STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL SERVICES, DIVISION OF WORKERS’ COMPENSATION,

Petitioner,

vs.

AMERICAN ALUMINUM CONCEPTS, INC.,

Respondent.

/

Case No. 16-5110

RECOMMENDED ORDER

On November 14, 2016, Administrative Law Judge Yolonda Green of the Division of Administrative Hearings, conducted a final hearing in this case, by video teleconference with sites in Daytona and Tallahassee, Florida.

APPEARANCES

For Petitioner: Thomas Nemecek, Esquire

Division of Workers’ Compensation Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399

For Respondent: Phil Hoffman, pro se

American Aluminum Concepts, Inc. 1046 Reed Canal Road

South Daytona, Florida 32119

STATEMENT OF THE ISSUES

Whether Respondent violated the provisions of chapter 440, Florida Statutes, by failing to secure payment of workers’ compensation coverage, as alleged in the Second Amended Order of Penalty Assessment; and, if so, the appropriate penalty.

PRELIMINARY STATEMENT

On June 29, 2016, Petitioner, Department of Financial Services, Division of Workers’ Compensation (“Department” or “Petitioner”), issued a Stop-Work Order and Order of Penalty Assessment, alleging that Respondent, American Aluminum Concepts, Inc. (“American” or “Respondent”), failed to secure workers’ compensation coverage for its employees as required by chapter 440, Florida Statutes. The order directed American to cease business operations and pay a penalty equal to two times the amount it would have paid in premiums during the two-year period preceding the order, or $1,000, whichever is greater.

On August 16, 2016, the Department hand-served an Amended Order of Penalty Assessment (“Amended Order”), which calculated a monetary penalty of $10,785.04.

American disputed the Department’s penalty calculation and requested a disputed-fact hearing. On September 6, 2016, Petitioner referred this matter to the Division of Administrative Hearings (“DOAH”) for assignment to an

administrative law judge. The final hearing was scheduled for November 14, 2016.

On November 2, 2016, the Department filed a Motion to Amend the Order of Penalty Assessment (“Second Amended Order”) based upon additional records American provided to the Department. On November 8, 2016, the undersigned granted the motion, which reduced the penalty to $6,818.00. At the hearing, the Department orally amended the penalty assessment a third time, which reduced the penalty to $6,764.96.

On November 14, 2016, the undersigned conducted the final hearing as scheduled. At the hearing, the Department presented the testimony of two Department employees: Kenneth Howe, a Department investigator; and Eunika Jackson, a Department penalty auditor. The Department’s Exhibits 1 through 5, 7 through 10, 12, and 13 were admitted without objection. The Department’s Exhibits 6a and 6b were admitted over objection.

American presented the testimony of Patrick Hoffman, owner of American. American offered no exhibits.

Prior to commencement of the hearing, the parties orally stipulated to certain facts which, to the extent relevant, have been incorporated into the Findings of Fact below.

The one-volume Transcript of the final hearing was filed with DOAH on November 17, 2016. Petitioner timely filed a Proposed Recommended Order on November 28, 2016. Respondent

filed an untimely post-hearing statement on December 1, 2016. Petitioner did not file an objection to Respondent’s untimely filing. Therefore, both post-hearing submittals have been considered in the preparation of this Recommended Order.

Unless otherwise indicated, all references to statutes are to Florida Statutes (2015), which is the law in effect at the time of the alleged acts giving rise to imposition of a penalty.

FINDINGS OF FACT

Jurisdiction

1. The Department is the state agency responsible for enforcing the requirement of chapter 440 that employers in Florida secure workers’ compensation coverage for their employees and corporate officers, pursuant to section 440.107.

2. Patrick Hoffman was the owner and sole corporate officer for American. At all times material to this proceeding, American sold materials for window screens, patio sliding doors, screws, and spline screening; and it provided window and screen installation services.

   Investigation

   
   

3. On June 29, 2016, the Department commenced an investigation following the observation of Patrick Hoffman and Timothy Barnett (also known as Adam Barnett) performing window installation services at a residential property. Kent Howe, an investigator in the Department’s compliance division, conducted

   
   

   an investigation regarding American’s operation of its business without proper workers’ compensation coverage. On June 29, 2016, Mr. Howe personally served a Stop-Work Order requiring American to cease all business operations and Order of Penalty Assessment on Mr. Hoffman.

4. On June 29, 2016, Mr. Howe also served Mr. Hoffman with a Request for Production of Business Records for Penalty Calculation, requesting records to enable the Department to calculate the appropriate penalty for the period of June 30, 2014, through June 29, 2016.

5. On June 30, 2016, the Department issued a conditional release from the Stop-Work Order. The conditional release required Respondent to pay $1,000, and agree to pay the penalty assessment within 28 days after the penalty calculation. American paid the $1,000 payment but it disputed the calculated penalty amount.

6. An employer is required to maintain workers’ compensation coverage for employees unless there is an exemption from coverage. In the construction industry, a company must maintain coverage if it employs one or more persons. In the

   non-construction industry, a company is required to maintain coverage if it employs three or more persons.

7. A contractor serving as a corporate officer in the construction industry may obtain an exemption from coverage

   
   

   requirements. See § 440.05, Fla. Stat. A contractor must

   
   

   demonstrate compliance with the workers’ compensation requirements or produce a copy of an employee leasing agreement or exemption for each employee. If an employee is a subcontractor without their own workers’ compensation coverage or an exemption, the individual is considered an employee of the contractor.

8. American did not dispute that Timothy Barnett and Roger Wilson were employees of the company. American also did not dispute that it did not have workers’ compensation coverage for the employees as required by chapter 440. As a corporate officer, Mr. Hoffman elected to be exempted from workers’ compensation coverage.

   Penalty Calculation

   
   

9. The Department assigned Eunika Jackson, a Department penalty auditor, to calculate the appropriate penalty for American. Ms. Jackson conducts penalty audits for construction and non-construction employers.

10. Ms. Jackson testified that workers’ compensation coverage penalties are calculated based on a statutory formula in which the auditor calculates two-times the amount of the insurance premium the employer would have paid for each employee over the two-year period preceding the Stop-Work Order. The

    two-year period is commonly referred to as the look-back period.

    
    

11. The penalty calculation is based on the employer’s payroll, the classification code for the industry of operation during the audit period, and the manual rate assigned to that classification code.

12. To determine the appropriate code, the auditor uses the classification code in the Scopes® Manual, which has been adopted by Petitioner through Florida Administrative Code Rules 69L-6.021 and 69L-6.031.

13. Ms. Jackson used business records Mr. Hoffman provided to determine the appropriate industry code and the penalty amount for each employee.

14. Ms. Jackson reviewed bank statements to determine the gross payroll paid to Mr. Wilson and Mr. Barnett during the two-year non-compliance period. The records demonstrated that Roger Wilson received payment during the period of June 30, 2014, through December 31, 2015. Timothy (Adam) Barnett received payment during the period of January 1, 2015, through June 29, 2016.

15. Ms. Jackson determined that American operated in the construction industry and initially assigned each employee a classification code of 5102.

16. On August 11, 2016, the Department issued the Amended Order that assessed a total penalty of $10,785.04. The Amended Order was personally served on Mr. Hoffman on August 16, 2016.

    
    

17. In response to the Amended Order, Respondent disputed the classification code assigned to Mr. Wilson. Mr. Hoffman testified that Mr. Wilson did not perform construction work, but rather worked as a retail employee selling merchandise in the store front. Mr. Hoffman further testified that contractors purchased items at American for use in their businesses.

    Mr. Hoffman’s description of Mr. Wilson’s job responsibilities and description of merchandise sold at American clearly demonstrates that Mr. Wilson did not perform construction work.

18. Ms. Jackson correctly determined that the classification code 8018, which applies to retail and wholesale salespersons, was the appropriate code for Mr. Wilson. The classification code change resulted in a manual rate reduction and a reduced assessment applied to Mr. Wilson.

19. On November 18, 2016, the Department filed a Motion for Leave to Amend Order of Penalty Assessment, which the undersigned granted. The Second Amended Order reduced the penalty assessment to $6,818.00.

20. During the hearing, American continued to dispute the calculation of the penalty for Mr. Hoffman because he maintained an exemption as a corporate officer. The Department ultimately agreed to remove Mr. Hoffman from the penalty assessment worksheet and reduced the penalty assessment to $6,764.96.

    
    

21. At hearing, there was no dispute regarding the penalty assessment related to Mr. Barnett. However, Respondent argued in the post-hearing statement for the first time that Timothy Barnett had an exemption. There was no evidence to support Respondent’s assertion. Therefore, Ms. Jackson correctly included payment to Mr. Barnett as payroll for purposes of calculating the penalty.

22. Regarding Mr. Wilson, Mr. Hoffman argued that

    
    

    Mr. Wilson had an exemption from workers’ compensation coverage when he began working for American.1/ However, Mr. Hoffman could not produce a copy of the exemption and Mr. Wilson was not present at the hearing for testimony.

23. Ms. Jackson conducted research using the Coverage Compliance Automated System (“CCAS”), a database used by the Department to maintain information regarding workers’ compensation policies, employee leasing plans, and exemptions for employees.

24. Ms. Jackson found no record of an exemption for Mr. Wilson in CCAS. While Ms. Jackson did not exhaust all

    efforts to locate an exemption for Mr. Wilson, it was American’s burden to produce evidence of an exemption. Mr. Hoffman’s testimony with nothing more was insufficient to demonstrate that

    
    

    Mr. Wilson had an exemption and as such, Ms. Jackson appropriately included payments to Mr. Wilson as payroll to calculate the penalty.

25. The calculation of the penalty for Mr. Wilson in the amount of $2,784.58 is correct. However, the penalty calculation for Mr. Barnett is incorrect. The amount should be

    $3,872.27. Therefore, the amount of the penalty should be reduced to $6,656.85.

    Ultimate Findings of Fact

    
    

26. American was actively involved in business operations within the construction industry during the audit period of June 30, 2014, through June 29, 2016.

27. Based upon the description of American’s business and the duties performed, Mr. Wilson was properly classified with a code 8018.

28. Ms. Jackson used the correct manual rates and methodology to determine the appropriate penalty.

    CONCLUSIONS OF LAW

    
    

    Jurisdiction

    
    

29. The Division of Administrative Hearings has jurisdiction of the subject matter and the parties to this proceeding, pursuant to sections 120.569 and 120.57(1), Florida Statutes (2016).

    
    

30. Petitioner has the responsibility to enforce workers’ compensation requirements, including the requirement that employers secure the payment of workers’ compensation, pursuant to section 440.107(3).

31. In this proceeding, Petitioner seeks to impose a penalty assessment against Respondent for failure to secure the payment of workers' compensation for the benefit of employees, as required by chapter 440.

    Burden of Proof

    
    

32. Because the Department seeks to penalize Respondent, the Department has the burden of proof in this case and must prove by clear and convincing evidence that the employer violated the Workers' Compensation Law and that the penalty assessments were correct under the law. Dep’t of Banking & Fin.

    v. Osborne Stern and Co., 670 So. 2d 932, 935 (Fla. 1996)(the imposition of administrative fines which are penal in nature and implicate significant property rights must be justified by a finding of clear and convincing evidence of a related violation); Ferris v. Turlington, 510 So. 2d 292 (Fla.

    1987)(evidence must be clear and convincing to support penal sanction such as revocation of a professional license).

    The clear and convincing standard of proof has been described by the Florida Supreme Court: Clear and convincing evidence requires that the evidence must be found to be credible; the facts to which the

    
    

    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)).

33. On issues for which Respondent is asserting the affirmative, Respondent bears the burden of proof. To the extent Respondent claims its employees were exempted from the requirement to maintain workers’ compensation coverage, Respondent bears the burden of proof that the employee had an exemption. See Balino v. Dep’t of Health & Rehabilitative Servs., 348 So. 2d 349 (Fla. 1st DCA 1977)(burden of proof is

    generally on the party asserting the affirmative of the issue). Coverage Requirement

34. Employers are required to secure payment of compensation for their employees. §§ 440.10(1)(a) and 440.38(1), Fla. Stat.

35. "Employer" is defined, in part, as "every person carrying on any employment." § 440.02(16)(a), Fla. Stat. "Employment . . . means any service performed by an employee for the person employing him or her" and includes "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.

    
    

36. "Employee" is defined, in part, as "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." § 440.02(15)(a), Fla. Stat.

37. Section 440.02(8) defines "construction industry" as "for-profit activities involving any building, clearing, filling, excavation, or substantial improvement in the size or use of any structure or the appearance of any land." Section 440.02(8) further provides "[t]he division may, by rule, establish standard industrial classification codes and definitions thereof which meet the criteria of the term 'construction industry' as set forth in this section." The Department applied the appropriate classification codes in this matter.

38. Petitioner proved by clear and convincing evidence that Respondent was an employer engaged in the construction industry. The parties stipulated that Respondent employed

    Mr. Wilson and Mr. Barnett. However, Respondent failed to prove that Mr. Wilson had an exemption from workers’ compensation coverage.

    
    

39. Petitioner also properly applied the classification code 5102 for work performed by Mr. Barnett and code 8018 for the work performed by Mr. Wilson.

40. Section 440.107(7)(a) provides 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.

    
    

    Thus, the Department's Stop-Work Order was mandated by statute.

    
    

41. As to the computation and assessment of penalties, section 440.107(7) provides, in relevant part:

    (d)1. 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 . . . .

    
    

42. The Department properly utilized the penalty worksheet required by rule 69L-6.027 and the procedure required by section

    
    

    440.107(7)(d)1. and (7)(e) to calculate the appropriate penalty for Respondent’s failure to comply with the coverage requirements of chapter 440.

43. Petitioner correctly calculated the penalty for Roger Wilson in the amount of $2,784.58. Petitioner incorrectly calculated the penalty amount for Timothy (Adam) Barnett and thus, the penalty should be reduced to $3,872.27. The amended penalty to be imposed is $6,656.85.

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:

1. Respondent, American Aluminum Concepts, Inc., violated the requirement in chapter 440, by failing to secure workers’ compensation coverage for its employees; and

2. Imposing a total penalty assessment of $6,656.85.

DONE AND ENTERED this 16th day of December, 2016, in Tallahassee, Leon County, Florida.

S

YOLONDA Y. GREEN

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 16th day of December, 2016.

ENDNOTE

1/ Each officer of a corporation who is actively engaged in the construction industry and who elects an exemption from this chapter shall maintain business records as specified by the department by rule, which rules must include the provision that any corporation with exempt officers engaged in the construction industry must maintain written statements of those exempted persons affirmatively acknowledging each such individual’s exempt status. § 440.05(10), Fla. Stat.

COPIES FURNISHED:

Thomas Nemecek, Esquire

Division of Workers’ Compensation Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399 (eServed)

Phil Hoffman

American Aluminum Concepts, Inc. 1046 Reed Canal Road

South Daytona, Florida 32119

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

200 East Gaines Street Tallahassee, Florida 32399 (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: 16-005110

Orders for Case No: 16-005110