04-003366 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. St. James Automotive, Inc. Status: Closed Recommended Order on Friday, March 4, 2005.

Summary: Respondent failed to file for an exemption and to collect and pay workers` compensation. Recommend assessed $97,260.75 fine and a stop work order amended to include the agreed payment of the fine by installment.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF WORKERS' )

COMPENSATION, )

)

Petitioner, )

)

vs. ) Ca se No. 04 - 3366

)

ST. JAMES AUTOMOTIVE, INC., )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, this cause came on for final hearing on

November 22, 2004, in Tallahassee, Florida, before Fred L.

Buckine, a duly - designated Administrative Law Judge of the

Division of Administrative Hearings.

A PPEARANCES

For Petitioner: Joe Thompson, Esquire

Department of Financial Services

Division of Workers' Compensation

200 East Gaines Street

Tallahassee, Florida 3239 9

For Respondent: Richard Conrad, pro se

St. James Automotive, Inc.

2867 Oleander Street

St. James City, Florida 33956

STATEMENT OF THE ISSUES

The issues in this enforcement proceeding a re whether

Respondent failed to comply with Sections 440.10, 440.05, and

440.38, Florida Statutes (2003), 1 and, if so, whether Petitioner

correctly assessed the penalty for said failure.

PRELIMINARY STATEMENT

On August 5, 2004, Petitioner issued to Respond ent a Stop

Work Order on Penalty Assessment Number 04 - 0287 - D7, asserting

that Respondent failed to abide by the requirements of

Chapter 440, Florida Statutes. 2 The Stop Work Order required

Respondent to cease business operations and noticed a penalty

ass essment to be determined later, pursuant to

Subsection 440.107(7)(d), Florida Statutes. An Amended Order of

Penalty Assessment in the amount of $97,260.75 was subsequently

issued. Respondent timely filed a petition for formal hearing

pursuant to Subsect ion 120.57(1), Florida Statutes.

On September 21, 2004, Petitioner referred the cause 3 to the

Division of Administrative Hearings (DOAH) for assignment of an

Administrative Law Judge to conduct all necessary proceedings

required under law and to submit a r ecommendation to Petitioner.

On September 22, 2004, the Initial Order was entered, and

Petitioner's response was filed on September 28, 2004. On

October 5, 2004, the Notice of Hearing, scheduling the final

hearing on November 22, 2004, and Order of Pre - he aring

Instructions were entered.

On November 1, 2004, Petitioner filed its witness and

exhibit lists, followed by its Pre - hearing Statement on

November 16, 2004.

At the final hearing, Petitioner presented testimony of

Kelly Dunning, Workers' Compensatio n investigator, and offered

seven exhibits, which were accepted into evidence. 4 Richard

Conrad, Respondent/owner of the business, testified on his own

behalf and offered no exhibits in evidence.

The Transcript of this proceeding was filed with DOAH on

Dec ember 20, 2004. On December 22, 2004, Petitioner filed its

Motion to Extend Time to File Proposed Recommended Order, and,

by Order of December 23, 2004, the date for filing post - hearing

submittals was extended to January 3, 2005, thereby waiving the

time requirement for this Recommended Order. See Fla. Admin.

Code R. 28 - 106.216. Both parties timely filed Proposed

Recommended Orders that have been considered in the preparation

of this Recommended Order.

FINDINGS OF FACT

Based upon observation of the demea nor and candor of each

witness while testifying; documentary materials received in

evidence; evidentiary rulings made pursuant to Section 120.57,

Florida Statutes (2004); and stipulations of the parties, the

following relevant and material facts, arrived a t impartially

based solely upon testimony and information presented at the

final hearing, are objectively determined:

1. At all times material, Petitioner, Department of

Financial Services, Division of Workers' Compensation

(Department), is the state agen cy responsible for enforcement of

the statutory requirements that employers secure the payment of

workers' compensation coverage requirements for the benefit of

their employees in compliance with the dictates of Chapter 440,

Florida Statutes. Employers wh o failed to comply with

Chapter 440, Florida Statutes, are subject to enforcement

provisions, including penalty assessment, of Chapter 440,

Florida Statutes.

2. At all times material, Respondent, St. James

Automotive, Inc. (St. James), is a corporation d omiciled in the

State of Florida and engaged in automobile repair, with known

business locations in Pine Island and St. James City, Florida.

Both locations are owned by Richard Conrad (Mr. Conrad).

3. On or about August 5, 2004, a Department investigator

conducted an "on - site visit" at the St. James location on Pine

Island Road, Pine Island, Florida. The purpose of the on - site

visit was to determine whether or not St. James was in

compliance with Chapter 440, Florida Statutes, regarding

workers' compensa tion coverage for the workers found on - site.

The investigator observed four individuals working on - site in

automotive repair functions. One employee, when asked whether

"the workers had workers' compensation coverage in place,"

referred the investigator to the "owner," who, at that time, was

at the second business location at 2867 Oleander Street,

St. James City, Florida. The investigator verified the owner's

presence at the St. James City location by telephone and met him

there.

4. Upon his arrival at the St. James City location, the

investigator initiated a workers' compensation coverage check on

two databases. He first checked the Coverage and Compliance

Automated System (CCAS) to ascertain whether St. James had in

place workers' compensation covera ge. The CCAS system contained

current status and proof of workers' compensation coverage, if

any, and record of any exemptions from workers' compensation

coverage requirements filed by St. James' corporate officers.

The CCAS check revealed no workers' co mpensation coverage filed

by any corporate officers of St. James. The second system, the

National Council on Compensation Insurance (NCCI), contained

data on workers' compensation coverage in effect for workers

(employees) in the State of Florida. NCCI s imilarly revealed no

workers' compensation coverage in effect for St. James' Florida

employees.

5. The investigator discussed the situation and findings

from both the CCAS and NCCI with Mr. Conrad who acknowledged and

admitted: (1) St. James had no worke rs' compensation coverage

in place; (2) St. James had made inquiry and arranged for an

unnamed attorney to file exemptions from workers' compensation

coverage on behalf of several St. James employees, but the

attorney never filed exemptions; and (3) Mr. Co nrad subsequently

attempted to file the exemptions himself but was unsuccessful --

"because names of exemption applicants [employees] did not match

the corporate information on file for St. James, Inc., at the

Division of Corporations." When offered the opp ortunity by the

Department's investigator to produce any proof of workers'

compensation coverage or exemption from coverage, Mr. Conrad was

unable to do so.

6. At the conclusion of the August 5, 2004, on - site visit,

and based upon a review of the CCAS and NCCI status reports and

Mr. Conrad's inability to produce proof of workers' compensation

coverage or exemptions, the investigator determined that

St. James was not in compliance with requirements of

Chapter 440, Florida Statutes. The investigator then issued a

Stop Work Order on St. James' two business locations. The Stop

Work Order contained an initial assessed penalty of $1,000,

subject to increase to an amount equal to 1.5 times the amount

of the premium the employer would have paid during the perio d

for which coverage was not secured or whichever is greater.

7. Mr. Conrad acknowledged his failure to conform to the

requirements of Chapter 440, Florida Statutes, stating 5 :

I guess you could say -- I first of all, I am

guilty, plain and simple. In other words, I

did not conform.

8. Subsequent to issuing the August 5, 2004, Stop Work

Order, the Department made a written records' request to

Mr. Conrad that he should provide payroll records listing all

employees by name, social security number, and gross wages paid

to each listed employee. 6 Mr. Conrad provided the requested

employee payroll records, listing himself and his wife,

Cheryl L. Conrad, not as owners, stockholders or managers, but

as employees.

9. Pursuant to Section 440.107, Florida Statutes , the

Department is required to link the amount of its enforcement

penalty to the amount of payroll (total) paid to each employee.

10. The persons listed on St. James' payroll records

received remuneration for the performance of their work on

behalf of St . James and are "employees" as defined in

Subsection 440.02(15), Florida Statutes.

11. Review of the payroll records by the Department's

investigator revealed the listed employees for services

performed on its behalf. The employee payroll records provid ed

by St. James were used by the Department's investigator to

reassess applicable penalty and subsequent issuance of the

Amended Order of Penalty Assessment in the amount of $97,260.75. 7

12. St. James' payroll records did not list the type of

work (class code or type) each employee performed during the

period in question. Accordingly, the Department's investigator

properly based the penalty assessment on the highest - rated class

code or type of work in which St. James was engaged, automotive

repair. The h ighest - rated class code has the most expensive

insurance premium rate associated with it, indicating the most

complex activity or type of work associated with St. James'

business of automotive repair. The Department's methodology and

reliance on the NCCI Basic Manual for purpose of penalty

calculation is standardized and customarily applied in

circumstances and situations as presented herein. 8

13. Mr. Conrad, in his petition for a Chapter 120, Florida

Statutes, hearing alleged the 8380 (highest premium ra te) class

code applied to only three of his employees: himself, Brain

Green, and William Yagmin. On the basis of this alleged penalty

assessment error by the Department, Mr. Conrad seeks a reduction

of the Amended Order of Penalty Assessment amount of $9 7,260.75.

Mr. Conrad presented no evidence to substantiate his allegation

that the Department's investigator assigned incorrect class

codes to employees based upon the employee information

Mr. Conrad provided in response to the Department's record

reques t. To the contrary, had he enrolled in workers'

compensation coverage or had he applied for exemption from

coverage, Mr. Conrad would have known that his premium payment

rates for coverage would have been based upon the employees'

class codes he would hav e assigned each employee in his workers'

compensation coverage application.

14. In an attempt to defend his failure to comply with the

workers' compensation coverage requirement of Chapter 440,

Florida Statutes, Mr. Conrad asserted that the Department's

i nvestigator took his verbal verification that certain employees

were clerical, but neglected to recognize his statement that he

was also clerical, having been absent from the job - site for over

three years.

15. Mr. Conrad's excuses and avoidance testimony was not

internally consistent with his earlier stated position of not

conforming to the statutory requirements of Chapter 440, Florida

Statutes. The above testimony was not supported by other

credible evidence of record. This is critical to the

credibili ty determination since Mr. Conrad seeks to avoid paying

a significant penalty. For those reasons, his testimony lacks

credibility.

16. Mr. Conrad also attempted to shift blame testifying

that -- "My attorney did not file exemption forms with the

Department ," and my "personal attempts to file St. James'

exemption form failed -- [B]ecause the mailing instructions

contained in the Department's form were not clear."

17. In his final defensive effort of avoidance,

Mr. Conrad testified that he offered to his empl oyees, and they

agreed to accept, unspecified "increases" in their respective

salaries in lieu of St. James' providing workers' compensation

coverage for them. This defense suffered from a lack of

corroboration from those employees who allegedly agreed (a nd

those who did not agree) and lack of documented evidence of such

agreement. The intended inference that all his employees'

reported salaries included some unspecified "salary increase" is

not supported by employee identification or salary specificity

a nd is thus unacceptable to support a finding of fact.

18. St. James failed to produce credible evidence that the

Department's Stop Work Order, the Penalty Assessment, and/or the

Amended Penalty Assessment were improper. St. James failed to

produce any cr edible evidence that the Department's use of the

NCCI Basic Manual, as the basis for penalty assessment

calculation based upon employee information provided by

St. James, was improper and/or not based upon actual employee

salary information provided by St . James.

19. Prior to this proceeding, the Department and

Mr. Conrad entered into a penalty payment agreement as

authorized by Subsection 440.107(7)(a), Florida Statutes. 9 The

penalty payment agreement required fixed monthly payments be

made by Mr. Co nrad and afforded Mr. Conrad the ability to

continue operation of his automotive repair business that was,

by order, stopped on August 5, 2004.

CONCLUSIONS OF LAW

20. The Division of Administrative Hearings has

jurisdiction over the subject matter of this proceeding and over

the parties to this proceeding. See §§ 120.569 and 120.57(1),

Fla. Stat. (2004).

21. The Department has the burden of proving by a

preponderance of the evidence that an identified employee has

violated the Workers' Compensation Statu te and that the penalty

assessment is correct. Dept. of Labor and Employment Security,

Div. of Workers' Compensation v. Genesis Plumbing, Inc. , DOAH

Case No. 00 - 3749 (Rec. Order par. 32)(Adopted by Final Order

May 24, 2001).

22. Subsection 440.10(1)(a), Florida Statutes, states

that:

Every employer coming within the

provisions of this chapter shall be liable

for, and shall secure, the payment to his or

her employees, or any physician, surgeon, or

pharmacist providing services under the

provisions of s. 440.13 , of the compensation

payable under ss. 440.13 , 440.15 , and

440.16. Any contractor or subcontractor who

engages in any public or private

construction in the state shall secure and

maintain compensation for his or her

employees under this chapter as provided in

s. 440.38.

23. Subsection 440.02(16)(a), Florida Statutes, defines

"employer," in relevant part, as "eve ry person carrying on any

employment . . ." Further, "employment" is defined in relevant

part in Subsection 440.02(17)(a), Florida Statutes, as "any

services performed by an employee for the person employing him

or her." St. James is an "employer" within the provision of

Subsections 440.10(1)(a) and 440.02(16)(a), Florida Statutes.

24. Subsections 440.02(15)(a),(b) and (b)1., Florida

Statutes, state that:

(15)(a) "Employee" means any person who

receives remuneration from an employer for

the performanc e 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.

( b) "Employee" includes any person who is

an officer of a corporation and who performs

services for remuneration for such

corporation within this state, whether or

not such services are continuous.

1. Any officer of a corporation may

elect to be exempt from this chapter by

filing written notice of the election with

the department as provided in s. 440.05.

25. Mr. Conrad and his employees provided in response to

the Department's records request for correct penalty assessment

are "employees" within the above definition.

26. As an owner/employee of St. James, Mr. Conrad was

au thorized and entitled to exempt himself, his wife, and his

employees, from the provisions of Subsection 440.02(15)(b)1.,

Florida Statutes, merely by filing written notice of the

election with the Department. Mr. Conrad failed to file the

election of exemp tion as required by the statue hereinabove.

His assertion that he provided wage increases to his employees,

in lieu of providing workers' compensation coverage and/or

filing the election for exemption, is not provided for in

Chapter 440, Florida Statutes.

27. St. James is an "employer," under the provision of

Subsection 440.10(1)(a), Florida Statutes, and is subject to the

penalty assessment for the failure to secure the payment of

compensation for his employees.

28. St. James is an employee for the pena lty period of

August 5, 2001, through August 5, 2004, because St. James

"engaged and remunerated its employees to perform work on

behalf" of St. James. St. James had no workers' compensation

coverage for its employees on August 5, 2004, the date the

Depar tment issued and served the Stop Work Order on St. James.

29. Subsection 440.107(7)(d)1., Florida Statutes, requires

that:

In addition to any penalty, stop - work

order, or injunction, the department shall

assess against any employer who has failed

to sec ure the payment of compensation as

required by this chapter a penalty equal to

1.5 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 payme nt of workers' compensation

required by this chapter within the

preceding 3 - year period or $1,000, whichever

is greater. (emphasis added)

30. The NCCI Basic Manual, Rule 2G., Interchange of Labor

(2001 ed.), in pertinent part, provides that:

If payrol l records do not show the

applicable rate to each classification, the

entire payroll of the individual employee

must be assigned to the highest rated

classification that represents any part of

his or her work.

31. The Department, using employee informati on provided by

St. James (that did not show the actual payroll applicable to

each classification), correctly assigned the highest rated

classification that represents any part of his or her work in

automobile repair. Calculation of the initial and Amended

Penalty Assessment against St. James were correctly computed as

required by Chapter 440, Florida Statutes.

32. Before the final hearing, The Department and St. James

entered into a penalty agreement permitting St. James to remit

periodic payments of the assessed $97,260.75 penalty pursuant to

Subsection 440.107(7)(a), Florida Statutes, which provides in

pertinent part that:

. . . [ T]he department may issue an order of

conditional release from a stop - work order

to an employer upon a finding that the

employ er has complied with coverage

requirements of this chapter and has agreed

to remit periodic payments of the penalty

pursuant to a payment agreement schedule

with the department. If an order of

conditional release is issued, failure by

the employer to meet any term or condition

of such penalty payment agreement shall

result in the immediate reinstatement of the

stop - work order and the entire unpaid

balance of the penalty shall become

immediately due.

33. A secondary goal of St. James' request for an

Admi nistrative Hearing challenging the validity of the

Department's enforcement action was to secure "a lower monthly

payment (than agreed upon) --- due to the hardship suffered by

business owners as a result of the hurricanes." St. James

failed to reach that g oal.

34. The Department proved, by a preponderance of the

credible evidence, statutory compliance in securing the name and

wage information of each employee from the employer and, based

upon the employer's information, correctly used such information

as t he basis for calculation of the assessed penalty against

St. James. See Bloch Brothers Corp. v. Department of Business

Regulations , 321 So. 2d 447, 448 (Fla. 2d DCA 1975) citing Kirk

v. Publix Super Markets , 185 So. 2d 161 (Fla. 1966), superseded

on othe r grounds by statute , holding that . . . "It is

elemental that when the Legislature provides that an

administrative power shall be exercised in a certain way such

prescription precludes the doing of it in another way . . ."

RECOMMENDATION

Based upon the f oregoing Findings of Fact and Conclusions

of Law, it is hereby

RECOMMENDED that the Department of Financial Services,

Division of Workers' Compensation, enter a final order that

affirms the Stop Work Order and the Amended Order of Penalty

Assessment in the amount of $97,260.75, minus any and all

periodic payments of the penalty remitted by St. James, pursuant

to agreed upon conditional release from the Stop Work Order

dated August 5, 2004.

DONE AND ENTERED this 4th day of March, 2005, in

Tallahassee, Leon C ounty, Florida.

S

FRED L. BUCKINE

Administrative Law Judge

Division of Administrative 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 4th day of March, 2005.

ENDNOTES

1/ All citations are to Florida Statutes (2003) unless

otherwise indicated.

2/ Chapter 440, Florida Statutes, is refe rred to as the

"Workers' Compensation Statute."

3/ St. James 's challenge was pursuant to Subsection

440.107(13), Florida Statutes, that provides:

Agency action by the department under this

section, if contested, must be contested as

provided in chapt er 120. All penalties

assessed by the department must be paid into

the Workers' Compensation Administration

Trust Fund.

The referral consisted of the Stop Work Order, Penalty

Assessment, Amended Penalty Assessment, Payment Agreement

schedule for Period ic Payment of Penalty and Order of

Conditional Release from Stop Work Order.

4/ References to exhibits admitted into evidence will be by the

number assigned to the exhibits and will be designated as, for

example, P - 1, etc. Petitioner's Exhibits P - 1, P - 2 , P - 3, P - 5,

P - 18, P - 30, and P - 31 were admitted into evidence.

5/ Though not sworn before giving his opening statement,

Mr. Conrad's admission was not retracted during his sworn

testimony and is considered as a willing and known admission,

confirmed by his entry into a penalty agreement with the

Department prior to filing this challenge, as is his right to do

so to reopen his business pending resolution of the challenge

pursuant to a Chapter 120, Florida Statutes, proceeding.

6/ Employees Quarterly Wag e Reports are consolidated

Petitioner's Exhibits P - 3 and P - 5. These records consisted of

each employee's W - 2, Wage and Tax Statement; 941c, Employer's

Quarterly Federal Tax Returns; and Florida Department of Revenue

Employer's Quarterly Report(s). None o f the documents submitted

by St. James identified the actual work assignment performed,

i.e. clerical, management, etc., by each employee.

7/ The Initial Stop Work Order contained a check mark on the

paragraph entitled: Order of Penalty Assessment: A pe nalty

against the Employer is hereby Ordered: "[I]n an amount equal

to 1.5 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

w orkers' compensation required by this chapter [440] within the

preceding 3 - year period, or $1,000, whichever is greater."

Citing § 440.107(7)(d), Fla. Stat.

8/ The Department's investigator applied Class Code 8380 and

its corresponding premium rate to a lmost all St. James

employees; only two employees had the Class Code 8810 applied,

with a premium rate that was in all applications less than one -

tenth the rate of Class Code 8380.

9/ The penalty payment agreement entered into between the

Department and St. James was not made a part of this record.

Accordingly, Mr. Conrad's post - hearing "Conclusion of Law"

argument that he should "[B]e able to talk down the (monthly)

payment to a lower level to something he can live with," even if

accepted, is without a basis in fact and is not permitted by

Chapter 440, Florida Statutes.

COPIES FURNISHED :

Richard Conrad

St. James Automotive, Inc.

2867 Oleander Street

St. James City, Florida 33956

Joe Thompson, Esquire

Department of Financial Services

Division of Wo rkers' Compensation

200 East Gaines Street

Tallahassee, Florida 32399

Honorable Tom Gallagher

Chief Financial Officer

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399 - 0300

Pete Dunbar, General Counsel

Department o f Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399 - 0300

NOTICE OF RIGHT TO S UBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions

to thi s Recommended Order should be filed with the agency that

will issue the final order in this case.