04-001107 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. Rivera And Company Of S.W. Florida, Inc. Status: Closed Recommended Order on Friday, August 13, 2004.

Summary: Subcontractors who were not independent contractors after October 1, 2003, and neither elected out nor paid for compensation coverage after December 12, 2003, were Respondent`s employers for which Respondent owed penalties assessed by Petitioner.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF WORKERS' )

COMPENSATION, )

)

Petitioner, )

)

vs. ) Case No. 04 - 1107

)

RIVERA & COMPANY OF S.W. )

FLORIDA, INC., )

)

Respondent. )

)

RECOMMENDED ORDER

Administrative Law Judge (ALJ) Daniel Manry conducted the

administrative hearing in this proceeding on behalf of the

Division of Administrative Hearings (DOAH), on June 11, 2004, in

Naples, Florida.

AP PEARANCES

For Petitioner: Colin M. Roopnarine, Esquire

Division of Workers' Compensation

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399 - 4229

For Respondent: Susan McLaughlin, Esquire

Law Offices of Michael F. Tew

Building 800, Suite 2

6150 Diamond Center Court

Fort Myers, Florida 33912

STATEMENT OF THE ISSUES

The issues are whether Respondent materially understated

payroll in violation of Section 440.107, Florida Statute s

(2003), and, if so, what penalty, if any, should be imposed

against Respondent; and whether Respondent's workers are not

employees defined in Section 440.02, Florida Statutes.

PRELIMINARY STATEMENT

This proceeding has an extensive procedural history.

Be cause the procedural history may be relevant to the request

for attorney's fees and costs, the procedural history is

discussed more specifically in the Findings of Fact.

In summary, Petitioner issued numerous orders against

Respondent but eventually propos ed that Respondent pay a penalty

in the amount of $66,920.26. Respondent had previously paid a

penalty in the amount of $90,131.51 and requested an

administrative hearing.

At the hearing, Petitioner presented the testimony of one

witness, and submitted 12 exhibits for admission into evidence.

Respondent presented the testimony of two witnesses and

submitted two exhibits for admission into evidence. The

identity of the witnesses and exhibits and the rulings regarding

each are reported in the Transcript of the hearing filed with

DOAH on June 28, 2004.

Respondent preserved its right in this proceeding to

challenge in another forum the constitutionality of relevant

statutes. Although the ALJ has permitted Respondent to preserve

its constitutional challen ges on the record, DOAH has no

jurisdiction to resolve the issues of constitutionality asserted

by Respondent.

Respondent has also asserted that Petitioner exceeded its

statutory authority and that the ALJ should award attorney's

fees and costs to Respo ndent pursuant to Sections 57.111

and 120.569, Florida Statutes (2003). For reasons stated in the

Conclusions of Law, Respondent's claim under the former statute

is premature and Respondent is not entitled to attorney's fees

and costs under the latter sta tute.

The ALJ granted Petitioner's unopposed Motion for Extension

of Time to file proposed recommended orders (PROs). Petitioner

timely filed its PRO on July 16, 2004. Respondent timely filed

its PRO on July 6, 2004.

FINDINGS OF FACT

1. Petitioner is the state agency responsible for

enforcing the statutory requirement that employers secure the

payment of workers' compensation for the benefit of their

employees. § 440.107, Fla. Stat. (2002). Respondent is a

corporation domiciled in Florida and engaged in the business of

stucco and plastering.

2. On March 2, 2004, Petitioner's compliance officer

conducted a random site inspection of a single - family residence

under construction at 12061 Cypress Links Drive, Fort Myers,

Florida. Two work crews were pre sent on the construction site.

One crew was finishing drywall seams inside the house. The

other crew was applying stucco to the outside of the house.

3. The compliance officer is the only employee for

Petitioner who investigated and developed the substa ntive

information that forms the basis of Petitioner's proposed agency

action. Other employees calculated the actual amounts of the

proposed penalties.

4. On March 3, 2004, the compliance officer conducted a

conference in his office with Ms. Sandra Gomez and Mr. Francesco

Zuniga; and Mr. Juan Rivera and Ms. Licia Rivera. Mr. and

Mrs. Rivera are the principal officers for Respondent. The

compliance officer determined that the crew working inside the

house worked for Mr. Zuniga and that the crew working o utside

the house worked for Ms. Gomez. The compliance officer further

determined that Ms. Gomez and Mr. Zuniga were subcontractors for

Respondent and that neither Ms. Gomez nor Mr. Zuniga had workers

compensation insurance.

5. The compliance officer is sued stop work orders against

Ms. Gomez and Mr. Zuniga that are not within the purview of this

proceeding. The compliance officer determined that Respondent

maintained workers' compensation insurance through the Hartford

Insurance Company (Hartford) and t ook no action against

Respondent except to issue an order for Respondent to produce

its business records for the preceding three years (the business

records) for audit by Petitioner.

6. The compliance officer reported to Hartford that

Respondent had uni nsured subcontractors working for Respondent.

The compliance officer also requested and received from Hartford

a copy of the last premium audit report for Respondent (the

audit report).

7. On March 10, 2004, Respondent produced the business

records pre viously requested by the compliance officer. The

production of records fully satisfied the request issued by the

compliance officer.

8. The compliance officer determined there was a

discrepancy between the audit report's description of employee

duties and related information in the business records. The

compliance officer determined that Respondent had materially

understated or concealed payroll and had materially

misrepresented or concealed employee duties by representing that

Respondent was in the dr ywall business and not in the stucco

business.

9. On March 10, 2004, Petitioner issued Stop Work and

Penalty Assessment Order Number 04 - 94 - D6 (the Initial Order).

The Initial Order alleged that Respondent violated Subsection

440.107(2), Florida Statu tes (2003), by materially understating

or concealing payroll and proposed a penalty equal to the

greater of 1.5 times the premiums Respondent would have paid

over the preceding three years or $1,000. Petitioner

subsequently amended the Initial Order to ch arge Respondent with

materially misrepresenting or concealing employee duties.

10. Petitioner issued the Initial Order without conducting

any further review of Respondent or its principals. The

compliance officer told Mr. Rivera that it would not be he lpful

for Respondent to retain counsel and that counsel would only

further delay release of the stop work order.

11. The compliance officer did not provide Respondent with

any information concerning methods of avoiding the penalty

except for Respondent to provide proof of an exemption or proof

of insurance for Respondent's subcontractors. The compliance

officer did not advise Respondent that proving independent

contractor status for some or all of Respondent's subcontractors

before the effective date of statutory amendments on October 1,

2003, would reduce the proposed penalty against Respondent.

12. The compliance officer did not interview the Hartford

employee who prepared the audit report. The audit report was

limited to the period from December 17, 2002, through

December 17, 2003. The audit report stated that Hartford had

not provided a copy to Respondent and had not audited

Respondent's general ledger.

13. The compliance officer did not identify or interview

the Hartford employee who had respon sibility for Respondent's

account, the Hartford agent responsible for Respondent, or the

Hartford underwriter. The compliance officer did not request

Hartford's complete file for Respondent.

14. The audit report included a copy of an exemption for a

per son identified in the record as Mr. Stinnett who was included

in Petitioner's penalty calculation. The audit report and

penalty calculation each identified Mr. Stinnett by the same

social security number.

15. On March 16, 2003, Petitioner amended the amount of

the proposed fine to $526,593.44 pursuant to Amended Order of

Penalty Assessment Number 04 - 094 - D7 - 2 (the Amended Order).

Petitioner issued a Second Amended Order of Penalty Assessment

Number 04 - 094 - D7 - 3 (the Second Amended Order) on March 23, 20 04.

The Second Amended Order reduced the proposed penalty to

$90,131.51.

16. Petitioner reduced the $526,593.44 fine proposed in

the Amended Order by $426,461.91. The latter sum pertained to

penalties assessed for the period preceding October 1, 2003, a nd

for the period following December 31, 2003. The parties agree

that statutory amendments authorizing Petitioner to issue a stop

work order to an employer that materially misrepresents employee

duties or materially understates or conceals payroll became

effective on October 1, 2003, and cannot be applied to

Petitioner retroactively. In addition, the parties agree that

Hartford's audit report for Petitioner did not cover the period

after December 31, 2003.

17. Respondent paid the proposed fine of $90, 131.51. On

March 23, 2004, Petitioner issued a Release of Stop Work Order

(the Release) that removed the Stop Work Order issued on

March 10, 2004.

18. In a Third Amended Order of Penalty Assessment

Number 04 - 094 - D7 - 4 (the Third Amended Order) dated May 26, 2004,

Petitioner reduced the proposed penalty by $21,679.28 to

$68,432.23. Petitioner discovered errors totaling $16,261.42

that occurred when employees input numbers to calculate the

proposed penalties against Respondent. The remaining portion of

t he reduction in the amount of $5,417.86 was attributable to the

deletion of Mr. Sinnett from the penalty calculation.

19. In a Fourth Amended Order of Penalty Assessment

Number 04 - 094 - D7 - 5 (the Fourth Amended Order) dated June 1,

2004, Petitioner further reduced the proposed penalty by

$1,531.97 to $66,926.00. Respondent provided additional

information concerning exemptions for a few workers.

20. On June 7, 2004, Petitioner issued a Fifth Amended

Order of Penalty Assessment Number 04 - 094 - D7 - 5 (the Fif th

Amended Order) deleting the charge that Respondent materially

misrepresented or concealed employee duties. Petitioner admits

that Hartford committed errors in the audit report and in

recording the description of duties that Respondent reported to

Hartf ord. Mr. Rivera personally reported to the appropriate

Hartford employee that Respondent's primary business was stucco

and that Respondent hired subcontractors to perform drywall

plastering.

21. The Fourth Amended Order dated June 1, 2004, as

amended by the Fifth Amended Order, remain at issue in this

proceeding. The Fourth Amended Order proposes a penalty in the

amount of $66,920.26. The Fifth Amended Order limits the

grounds for the proposed penalty to the charge that Respondent

materially understated or concealed payroll by excluding

subcontractors from Respondent's payroll from October 1 through

December 31, 2003 (the relevant period), and by excluding either

subcontractors or independent contractors thereafter.

22. If a worker included in the pen alty calculation were

an independent contractor, within the meaning of former

Subsection 440.02(15)(d)1, Florida Statutes (2003), the worker

should be excluded from the penalty calculation during the

relevant period. Effective January 1, 2004, however,

Su bsection 440.02(15)(d)1, Florida Statutes (2003), no longer

excluded independent contractors in the construction industry

from the definition of an employee. Thus, a determination of

whether a worker was an independent contractor is not probative

of that portion of the proposed penalty covering any period

after December 31, 2003.

23. Prior to January 1, 2004, former Subsection

440.02(15), Florida Statues (2003), did not except

subcontractors from the definition of an employee unless

the subcontractor s atisfied the definition of an

independent contractor. Effective January 1, 2004,

Subsection 440.02(15)(c)2, Florida Statutes (2003), excluded

from the definition of an employee those subcontractors that did

not satisfy the definition of an independent c ontractor if a

subcontractor either executed a valid exemption election or

otherwise secured payment of compensation coverage as a

subcontractor.

24. There is insufficient evidence to support a finding

that subcontractors included in that part of the pe nalty

assessment attributable to the period after December 31, 2003,

either elected a valid exemption or otherwise secured payment

for compensation coverage. These subcontractors would not be

excluded from the definition of an employee after December 31,

2004, even if they were independent contractors. Except for

constitutional arguments raised by Respondent over which DOAH

has no jurisdiction, Respondent owes that part of the penalty

attributable to any period after December 31, 2003.

25. It is undisput ed that the workers included in that

part of the penalty assessment attributable to the relevant

period were subcontractors. Respondent's ledger clearly treated

those workers as subcontractors and reported their earnings on

Form 1099 for purposes of the f ederal income tax. Petitioner

treated those workers as subcontractors in the penalty

calculation.

26. The Workers' Compensation Law in effect during the

relevant period did not expressly exclude from the definition of

an employee those subcontractors w ho executed a valid exemption

election or otherwise secured payment of compensation coverage

as a subcontractor. Rather, former Subsection 440.02(15)(c),

Florida Statutes (2003), required a subcontractor to be an

independent contractor to escape the defin ition of an employee.

Former Subsection 440.02(15)(c), Florida Statutes (2003),

required a subcontractor to satisfy all of the following

requirements in former Subsection 440.02(15)(d)1, Florida

Statutes (2003), in order for the subcontractor to be classi fied

as an independent contractor:

a. The independent contractor maintains a

separate business with his or her own work

facility, truck, equipment, materials, or

similar accommodations;

b. The independent contractor holds or has

applied for a federal e mployer

identification number, unless the

independent contractor is a sole proprietor

who is not required to obtain a federal

employer identification number under state

or federal requirements;

c. The independent contractor performs or

agrees to perform specific services or work

for specific amounts of money and controls

the means of performing the services or

work;

d. The independent contractor incurs the

principal expenses related to the service or

work that he or she performs or agrees to

perform;

e. The independent contractor is

responsible for the satisfactory completion

of work or services that he or she performs

or agrees to perform and is or could be held

liable for a failure to complete the work or

services;

f. The independent contractor receives

compensation for work or services performed

for a commission or on a per - job or

competitive - bid basis and not on any other

basis;

g. The independent contractor may realize a

profit or suffer a loss in connection with

performing work or service s;

h. The independent contractor has

continuing or recurring business liabilities

or obligations; and

i. The success or failure of the

independent contractor's business depends on

the relationship of business receipts to

expenditures.

27. There i s insufficient evidence to find that the

workers included in that part of the penalty assessment

attributable to the relevant period were independent contractors

within the meaning of former Subsection 440.02(15)(d)1.a. - i.,

Florida Statutes (2003). Petiti oner did not exceed its

statutory authority by proposing a penalty of $66,920.26 in

accordance with the Fourth Amended Order and Fifth Amended

Order. Respondent previously paid a fine in excess of that

proposed by Petitioner and is entitled to a refund of the excess

penalty that Respondent paid.

CONCLUSIONS OF LAW

28. DOAH has jurisdiction over the parties and subject

matter of this proceeding pursuant to Subsections 120.57(1)

and 120.569, Florida Statutes (2003). The parties received

adequate notice o f the administrative hearing.

29. Petitioner has the burden of proof in this case.

Petitioner must show by a preponderance of the evidence that

Respondent violated the Workers' Compensation Law during and

after the relevant period and that the penalty as sessments are

correct. Department of Labor and Employment Security, Division

of Workers' Compensation v. Bobby Cox, Sr., d/b/a C H Well

Drilling , DOAH Case No. 99 - 3854 (Recommended Order

para. 34)(adopted in part by Final Order June 8, 2000);

Department o f Labor and Employment Security, Division of

Workers' Compensation v. Eastern Personnel Services, Inc. , DOAH

Case No. 99 - 2048 (Recommended Order para. 24)(adopted by Final

Order Nov. 30, 1999), appeal dismissed , Case No. 1D99 - 4839 (Fla.

1st DCA April 10, 2 000); § 120.57(1)(j), Fla. Stat. (2002).

30. Petitioner satisfied its burden of proof. During the

relevant period and thereafter, Respondent was an "employer"

engaged in the construction industry and failed to maintain

workers' compensation coverage for those workers included in the

penalty assessment. Each worker was a subcontractor that did

not satisfy the definition of an independent contractor during

the relevant period; and thereafter, did not execute a valid

exemption election or otherwise secure p ayment of compensation

as a subcontractor; and was a statutory employee within the

meaning of Subsection 440.02(15), Florida Statutes (2003).

31. Respondent is not entitled to attorney's fees and

costs pursuant to Subsection 120.569(2)(e), Florida Statu tes

(2003). The only issues in this proceeding are those raised in

the Fourth Amended Order and in the Fifth Amended Order.

Respondent failed to identify a specific pleading, motion, or

other paper that Petitioner interposed for an improper purpose

in re gard to the issues raised in the Fourth Amended Order or in

the Fifth Amended Order.

32. DOAH lacks jurisdiction over Respondent's claim for

attorney's fees and costs pursuant to Section 57.111, Florida

Statutes (2003). Subsection 57.111(4)(d)2, Florid a Statutes

(2003), requires Respondent to file its application for

attorney's fees and costs after the ALJ determines that

Respondent is a prevailing small business party. The ALJ has

not made such a determination. Rather, Respondent has not

prevailed in the issues raised in the Fourth Amended Order or in

the Fifth Amended Order.

33. If it were determined that DOAH has jurisdiction to

consider Respondent's claim for attorney's fees and costs

pursuant to Section 57.111, Florida Statutes (2003),

Responden t is not entitled to any fees and costs. Respondent

failed to submit the itemized affidavit required in

Subsection 57.111(4)(b), Florida Statutes (2003). In addition,

Respondent failed to show that Petitioner was not substantially

justified in making th e allegations and in proposing the

penalties set forth in the Fourth Amended Order and Fifth

Amended Order.

RECOMMENDATION

Based on the Findings of Fact and Conclusions of Law, it is

RECOMMENDED that Petitioner enter a Final Order sustaining

the allegati ons and penalties in the Fourth Amended Order and

the Fifth Amended Order.

DONE AND ENTERED this 13th day of August, 2004, in

Tallahassee, Leon County, Florida.

S

DANIEL MANRY

Administrative Law Judge

Division of Administ rative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675 SUNCOM 278 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 13th day of Au gust, 2004.

COPIES FURNISHED :

Colin M. Roopnarine, Esquire

Department of Financial Services

Division of Workers' Compensation

200 East Gaines Street

Tallahassee, Florida 32399 - 4229

Susan McLaughlin, Esquire

Law Offices of Michael F. Tew

Building 800, S uite 2

6150 Diamond Center Court

Fort Myers, Florida 33912

Honorable Tom Gallagher

Chief Financial Officer

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399 - 0300

Pete Dunbar, General Counsel

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399 - 0300

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 Recommend ed Order should be filed with the agency that

will issue the Final Order in this case.