/ Section 440.12(2) defines "statewide weekly average wage" as the weekly average wage paid by employers subject to the Florida Reemployment Assistance Program Law as reported to the Florida Department of Economic Opportunity ("DEO") for the four calendar quarters ending each June 30, which average weekly wage shall

be determined by DEO on or before November 30 of each year and shall be used in determining the maximum weekly compensation rate with respect to injuries occurring in the immediately following calendar year.

COPIES FURNISHED:

Astrid Escalona

Customs Logistics Services, Inc. 6940 Northwest 12th Street Miami, Florida 33126

Trevor S. Suter, Esquire Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399-4229 (eServed)

Julie Jones, CP, FRP, Agency Clerk Division of Legal Services Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399-0390 (eServed)

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: 15-001809

Orders for Case No: 15-001809