STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL SERVICES, DIVISION OF WORKERS' COMPENSATION,

Petitioner,

vs.

S & S OF FLORIDA, LLC,

Respondent.

/

Case No. 16-4378

RECOMMENDED ORDER

Pursuant to notice, a formal administrative hearing was conducted before Administrative Law Judge Mary Li Creasy in Tallahassee and Miami, Florida, by video teleconference, on

October 18, 2016.

APPEARANCES

For Petitioner: Joaquin Alvarez, Esquire

Trevor Suter, Esquire

Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399-4229

For Respondent: John J. Obando, pro se

S & S of Florida, LLC

8590 Southwest Eighth Street Miami, Florida 33144

STATEMENT OF THE ISSUES

Whether Respondent violated the provisions of chapter 440, Florida Statutes (2016), by failing to secure the payment of

workers' compensation coverage, as alleged in the Second Amended Order of Penalty Assessment; and, if so, what penalty is appropriate.

PRELIMINARY STATEMENT

This proceeding arose out of the requirement in Florida's Workers' Compensation Law that employers must secure the payment of workers' compensation insurance for their employees. On February 23, 2016, the Department of Financial Services, Workers' Compensation Division ("Department") served a Stop-work Order ("SWO") on Respondent for failing to secure workers' compensation for its employees as required by chapter 440, Florida Statutes.

Respondent timely filed a request for a formal administrative hearing. An Amended Order of Penalty Assessment ("OPA") was issued on March 29, 2016. A Second Amended OPA was issued on May 6, 2016, in the amount of $23,952.88.

On August 1, 2016, this matter was referred to the Division of Administrative Hearings ("DOAH"). On October 18, 2016, the final hearing was held as scheduled. The Department presented the testimony of Julio Cabrera, compliance investigator, and Matt Jackson, penalty auditor. The Department offered Exhibits 1 through 10, which were admitted into evidence. John Obando, a member of S & S of Florida, LLC, testified for Respondent.

The Transcript of the final hearing was filed with DOAH on November 23, 2016. The Department timely filed a proposed

recommended order, which was considered in the drafting of the Recommended Order.

References to statutes and rules are to the 2016 versions, unless otherwise indicated.

FINDINGS OF FACT

1. The Department is the state agency responsible for enforcing the requirement of chapter 440 that employers in Florida secure the payment of workers' compensation coverage for their employees and corporate officers. § 440.107, Fla. Stat.

2. Respondent owns and operates a gas station/convenience store in Miami, Florida.

   The Investigation.

   
   

3. The Department received a public referral that Respondent was operating without workers' compensation coverage. The case was assigned by the Department to Compliance Investigator Julio Cabrera ("Cabrera").

4. Cabrera first checked the Florida Department of State, Division of Corporations, Sunbiz website to verify Respondent's status as an active corporation. Cabrera then checked the Department's Coverage and Compliance Automated System ("CCAS") to see whether Respondent had a workers' compensation policy or any exemptions.

   
   

5. An exemption is a method in which a corporate officer can exempt himself from the requirements of chapter 440. See

   § 440.05, Fla. Stat.

   
   

6. CCAS is the Department's internal database that contains workers' compensation insurance policy information and exemption information. Insurance providers are required to report coverage and cancellation information, which is then input into CCAS.

7. Cabrera's CCAS search revealed that Respondent had no coverage or exemptions during the relevant period.

8. On February 23, 2016, Cabrera visited Respondent's place of business and observed two women, Margarita Maya ("Maya"), and Nuri Penagos ("Penagos") serving customers.

9. Cabrera asked to speak to the owner. Maya telephoned John Obando ("Obando"). After introducing himself, Cabrera asked how many employees worked for the business. Obando indicated he needed to check with his accountant. Shortly thereafter, Obando called Cabrera back and indicated that his employees included Maya; Carolina Santos ("Santos"); his wife, Marta Ayala ("Ayala"); and himself.

10. Obando confirmed that the business did not currently have workers' compensation insurance coverage nor did any of the members of the LLC have an exemption. The LLC had three managing members: Obando; Maria Rios ("Rios"); and Carlos Franco ("Franco"). Obando explained that Rios lived out of the country

    
    

    and did not provide services to Respondent. According to Obando, Franco also resides outside of the United States, but he travels to Florida and periodically assists with the running of Respondent's business enterprise.

11. Cabrera contacted his supervisor and relayed this information. With his supervisor's approval, Cabrera issued a SWO and served a Business Records Request.

12. Respondent provided the requested business records to the Department. 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, including managing members without exemptions.

13. As such, Respondent violated chapter 440 and, therefore, is subject to penalty under that statute. Penalty Calculation.

14. The Department assigned Penalty Auditor Matt Jackson ("Jackson") to calculate the penalty assessed against Respondent.

15. Jackson used the classification code 8061 listed in the Scopes® Manual, which has been adopted by the Department through Florida Administrative Code Rule 69L-6.021(1). Classification code 8061 applies to employees of gasoline stations with convenience stores. Classification codes are four-digit codes assigned to various occupations by the National Council on

    
    

    Compensation Insurance to assist in the calculation of workers' compensation insurance premiums.

16. In the penalty assessment, Jackson applied the corresponding approved manual rate for classification code 8061 for the related periods of non-compliance. The corresponding approved manual rate was correctly utilized using the methodology specified in section 440.107(7)(d)1. and rule 69L-6.027 to determine the final penalties.

17. Utilizing the business records provided by Respondent, the Department determined Respondent’s gross payroll pursuant to the procedures required by section 440.107(7)(d) and rule 69L-

    6.027. The Department served an Amended OPA on March 29, 2016, imposing a total penalty of $29,084.62. On May 6, 2016, following receipt of additional records, the Department issued a Second Amended OPA, reducing the penalty to $25,670.88.

18. Because Respondent had not previously been issued a SWO, pursuant to section 440.107(7)(d)1., the Department 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

    $1,718.00. This was subtracted from the calculated penalty of

    
    

    $25,670.88, yielding a total remaining penalty of $23,952.88.

    
    

19. No records were provided regarding the compensation of Penagos, who was observed working on the date of the inspection.

    
    

    According to Respondent, Penagos was present and working on that date, not as an employee, but as an unpaid volunteer who was testing out the job to see if it was to her liking.

20. The Department imputed gross payroll for Penagos for February 23, 2016, which resulted in a penalty in the amount of

    $16.26 and was included in the Second Amended OPA. Respondent's Defenses.

21. At the final hearing, Obando testified that he and the other co-owners of Respondent always attempted to fully comply with every law applicable to Respondent's business and have never had compliance problems. He testified that the business carried workers' compensation coverage until 2013, when its insurance agent advised Respondent it could go without coverage due to the size of the business, if the managing members of the LLC were to apply for, and be granted, an exemption. Obando offered no explanation why Respondent failed to secure the exemptions before letting coverage lapse during the penalty period.

22. Obando also argues that on the date of the investigation, Penagos was not an employee, but rather his sister-in-law, who was trying out the job for a day as a

    volunteer to determine if she would replace Obando's wife, Ayala, who no longer wanted to work in the store. Obando asserts that only two employees were actually working in the store that day, so Respondent should not have been considered out of compliance.

    
    

    Obando also testified that at most, no more than three employees work at the store on any particular day.

23. Obando testified that Respondent has ample liability coverage and that each worker has health insurance, suggesting that workers' compensation insurance coverage is unnecessary.

24. According to Obando, the $23,952.88 penalty is a substantial amount that Respondent, a small family-owned business, cannot afford to pay.

    Findings of Ultimate Fact.

    
    

25. Excluding Penagos as a volunteer, and Rios as a managing member of the LLC with no active service to Respondent, Respondent was a covered employer with four or more employees at all times during the penalty period.

26. The Department demonstrated, by clear and convincing evidence, that Respondent violated chapter 440, as charged in the SWO, by failing to secure workers' compensation coverage for its employees.

    CONCLUSIONS OF LAW

    
    

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

28. 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. The Department failed to prove that Penagos was an employee on the date she was observed working because there was no evidence that she received any remuneration for her services and no rebuttal evidence suggesting Penagos was anything other than a volunteer on February 23, 2016.

   
   

5. The Department has the burden to prove, by clear and convincing evidence, that Respondent committed the violations of chapter 440 alleged in the SWO 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).

   
   

6. The Department 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 February 24, 2014, to February 23, 2016.

7. These workers included: Franco, Obando, Maya, Ayala, and Santos. The fact that these individuals are family members, or that they work on an irregular or part-time basis, has no bearing on their inclusion in the count for the number of employees to determine coverage because the statute does not

   
   

   differentiate workers based on familial status or full versus part-time employment.

8. The Department further proved, by clear and convincing evidence, that Respondent violated chapter 440, as charged in the SWO, by failing to provide workers' compensation coverage for its employees as required by chapter 440.

9. Section 440.107(7)(d)1. establishes the method for calculating the penalty to be assessed by the Department 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.

   
   

10. The Department 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.

11. The Department proved, by clear and convincing evidence, that $23,936.62 (representing the remaining penalty in the amount of $23,952.88 minus the $16.26 penalty attributed to Penagos) is the correct amount of the penalty that should be assessed in this case pursuant to sections 440.107(7)(d) and (e).

12. Obando was a credible and sympathetic witness. The undersigned did not question his 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 cause 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 rule 69L-6.025 authorizes the Department 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, and that the assessed penalty will result in a substantial hardship on Respondent. Given these circumstances, the undersigned strongly urges the Department 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,

S & S of Florida, LLC, violated the requirement in chapter 440 to secure workers' compensation coverage and imposing a total penalty of $23,936.62.

DONE AND ENTERED this 7th day of December, 2016, in Tallahassee, Leon County, Florida.

S

MARY LI CREASY

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 7th day of December, 2016.

COPIES FURNISHED:

Joaquin Alvarez, Esquire Trevor Suter, Esquire

Department of Financial Services

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

John J. Obando

S & S of Florida, LLC

8590 Southwest Eighth Street Miami, Florida 33144

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: 16-004378

Orders for Case No: 16-004378