15-001613 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. Hollywood Construction Of Northwest Florida, Llc Status: Closed Recommended Order on Thursday, December 3, 2015.

Summary: The Department failed to prove by clear and convincing evidence that $21,853.80 is the correct penalty and/or that it utilized the correct methodology in calculating that penalty.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL

SERVICES, DIVISION OF WORKERS'

COMPENSATION,

Petitioner,

vs. Case No. 15 - 1613

HOLLYWOOD CONSTRUCTION OF

NORTHWEST FLORIDA, LLC,

Respondent.

_______________________________/

RECOMMENDED ORDER

Pursuant to notice, a final hearing was held in this case o n

September 22 , 2015, via video teleconference in Panama City and

Tallahassee, Florida , b efore Garnett W. Chisenhall, a duly -

designated Administrative Law J udge of the Division of

Administrative Hearings .

APPEARANCES

For Petitioner: Trevor S. Suter, Esquire

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399 - 4229

For Respon dent: R . G age Golden, pro se

Hollywood Construction of

Northwest Florida, LLC

3003 State Avenue

Panama City, Florida 32405

STATEMENT OF THE ISSUE S

The issu es are whether Respondent , Hollywood Construction of

Northwest Florida, LLC ( Hollywood Construction), failed to secure

workersÓ compensation insurance as required by chapter 440,

Florida Statutes (2014); and if so, what penalty should be

imposed.

PRELIMI NARY STATEMENT

This proceeding arose out of the requirement in FloridaÓs

WorkersÓ Compensation Law that employers must secure the payment

of workersÓ compensation insurance for their employees .

On January 22, 2015, Petitioner, the Department of Financ ial

Services, Division of WorkersÓ Compensation (the D epartment ),

served an Order of Penalty Assessment on Hollywood Construction.

The Order of Penalty Assessment alleged that Hollywood

Construction was not in compliance with the workersÓ compensation

cov erage requirements of chapter 440, between August 7, 2012 , and

August 6, 2014 . Furthermore, the Order of Penalty Assessment

required Hollywood Construction to pay a penalty of $100,326.46.

Hollywood Construction responded to the Order of Penalty

Assessm ent by request ing a formal administrative hearing on

February 4, 2015 .

On May 12, 2015, the Department served a 2 nd Amended Order

of Penalty Assessment which established a monetary penalty of

$89,886.28.

On September 21, 2015 , and one day prior to the fi nal

hearing in this matter, the Department issued a 3 rd Amended Order

of Penalty Assessment indicating the Department was now seeking

to impose a penalty of $21,853.80.

The final hearing took place as scheduled on September 22,

2015 , at which the Departm ent presented the testimony of two

witnesses, and the DepartmentÓs Exhibits 1 through 6, 8, 10 ,

and 11 were admitted into evidence. Hollywood Construction

presented the testimony of one witness and offered no exhibits.

The proceedings were recorded and a one - volume T ranscript

was filed with the Division of Adm inistrative Hearings on

October 28, 2015. The Department filed a Proposed Recommended

Order , which has been carefully considered in the preparation of

this Recommended Order. Hollywo od Constructio n did not file a

proposed recommended o rder.

Unless indicated otherwise, all statutory citations are to

the 201 4 version of the Florida Statutes.

FINDING S OF FACT

Based on the oral and documentary evidence adduced at the

final hearing and the entire re cord in this proceeding, the

following F indings of F act are made:

1. The Department is the state agency responsible for

enforcing the requirement in chapter 440, that employers in

Florida secure workersÓ compensation coverage for their

employees.

2. A n employer can satisfy that requirement by purchasing a

workersÓ compensation insurance policy or by leasin g employees

through an employee leasing company with a workersÓ compensation

insurance policy. With regard to the lat t er, the employer pays

the empl oyee leasing company, and the employ ee leasing company

then compensates the leased employees for their labor.

3. Donald Hurst is employed as a workersÓ compensation

investigator for the Department. He works out of a district

office in Pensacola, F lorida, and his territory covers Bay, Gulf,

Franklin, and Liberty Counties.

4 . Hollywood Construction is a construction business with

its principal office in Panama City, Florida.

5. On approximately August 6, 2014 , Mr. Hurst received a

phone call from Barry Hutchinson , who claimed to be an injured

employee of Hollywood Construction.

6 . That phone call prompted Mr. Hurst to access a website

managed by the Florida Department of State, Division of

Corporations, where he learned of Hollywood Constru ctionÓs

address and that R . G age Golden was responsible for the business

operations.

7 . Mr. Hurst also accessed the Coverage and Compliance

Automated System (CCAS) , which is a Department - maintained

database that records whether a particular employer has workers Ó

compensation coverage. CCAS indicated that Hollywood

Construction had workersÓ compensati on coverage through an

employee leasing company in lieu of procuring its own workersÓ

compensation insurance policy .

8 . Because Mr. Hutchinson alleged th at he was a Hollywood

Construction employee wh o had no workersÓ compensation coverage ,

Mr. Hurst decided that further investigation was warranted and

visit ed the job site w here Mr. Hutchinson stated he had been

working. The purpose of this visit was to ve rify whether any

workers at the job site had coverage.

9 . After finding no one at the reported job site, Mr. Hurst

served Hollywood Construction with a Request for Production of

Business Records on August 14, 2014 , seeking various types of

business record s that would reveal whether Hollywood Construction

had been directly paying employees or subcontractors between

May 6, 2014 , and August 6, 2014 .

10 . The business records produced by Hollywood Construction

indicated that Hollywood Construction had made dir ect payments to

Mr. Hutchinson. Accordingly , and because Hollywood Construction

had no workersÓ compensation coverage outside its employee

leasing arrangement , Mr. Hurst concluded that Hollywood

Construction had failed to procure all necessary workersÓ

co mpensation coverage.

1 1 . Next, Mr. Hurst hand - delivered to Hollywood

Construction on September 3, 2014 , a document entitled ÐRequest

for Production of Business Records for Penalty Assessment

Calculation.Ñ The aforementioned document sought additional

rec o rd s pertaining to the period from August 7, 2012 , through

August 6, 2014 (i.e., the audit period), that would enable the

Department to ascertain how much money Hollywood Construction had

paid directly to employees and/or s ubcontractors .

1 2 . The request ed records correspond ed to the two - year

period established by section 440. 107(7)(d) f or penalty

calculations .

1 3 . After reviewing those records, the Department concluded

that multiple individuals were receiving direct payments from

Hollywood Constru ction , rather than from Hollywood ConstructionÓs

employee leasing company.

1 4 . As a result, Mr. Hurst personally served o n January 22,

2015 , an Order of Penalty Assessment requiring Hollywood

Construction to pay a penalty of $100,326.46.

1 5 . At some point thereafter, Hollywood Construction

produced additional records to the Department, and the Department

issued a 2 nd Amen ded Order of Penalty Assessment on May 11, 2015 ,

imposing a penalty of $89,886.28.

1 6 . Ultimately, the Department issued a 3 rd Am ended Order

of Penalty Assessment on September 21, 2015 , requiring Hollywood

Construction to pay a penalty of $21,853.80.

1 7 . T he $21,853.80 p enalty s ought by the Department is

based on Hollywood ConstructionÓs payroll during the audit period

and the pr emium Hollywood Construction would have paid if it had

obtained all of the necessary workersÓ compensation coverage

during the audit period.

1 8 . In order to calculate Hollywood ConstructionÓs payroll

during the audit period and the resulting premium, th e Department

relied on information provided by Hollywood Construction to

ascertain the nature of its employeesÓ work and assigned each

employee a classification code from the Scopes® Manual, which has

been adopted by the Department through Florida Administ rative

Code R ule 69L - 6.021.

1 9 . Classification codes pertain to various occupations or

types of work, and each one has an approved manual rate used by

insurance companies to assist in the calculation of workersÓ

compensation insurance premiums.

20 . A n approved manual rate corresponds to the risk

associated with a particular occupation or type of work.

Therefore, the manual rate corresponding to a roofer will be

higher than the manual rate corresponding to secretarial work.

2 1 . The DepartmentÓs revie w also indicated that some of the

payments at issue were non - wage expenses. For example, Hollywood

Construction was reimbursing individuals for procuring items such

as building materials and gasoline.

2 2 . Payments intended to reimburse employees for pr ocuring

such items are non - wage expenses that do not count towards an

employerÓs workersÓ compensation obligation because those payments

are not payroll.

2 3 . However, the Department was of the opinion that

H ollywood ConstructionÓs records were in suffici ently detailed to

enable the Department to ascertain whether all the payments at

issue were wages or non - wage payments.

2 4 . Accordingly , and pursuant to r ule 69L - 6. 035(1)(i) , the

Department presumed that 80 percent of the payments at issue were

payroll that would count toward calculating a businessÓ workersÓ

compensation premium.

2 5 . Using the approved manual rates and the wages paid

during the audit period (adjusted as described immediately

above) , the Department determined the individual insurance

p remiums Hollywood Construction would have paid for the employees

in question if Hollywood Construction had procured workersÓ

compensation coverage during the audit period.

2 6 . Then , and as required by section 440.107(d)(1), the

Department multiplied eac h individual premium by two in order to

calculate the penalty associated with each employee , and those

individual amounts totaled $21,853.80 .

2 7 . R. Gage Golden (Hollywood ConstructionÓs

representative/owner) credibly testified during the final hearing

that none of the payments used to calculate the $21,853.80

penalty were wages. Instead, those payments were non - wage

expenses that should not influence Hollywood ConstructionÓs

workersÓ compensation obligation.

2 8 . Furthermore, Mr. Golden argued that t here is

insufficient guidance in the relevant statutes and rules as to

how business records must be maintained.

2 9 . The undersigned finds (as a matter of ultimate fact)

that the Department failed to carry its burden of prov ing that

$21,853.80 is the app ropriate penalty and/or that the Department

utilized the correct methodology in calculating that penalty .

30 . Hollywood ConstructionÓs records sufficiently

demonstrate that certain categories of payments were expenses,

and a review of Hollywood Construc tionÓs business records in

Exhibit 10 indicates that the Department erroneously deemed

certain payments to be wages rather than expenses.

3 1 . Specifically , Hollywood ConstructionÓs Transaction

Listing on pages 89 through 92 of the DepartmentÓs exhibits

indicates that James Franklin (a Hollywood Construction employee)

received eight payments between January 3, 2013 , and May 2, 2013 ,

totaling $1,239.00.

3 2 . If $1,239.00 is reduced by 20%, then the resulting

figure is $991.20, and the DepartmentÓ s penalt y calculation

worksheet alleges that James Franklin received $991.20 worth of

payments directly from Hollywood Construction between January 1,

2013 , and June 30, 2013.

3 3 . However, Hollywood ConstructionÓs General Ledger on

pages 176 and 177 of the Depa rtmentÓs exhibits indicates that the

payments made to Mr. Franklin between January 3, 2013 , and May 2,

2013 , were travel reimbursements rather than wages. Because

travel reimbursements are not payroll, the aforementioned

payments should not have been used in calculating Hollywood

ConstructionÓs penalty.

3 4 . Further review of Hollywood ConstructionÓs business

records suggests that other payments identified in the General

Ledger as expenses may have been treated as wages for purposes of

calculating the $21, 853.80 penalty. For example, the General

Ledger notes that several payments were made to Hollywood

Construction employees and characterizes those payments as

ÐPurchases/MaterialsÑ (pages 137 through 140 of the DepartmentÓs

exhibits) ; Employee Travel Reimb ursement (pages 140 through 143

and 176 through 181 of the DepartmentÓs exhibits) ;

ÐSales/Estimating ExpÑ (pages 146 , 147 , 182 and 183 of the

DepartmentÓs exhibits) ; ÐAuto/TruckÑ (pages 149 , 150 , and 189 of

the DepartmentÓs exhibits) ; ÐPurchases/Job CostsÑ (pages

168 through 176 of the DepartmentÓs exhibits) ; and

ÐMaintenance/RepairsÑ (page 185 of the DepartmentÓs exhibits).

3 5 . T o whatever extent that the DepartmentÓs proposed

penalty of $21,853.80 includes any payments identified by

Hollywood Construct ion Ós General Ledger as ÐPurchases/Materials,Ñ

Employee Travel Reimbursement, ÐSales/Estimating Exp,Ñ

ÐAuto/Truck,Ñ ÐPurchases/Job Costs,Ñ or ÐMaintenance/Repairs,Ñ

those payments must be excluded from the penalty calculation.

3 6 . The undersigned also f inds (as a matter of ultimate

fact) that there is no evidence that Mr. Golden or anyone

associated with Hollywood Construction intentionally understated

Hollywood ConstructionÓs payroll so as to lessen its workersÓ

compensation obligation. Furthermore, th e Department has not

alleged that the business records provided by Hollywood

Construction are inaccurate or untrustworthy.

CONCLUSIONS OF LAW

3 7 . The Division of Administrative Hearings has jurisdiction

over the subject matter and the parties to this ac tion in

accordance with sections 120.569 and 12 0.57(1) , Florida Statutes

(2015).

3 8 . Chapter 440 is known as the ÐWorkers Ó Compensati on Law.Ñ

§ 440.01, Fla. Stat.

3 9 . In this case, the Department is seeking an

administrative fine. Accordingly, the Dep artment bears the burden

of proof and must establish its case by clear and convincing

evidence. Dep't of Banking and Fin. v. Osborne Stern & Co. , 670

So. 2d 932, 935 (Fla. 1996); Ferris v. Turlington , 510 So. 2d 292

(Fla. 1987).

40 . Clear and convincing evidence Ðrequires more proof than

a Òpreponderance of the evidenceÓ but less than Òbeyond and to the

exclusion of a reasonable doubt.ÓÑ In re Graziano , 696 So. 2d

744, 753 (Fla. 1997). As stated by the Florida Supreme Court:

Clear and convincing evide nce 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 lacking in confusion as to the

facts in issue. The evidence must be of such

a 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

allegati ons sought to be established,

In re Henson , 913 So. 2d 579, 590 (Fla. 2005)(quoting Slomowitz v.

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

standard of proof may be met where the evidence is in conflict, it

seems to preclude evidence that is ambiguous.Ñ Westinghouse Elec.

Corp. v. Shuler Bros. , 590 So. 2d 986, 989 (Fla. 1991).

4 1 . To meet this burden, the Dep artment must demonstrate

that : (a) Respondent was required to comply with the Workers'

Compensation Law ; (b) that Respondent failed to comply with the

requirements of the Workers' Compensation Law ; and that (c) the

penalty assessed by the Department is ap propriate.

4 2 . As for the first requirement, e very employer is required

to secure workers' compensation coverage for the benefit of its

employees, unless exempted or excluded under chapter 440. Indeed,

the Legislature has declared that Ðthe failure of an employer to

comply with the workersÓ compensation coverage requirements under

[chapter 440] poses an immediate danger to public health, safety,

and welfare.Ñ § 440.107(1), Fla. Stat.

4 3 . Employment is defined in section 440.02(17)(a) as "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)(b)2., Fla. Stat.

4 4 . An emplo yee is defined in pertinent part as "any person

who receives remuneration from an employer for the performance of

any work or service while engaged in any employment . . . . "

§ 440.02(15)(a), Fla. Stat.

4 5 . With regard to the instant case, there is no d ispute

that Hollywood Construction was required to comply with the

WorkersÓ Compensation Law. Instead, Hollywood Construction

disputes the DepartmentÓs allegation that it failed to comply with

the WorkersÓ Compensation Law and the $21,853.80 penalty the

D epartment is seeking to impose.

4 6 . With regard to the appropriateness of th e DepartmentÓs

proposed penalty and Hollywood ConstructionÓs compliance with the

WorkersÓ Compensation Law , r ule 69L - 6.015 imposes substantial

record - keeping requirements on emp lo yers.

4 7 . For instance, Ð[e]very employer shall maintain

employment records pertaining to every person to whom the

employer paid or owes remuneration for the performance of any

work or service in connection with any employment under any

appointment or contract for hire or apprenticeship.Ñ

Fla. Admin. Code R. 69L - 6.015( 3 ).

4 8 . Furthermore , and of particular relevance to the instant

case , is the requirement in r ule 69L - 6.015(6) that Ð[e]very

employer shall maintain a journal of its check and cash

disbursements as well as a copy of each cashierÓs check, bank

check, and money order, indicating chronologically the

disbursement date, to whom the money was paid, the payment

amount, and the purpose .Ñ (emphasis added).

4 9 . If an employerÓs recor ds are insufficient to enabl e the

Department to ascertain whether payments are wages or expense

reimbursements, then the amounts in question will be deemed

payroll for purposes of calculating a penalty pursuant to section

440.107(7)(d)1. See Fla. Admin. C ode R. 69L - 6.035(1)(f)

(mandating that payroll shall include Ð[e]xpense reimbursements

made to employees by or on behalf of the employer, to the extent

that the employerÓs business records do not confirm that the

expense was incurred as a valid business ex pense.Ñ).

50 . A s noted above, Hollywood ConstructionÓ s business

records were sufficiently detailed to enable the Department to

distinguish whether certain payments were wages or non - wage

expenses. Therefore, the Department failed to prove by clear and

convincing evidence that $21,853.80 is the correct penalty and/or

that it utilized the correct methodology in calculating that

penalty .

5 1 . T o whatever extent that the DepartmentÓs proposed

penalty of $21,853.80 include s payments listed in Hollywo od

ConstructionÓs General Ledger as ÐPurchases/Materials,Ñ Employee

Travel Reimbursement, ÐSales/Estimating Exp,Ñ ÐAuto/Truck,Ñ

ÐPurchases/Job Costs,Ñ or ÐMaintenance/Repairs,Ñ those payments

should be excluded from the penalty calculation.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is RECOMMENDED that the Department of Financial Services,

Division of WorkersÓ Compensation , recalculate the proposed

penalty by excluding payments listed in Hollywood ConstructionÓs

Genera l Ledger as ÐPurchases/Materials,Ñ Employee Travel

Reimbursement, ÐSales/Estimating Exp,Ñ ÐAuto/Truck,Ñ

ÐPurchases/Job Costs,Ñ or ÐMaintenance/Repairs.Ñ If the

recalculated penalty is greater than $0.00, then it is further

RECOMMENDED that the Department enter a final order finding that

Hollywood Construction of Northwest Florida, LLC, failed to

secure the payment of workersÓ compensation insurance coverage at

certain times b etween August 7, 2012 , and August 6, 2014 , in

violation of section 440.107.

DONE AND ENTERED this 3rd day of December, 2015 , in

Tallahassee, Leon County, Florida.

S

G. W. CHISENHALL

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Flo rida 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 3rd day of December , 2015 .

COPIES FURNISHED:

R. Gage Golden

Hollywood Construction of

Northwest Flori da, LLC

3003 State Avenue

Panama City, Florida 32405

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.