STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL SERVICES, DIVISION OF WORKERS' COMPENSATION,

Petitioner,

vs.

PROFESSIONAL STAFFING AND PAYROLL SERVICES, LLC,

Respondent.

/

Case No. 15-4527

RECOMMENDED ORDER

A hearing was conducted in this case pursuant to sections 120.569 and 120.57(1), Florida Statutes (2015),

before Cathy M. Sellers, an Administrative Law Judge ("ALJ") of the Division of Administrative Hearings ("DOAH"), on January 5, 2016, by video teleconference at sites in Miami and Tallahassee, Florida.

APPEARANCES

For Petitioner: Leon Melnicoff, Esquire

Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399-4229

For Respondent: No Appearance

STATEMENT OF THE ISSUES

The issues in this case are whether Professional Staffing and Payroll Services, LLC, failed to secure the payment of workers' compensation coverage for its employees in violation of chapter 440, Florida Statutes (2014), and, if so, the penalty that should be imposed.

PRELIMINARY STATEMENT

On June 17, 2015, Petitioner, Department of Financial Services, Division of Workers' Compensation, issued a Stop-Work Order and Order of Penalty Assessment, alleging that Respondent, Professional Staffing and Payroll Services, LLC, failed to secure the payment of workers' compensation in violation of chapter 440, Florida Statutes, and the Insurance Code, and assessing a penalty. Respondent timely challenged Petitioner's determination regarding the alleged violation of chapter 440 and its penalty assessment. After receiving business records from Respondent, Petitioner issued an Amended Order of Penalty Assessment on October 5, 2015, seeking to impose a penalty of

$645,019.36 against Respondent. The matter was referred to DOAH for assignment of an ALJ to conduct an administrative hearing under sections 120.569 and 120.57(1).

The final hearing was held on January 5, 2016. Petitioner presented the testimony of Jack Gumph and Lynne Murcia.

Petitioner's Exhibits 1 through 12, 14 through 18, and 20 were

admitted into evidence. Additionally, pursuant to Florida Rule of Civil Procedure 1.370, the undersigned deemed admitted the matters that were the subject of the requests for admission that Petitioner served on Respondent on September 21, 2015.1/ Respondent did not present any witnesses or offer any exhibits for admission into evidence.

The one-volume Transcript was filed on January 13, 2016. The proposed recommended orders were due to be filed on January 25, 2015. Petitioner timely filed its Proposed

Recommended Order, which was duly considered in preparing this

Recommended Order.

FINDINGS OF FACT

1. Petitioner, Department of Financial Services, Division of Workers' Compensation, is the state agency responsible for enforcing the requirement that employers in the State of Florida secure the payment of workers' compensation insurance coverage for their employees, pursuant to chapter 440, Florida Statutes.

2. Respondent, Professional Staffing and Payroll Services, LLC, is a registered Florida limited liability company. At all times relevant to this proceeding, its business address was

   1400 Colonial Boulevard, Suite 260, Fort Myers, Florida. Respondent actively engaged in business during the period from February 1, 2015, to June 17, 2015.

   
   

3. On June 2, 2015, Petitioner's compliance investigator, Jack Gumph, conducted a workers' compensation compliance investigation at a worksite located at 8530 Palacio Terrace North, Lot 67, Hacienda Lakes, Naples, Florida.

4. At the worksite, Gumph observed five workers nailing down plywood on the trusses of the roof of a house under construction. One of the workers, Fernando Fernandez, identified himself as the job foreman. Mr. Fernandez and the other four workers were employed by J.S. Valdez, Inc. ("JSV").

5. These workers were engaged in carpentry work installing plywood. This type of carpentry work is classified as National Council on Compensation Insurance ("NCCI") class code 5403 and is considered a type of construction activity under Florida Administrative Code Rule 69L-6.021(2)(cc).

6. The evidence established that JSV was a client company of Global Staffing Services, LLC ("GSS"), and that GSS supplied the workers to JSV. The evidence further established that all five workers Gumph observed at the Palacio Terrace jobsite were employees of GSS.

7. Using the State of Florida's Coverage and Compliance Automated System ("CCAS") computer database, Gumph determined that JSV did not have workers' compensation insurance covering any of its employees, and that GSS had workers' compensation coverage only for two secretarial/clerical employees.

   
   

8. Through research in the Florida Department of State, Division of Corporations Sunbiz database ("Sunbiz"), Gumph discovered that GSS was part of three related——as Gumph characterized it, "commingled"——business entities; these entities were GSS, Global Staffing Payroll, LLC ("GSP"), and Professional Staffing and Payroll Services, LLC, the named Respondent in this case.

9. Ivan Hernandez was shown in Sunbiz as being the managing member of GSS and GSP. At that time, the managing member of Respondent was shown as being Martha Coloma.

10. Gumph suspected that Respondent was leasing construction workers, who are engaged in hazardous work, through a staffing company that was characterized as a secretarial/clerical business (NCCI code 8810)——a substantially less hazardous occupation. The effect of classifying of these

    business as "secretarial/clerical" is that a much lower workers' compensation premium rate applies.2/

11. Gumph prepared requests for production of business records ("RPBR") for each of the related business entities and visited the business address listed in Sunbiz for GSS to personally serve them on Hernandez. The business was located in a strip mall that housed various types of businesses. As he was entering the business, he noted that the name shown at the entrance was "Professional Staffing."

    
    

12. The business manager explained that GSS was opened in 2013, and that on February 1, 2015, the business name had been changed to Professional Staffing and Payroll Services——the named Respondent in this proceeding.

13. Upon inquiry, Gumph was told that Hernandez was "out of state." Almost as soon as he left Respondent's business office, Gumph received a call from Hernandez, who confirmed that he was the owner and chief executive officer of both GSS and Respondent.

14. Gumph scheduled an appointment with Hernandez for

    
    

    June 16, 2015. However, Hernandez did not keep that appointment or call Gumph back to reschedule the appointment. It was obvious to Gumph that Hernandez was avoiding him.

15. In researching the Sunbiz records for Respondent, Gumph also noted that on June 16, 2015, the managing member's name had been changed from Martha Coloma to Ivan Hernandez.

16. He also rechecked the CCAS and NCCI databases for Respondent and noted that only a few days before, a workers' compensation policy had been issued for Respondent. The policy listed the business as "secretarial/clerical" and had a total exposure of $143,000 to cover four secretarial/clerical employees.

17. He also noted that GSS had a workers' compensation policy that was effective from August 15, 2014, to August 15,

    
    

    2015, and that this policy did not cover any additional insured entities, so its coverage did not extend to Respondent or its employees.

18. Gumph contacted Martha Coloma, who was employed by All Florida Financial Services, LLC, a payroll preparation and bookkeeping firm. Coloma told Gumph that in January 2015, Hernandez had asked her to amend the Sunbiz records for Respondent to be shown as Respondent's managing member. Coloma also told Gumph that Hernandez requested that she find a Professional Employer Organization ("PEO") leasing company that would secure workers' compensation coverage for approximately 40 to 50 of his employees who were engaged in construction work.3/ Coloma was unsuccessful, so Hernandez directed her to obtain another policy for secretarial/clerical employees. She obtained the policy covering the four secretarial/clerical employees.

19. Thereafter, Gumph spoke directly with Hernandez, who confirmed that he employed 40 to 50 construction workers. He told Gumph that he had tried to obtain a policy but had been unable to do so.

20. On June 17, 2015, Gumph issued a Stop-Work Order and Order of Penalty Assessment to Respondent, and also served a RPBR on Respondent.

21. In response, Respondent provided business records consisting of bank statements from a Regions Bank account

    
    

    covering the period from February 1, 2015, to February 28, 2015. Respondent did not provide any copies of checks written during this period.

22. Respondent also provided business records consisting of bank statements and copies of checks from a Fifth Third Bank payroll account for Respondent for the period of March 1, 2015, through June 17, 2015.

23. The evidence establishes that between February 1, 2015, and June 12, 2015, Respondent employed 437 employees—— the great majority of whom worked in construction jobs——for whom Respondent failed to secure workers' compensation insurance coverage. For the period between June 13, 2015, and June 17, 2015, Respondent secured workers' compensation coverage for four secretarial/clerical employees.

24. Based on the business records provided, Lynne Murcia, Petitioner's penalty auditor, calculated the penalty to be assessed against Respondent.

25. Pursuant to section 440.107(7)(d)1., the penalty for failing to secure workers' compensation is equal to two times the amount the employer would have paid in premium when applying approved manual rates to the employer's payroll during the period for which the employer failed to secure coverage during the two-year period preceding issuance of the Stop-Work Order.

    
    

26. Here, because Respondent became a business entity

    
    

    on or about February 1, 2015, the penalty period applicable to this proceeding commenced on February 1, 2015, and ran through June 17, 2015, the date on which the Stop-Work Order and Penalty Assessment were served on Respondent.4/

27. Respondent did not obtain any exemptions from the workers' compensation coverage requirement for the period between February 1, 2015, and June 17, 2015.

28. The business records Respondent provided in response to the RPBR were not sufficient to enable Petitioner to calculate Respondent's payroll for the period commencing on February 1, 2015, and ending on February 28, 2015. Accordingly, Petitioner imputed the gross payroll for Respondent's employees identified in the taxable wage report for the period covering February 1, 2015, through February 28, 2015, the statewide average weekly wage effective at the time of the Stop-Work Order, multiplied by two. The imputed wages for these employees over this period amounted to $2,544,907.68.

29. For the period commencing on March 1, 2015, and ending on June 17, 2015, Respondent provided records sufficient to enable Petitioner to determine Respondent's actual gross payroll. For this period, Respondent's gross payroll amounted to $1,202,781.88.

    
    

30. The evidence shows that for the period from February 1, 2015, through June 12, 2015, Respondent failed to

    secure workers' compensation coverage for any of its employees.

    
    

31. On June 13, 2015, Respondent secured workers' compensation covering four secretarial/clerical employees. This coverage did not extend to Respondent's employees engaged in work other than secretarial/clerical work.

32. For the period from June 13, 2015, to June 17, 2015, Respondent's gross payroll was calculated as $22,507.37.

33. In calculating the applicable penalty, Respondent received a credit of $923.98 for the premium paid on the policy secured on June 12, 2015. This amount was deducted from the penalty owed.

34. In calculating the penalty, Murcia determined the NCCI class code applicable to each employee according to his or her job, and applied the pertinent approved NCCI rates to determine the amount of the evaded premium for each employee. Pursuant to this method, Murcia calculated a total penalty of $645,019.36, which was reflected in the Amended Order of Penalty Assessment.

35. In sum, Petitioner demonstrated, by clear and convincing evidence, that Respondent failed to secure workers' compensation coverage for its employees, in violation of chapter 440.

    
    

36. The clear and convincing evidence further establishes that Petitioner correctly calculated a penalty of

    $645,019.36 to be assessed against Respondent pursuant to sections 440.107(7)(d)1. and 440.107(7)(e) and rule 69L-6.028.

    CONCLUSIONS OF LAW

    
    

37. DOAH has jurisdiction over the parties to, and subject matter of, this proceeding. §§ 120.569, 120.57(1), Fla. Stat.

38. This is a penal proceeding brought to enforce the workers' compensation coverage requirements in chapter 440. Here, Petitioner has issued a Stop-Work Order requiring Respondent to cease all of its business operations in the state. Because Petitioner's action at issue in this proceeding is penal, Petitioner has the burden of proof to show, by clear and convincing evidence, that Respondent committed the violations alleged in the administrative charging document, which is the Stop-Work Order. Dep't of Banking and Fin. v. Osborne Stern and

    Co., 670 So. 2d 932, 935 (Fla. 1996); Ferris v. Turlington, 510

    
    

    So. 2d 292 (Fla. 1987).

    
    

39. The clear and convincing evidence standard of proof has been described by the Florida Supreme Court as follows:

Clear and convincing evidence requires that the evidence must be found to be credible; the facts to which witnesses testify must be distinctly remembered; the testimony must be precise and explicit and the witnesses must be lacking in confusion as to the facts in issue. The evidence must be of such weight

that it produces in the mind of the trier of fact a firm belief or conviction, without hesitancy, as to the truth of the allegations sought to be established.

In re Davey, 645 So. 2d 398, 404 (Fla. 1994)(quoting Slomowitz

v. Walker, 429 So. 2d 797, 800 (Fla. 4th DCA 1983)).

40. 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 pertinent part, as "every person carrying on any employment." § 440.02(16)(a), Fla. Stat.

2. "Employment" is defined to include "[a]ll 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)(b)2., Fla. Stat.

3. As discussed in detail above, the evidence clearly and convincingly established that between February 1, 2015, and

   June 17, 2015, Respondent employed 437 employees for whom it did

   
   

   not secure workers' compensation coverage, in violation of section 440.10. For the period between June 13, 2015, and

   June 17, 2015, Respondent employed only four employees, who were in secretarial/clerical jobs, for whom it obtained workers' compensation coverage.

4. Section 440.107(7)(d)1. sets forth the parameters for assessing penalties for an employer's failure to secure workers' compensation coverage in violation of section 440.10. The statute 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

   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.

   
   

5. Pursuant to section 440.107(7)(e), when an employer fails to provide business records sufficient to enable Petitioner to determine its payroll during all or part of this two-year year period, Petitioner imputes the employer's payroll, pursuant to rule 69L-6.028(3).

   
   

6. Rule 69L-6.028(3) provides in pertinent part:

   
   

   When an employer fails to provide business records sufficient to enable the department to determine the employer's payroll for the time period requested in the business records request for purposes of calculating the penalty provided for in Section 440.107(7)(d), F.S., the imputed weekly payroll for each employee, corporate officer, sole proprietor or partner shall be calculated as follows:

   
   

   1. For each employee, other than corporate officers, identified by the department as an employee of such employer at any time during the period of the employer's non-compliance, the imputed weekly payroll for each week of the employer's non-compliance for each such employee shall be the statewide average weekly wage as defined in Section 440.12(2),

      F.S., that is in effect at the time the stop-work order was issued to the employer, multiplied by 2. Employees include sole proprietors and partners in a partnership.

      
      

   2. If the employer is a corporation, for each corporate officer of such employer identified as such on the records of the Division of Corporations at the time of issuance of the stop-work order, the imputed weekly payroll for each week of the employer's non-compliance for each such corporate officer shall be the statewide average weekly wage as defined in Section 440.12(2), F.S., that is in effect at the time the stop-work order was issued to the employer, multiplied by 2.

      
      

      * * *

      
      

      (d) The imputed weekly payroll for each employee, corporate officer, sole proprietor, or partner shall be assigned to the highest rated workers' compensation classification code for an employee based

      
      

      upon records or the investigator's physical observation of that employee's activities.

      
      

7. As discussed above, Respondent failed to provide business records sufficient to enable Petitioner to determine its payroll for the portion of the penalty period between February 1, 2015, and February 28, 2015. For that period, Petitioner applied the methodology codified at rule 69L-6.028(3) to impute Respondent's gross payroll.

8. As discussed above, for the remaining portion of the penalty period, which spanned from March 1, 2015, through June 17, 2015, Respondent provided payroll records sufficient to enable Petitioner to determine its actual gross payroll.

9. Based on the foregoing, it is concluded that Petitioner correctly applied sections 440.107(7)(d)1. and (7)(e) and rule 69L-6.028(3) to accurately impute and determine the gross payroll amounts for Respondent for the applicable penalty period. It also is concluded that Petitioner correctly applied the pertinent NCCI classification codes to each employee on Respondent's payroll during this period for whom it had failed to secure workers' compensation coverage, and correctly calculated a penalty of $645,019.36 to be assessed against Respondent in this proceeding.

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 Professional Staffing and Payroll Services, LLC, violated the requirement in chapter 440, Florida Statutes, to secure workers' compensation coverage and imposing a penalty of $645,019.36.

DONE AND ENTERED this 10th day of February, 2016, 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 10th day of February, 2016.

ENDNOTES

1/ Respondent did not serve written answers or objections to the requests for admission within 30 days of service.

2/ The NCCI classification system determines the applicable workers' compensation premium rates applicable to the type of work in which employees are engaged.

3/ The statements by Coloma to Gumph are hearsay that does not fall within an exception to the hearsay rule. However, here, they are offered to supplement or explain competent evidence in the record that goes to prove the subject about which Coloma told Gumph.

4/ Petitioner presently is investigating Respondent's predecessor entity, GSS, and may take enforcement action against that entity in the future.

COPIES FURNISHED:

Ivan Hernandez Professional Staffing and

Payroll Services, LLC

140 Colonial Boulevard, Suite 260 Fort Myers, Florida 33907

Leon Melnicoff, Esquire Department of Financial Services

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

Julie Jones, CP, FRP, Agency Clerk 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: 15-004527

Orders for Case No: 15-004527