05-002966 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. Bicon, Inc. Status: Closed Recommended Order on Thursday, March 16, 2006.

Summary: The evidence failed to show that Respondent had materially understated the payroll; consequently, Respondent could not be deemed to have failed to secure payment of workers` compensation.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF WORKERS' )

COMPENSATION , )

)

Petitioner, )

) Case No. 05 - 2966

vs. )

)

BICON, INC. , )

)

Respondents. )

)

RECOMMENDED ORDER

This case came before Administrative Law Judge John G.

Van Laningham for final hearing by video teleconference on

January 23, 2006, at sites in Tallahassee and West Palm Beach,

Florida.

APPEARANCES

For Petitioner: Colin M. R oopnarine, Esquire

Department of Financial Services

Division of Workers’ Compensation

200 East Gaines Street

Tallahassee, Florida 32399 - 4229

For Respondent: Harry Winderman, Esquire

2255 Glades Road, Suite 21 8A

Boca Raton, Florida 33431

STATEMENT OF THE ISSUE

The issue in this case is whether Respondent materially

understated payroll and thus should be deemed to have failed to

secure payment of workers' compensation, which is a sanctionable

offense.

PRELIM INARY STATEMENT

On May 4 , 2005, Petitioner Department of Financial Services

issued and served on Respondent Bicon, Inc. , a Stop Work Order,

which directed Respondent to cease all business operations in

Florida based on the charge that Respondent had mater ially

understated payroll and thus would be deemed to have failed to

secure payment of workers' compensation. On July 5, 2005,

Petitioner issued and served on Respondent an Amended Order of

Penalty Assessment, which levied a fine against Petitioner —— for

f ailing to secure payment of workers' compensation —— in the

amount of $300,809.63.

In a Petition dated July 13, 2005, Respondent denied

Petitioner's allegations and requested a hearing. On August 18,

2005, Petitioner forwarded the matter to the Division of

Administrative Hearings.

The final hearing took place as scheduled on January 23,

200 6 , with both parties present. Each party waived the right to

examine and cross - examine witnesses at hearing. In lieu of a

formal evidentiary proceeding, the parties st ipulated to the

admission of Petitioner's Exhibits 1 through 13. One of

Petitioner's exhibits is the Affidavit of John Turner. Another

is the deposition of Roxanne Moisuk. Thes e exhibits comprise

the only testimony in evidence.

In addition to Petition er's exhibits, t he parties agreed to

the admission of Respondent's Exhibit 1, which was to be a

composite of Respondent's responses to Petitioner's discovery

requests. Counsel for Respondent was instructed, at hearing, to

file Respondent's Exhibit 1, and he agreed to do so without

delay. The exhibit was never filed, however, despite several

post - hearing telephonic reminders.

The final hearing transcript was filed on February 16,

2006. Thereafter, Petitioner timely filed a Proposed

Recommended Order, wh ich was considered. Respondent filed its

proposed Findings of Fact and Conclusions of Law after the

deadline for doing so had run. The undersigned nevertheless

considered Respondent's submission; it had no effect on the

outcome.

Unless otherwise indicate d, citations to the Florida

Statutes refer to the 2005 Florida Statutes. 1

FINDINGS OF FACT

1. Petitioner Department of Financial Services

("Department") is the state agency responsible for enforcing the

statutory requirement that employers secure the pay ment of

workers' compensation for the benefit of their employees.

2. Respondent Bicon, Inc. ("Bicon") is a corporation

domiciled in Florida and engaged in the business of hauling

construction debris, which is considered a non - construction

activity for the purposes of workers' compensation coverage

requirements.

3. Bicon's workers' compensation carrier from October 1,

2003 to Ma y 4, 2005 (the "Focal Period") was Bridgefield

Employers Insurance Company ("Bridgefield"). Bridgefield's

Policy Number 830 - 29266 (the "Policy") initially covered Bicon

for the period from May 11, 2002 to May 11, 2003. Bridgefield

renewed the Policy twice, each time for a one - year period.

4. The premium for the Policy was based on Bicon's

payroll. Before the beginning of each p olicy period, Bicon

provided Bridgefield an estimate of its payroll for the upcoming

period. 2 Bridgefield then established an estimated premium for

the period, which Bicon was expected to pay in installments.

After the policy period had ended, Bridgefiel d audited Bicon's

records to determine actual exposures. Once the audit had been

completed, the estimated premium was adjusted as necessary,

upward or downward, to reflect actual exposures for the policy

period.

5. The audit covering the first renewal pe riod (May 11,

2003 to May 11, 2004) caused Bridgefield to conclude that there

existed a premium shortfall of $274,281.66, for which sum

Bridgefield billed Bicon on May 2, 2005. 3 Given that the

estimated premium for the period had been $22,634.44, 4 this wa s a

significant upward adjustment. T he premium increase was

attribut ed to exposure arising from Bicon's use of an alleged

uninsured subcontractor, which exposure Bridgefield's auditor

valued at $816,231.00.

6. Bridg e field's Audit Summary Sheet contains the

following instructions pertaining to uninsured subcontractors:

If no evidence of coverage is submitted to

the insured for a subcontractor and only

labor is provided, the auditor must include

either payroll of the subcontractor's

employees or the Total Contract Price. If

the labor and material portions of the

contract are not broken down in the

Insured's records, the auditor must include

the Total Contract Cost prorated according

to manual rules.

No persuasive or convincing evidence was offered estab lishing

whether the auditor calculated the subcontractor exposure for

the first renewal period based on the subcontractor's payroll

or, alter natively, on the contract price .

7. Bicon paid $53,091.40 against the audit adjustment,

leaving a balance of $221, 190.26, which remained outstanding as

of the final hearing. Bicon has disputed the findings of

Brid g efield's audit, but the record does not disclose the nature

and grounds of its objections.

8. The estimated premium for the second renewal period

(May 11, 2004 to May 11, 2005) —— which had been calculated in

March 2004, apparently before the findings from the audit of the

first renewal period were available —— was $20,097.48. 5 The

retrospe ctive audit convinced Bridgefield that the estimated

premium had fallen short by the amount of $186,653.88, for which

Bridgefield billed Bicon on September 13, 2005. This shortfall

was attribut ed to Bicon's use of five alleged uninsured

subcontractors , which the insurer claimed gave rise to an

exposure appraised at $718,462. 00. No persuasive or convincing

evi dence was offered to establish whether the auditor calculated

this exposure based on the subcontractors' respective payrolls

or, altern atively, on the contract prices .

9. Bicon disputed the se audit findings, and as of t he

final hearing had not paid any part of the audit adjustment.

The record does not disclose the nature and grounds of Bicon's

objections to this audit.

10. T he Department's case against Bicon i s premised on the

liability for workers' compensation that attaches to a

contractor who engages a subcontractor to perform any part of

the contractor's contractual obligations to a third party. I n

such a situation, if the subcontractor is uninsured, then the

contractor is obligated to provide workers' compensatio n to all

of the subcontractor's employees.

11. The Department alleges that , during the Focal Period,

Bicon sublet work to the following uninsured subcontractors:

Precision Equipment Fabricators & Repair, Inc.; S&S National

Waste, Inc.; Mickelson Enterp rises, Inc.; and Wheeler Employee

Leasing, Inc. The Department alleges further that, in its

dealings with Bridgefield, Bicon materially understated the

amounts of its uninsured subcontractors' payrolls —— a practice

that, the Department contends, is deemed by statute to

constitute a failure to secure the payment of workers'

compensation.

12. Despite these allegations, t he Department did not

elicit any direct evidence that Bicon's alleged subcontractors

were performing jobs or providing services that Bicon was

contractually obligated to carry out for third parties. Rather,

in this regard, the Department's investigator testified (via

affidavit) as follows:

[T]he vast majority of the work being

performed [by Bicon's alleged

subcontractors] was the hauling of debris by

truck drivers, which is a non - construction

activity. However, the duties performed by

the employees of Precision Equipment

Fabricators & Repair Inc., were construction

in nature, specifically, the

installing/erecting of debris chutes at

construc tion sites.

Aff. of J. Turner at 3. Notably a bsent from th e investigator's

account is any testimony that the alleged subcontractors were

performing Bicon's contract work.

13. There is, however, some circumstantial evidence that

Bicon sublet part of its contract work to o ther entities . In

its application for workers' compensation insurance, for

example, Bicon described its business operations as follows:

"haul[ing] clean recyclable construction materials (sand,

gravel, concrete, wood) from construction sites to waste

management locations." The Department accepts this description,

for in its Proposed Recommended Order, the Department requested

a finding that "Respondent is . . . engaged in the business of

hauling construction debris, which is a non - cons truction

activity." The undersigned so found above.

14. It is reasonable to infer, from the basic undisputed

facts about Bicon's business, that Bicon provided hauling

services to third parties (its clients or customers) to whom it

was contractually boun d. The inference is s ufficiently strong

that the undersigned is convinced, and finds, that such was the

case.

15. The evidence shows that Bicon considered various

entities, including S&S National Waste, Inc. ("S&S"); Mickelson

Enterprises, Inc. ("Mick elson"); and Wheeler Employee Leasing,

Inc. ("Wheeler") , to be its "subcontractors." Indeed, at the

Department's request, Bicon produced one of its subcontracts,

which is in evidence, wherein Mickelson wa s designated the

"subcontractor." The undersigned is convinced, and finds, that

Bicon did, in fact, enter into subcontracts , express or implied,

with S&S, Mickelson, and Wheeler .

16. It is undisputed , moreover, that these three

companies —— S&S, Mickelson, and Wheeler —— performed the work of

hauling constr uction debris, which happens to be Bicon 's core

business . Therefore, it is reasonable to infer , and the

undersigned finds, that, to some extent, S&S, Mickelson, and

Wheeler provided haulin g services to Bicon's customers .

17. N one of the aforementioned su bcontractors had workers'

compensation insurance in place during the Focal Period .

18. The evi dence is insufficient to prove that Precision

Equipment Fabricators & Repair, Inc. ("Precision") was a

subcontractor of Bicon that performed Bicon's contract wo rk . On

the contrary , Mr. Turner's testimony, which was not

contradicted, shows that Precision was engaged in a different

business from Bicon's —— one involving construction activities

( i.e. installing debris chutes) as opposed to the non -

construction work o f hauling. There is no persuasive or

convincing evidence in the record establishing that Bicon was

contractually obligated to anyone to perform such construction

services.

19. T here is no persuasive or convincing direct evidence

that Bicon ever unders tated the payroll of S&S, Mickelson, or

Wheeler in communicating with Bridgefield. There is, indeed, no

evidence in the record of any statement made by or on behalf of

Bicon, to Bridgefield, concerning either the subcontractors'

payrolls or the amounts th at Bicon had paid , expected to pay , or

owed its subcontractors pursuant to the subcontracts that it had

made with them . 6

20. The Department's theory, which is implicit (though

unstated) in its litigating position, is that Bicon must have

understated the subcontractors' payrolls because : (a) during

the audits following the first and second renewal periods,

Bridgefield picked up additional exposure , which it attributed

to uninsured subcontractors ; and (b) no other explanation

accounts for the large discrep ancies between the estimated

premiums and the audited premiums. 7 The flaw in this theory is

that the incriminating fact which the Department urges be

inferred (material understatement of payroll) is plainly not the

only possible cause of the known effect (audit findings relating

to uninsured subcontractors). Without being creative, the

following possibilities, all of which are reasonable and

consistent with the proved facts of this case, spring readily to

mind:

1. Estimating its anticipated exposures, Bi con told

Bridgefield that it estimated its payments to

uninsured subcontractors would be $X, and

a. in fact, Bicon had estimated that it would pay

uninsured sub contractors $Y —— a materially greater

sum than $X. Or:

b. in fact, Bicon truly had estimated that its

payments to uninsured subcontractors would total

$X, but its estimate turned out to be low, and the

actual aggregate of such payments was $Y, a

materially greater sum.

2. Bicon said nothing to Bridgefield about its

payments to uninsured subcontractors unt il the audits

because:

a. prior to the audits, Bridgefield had never asked

Bicon to disclose such information. Or:

b. prior to the audits, Bridgefield had asked Bicon

an ambiguous question about its estimated payroll

exposures, which Bicon reasonably had unders tood

as not inquiring about payments to uninsured

subcontractors. Or:

c. although, prior to the audits, Bridgefield had

asked Bicon a clear and unambiguous question

calling for Bicon to disclose such information,

Bicon had remained silent on the issue.

3. B icon told Bridgefield about its payments to

uni nsured subcontractors, but Bridgefield , which knew

that the actual amount of such exposure would be

included at audit in determining the final premium ,

declined to use the information in ca lculating the

estima ted premium .

21. The Department failed to prove, by any standard, that

something like 1.a. occurred in fact. Further, the Department

failed to exclude numerous hypotheses of innocence —— such as

2.a., 2.b., and 3. —— which are reasonable and consistent with the

evidence. Accordingly, the undersigned declines to infer, from

the proved facts, that, in its communications with Bridgefield,

(the existence of which must be inferred, for there is no direct

evidence of such communications), Bicon materially understa ted

either the amounts of its subcontractors' payrolls or the

amounts Bicon paid or owed to its subcontractors for the work

they performed for Bicon's customers pursuant to subcontracts.

22. Consequently, it is determined, as a matter of

ultimate fact, th at Bicon is not guilty of materially

understating payroll —— and hence failing to secure payment of

workers' compensation —— as charged under Section 440.107(2),

Florida Statutes.

CONCLUSIONS OF LAW

23 . The Division of Administrative Hearings has personal

and subject matter jurisdiction in this proceeding pursuant to

Sections 120.569 and 120.57(1), Florida Statutes.

24. The Department argues that its evidential burden is to

prove the allegations against Bicon by a preponderance of the

evidence "because [Bicon ] does not have a license or property

interest at stake so as to raise the standard of proof to clear

and convincing" evidence. Pet. Prop. Rec. Order at 9. This

contention is clearly contrary to settled law. In Department of

Banking and Finance, Div. of Securities and Investor Protection

v. Osborne Stern & Co. , 670 So. 2d 932, 935 (Fla. 1996), the

Florida Supreme Court held that clear and convincing evidence is

required to justify the imposition of administrative fines

because they "are penal in nature a nd implicate significant

property rights." Here, the Department is seeking to impose an

administrative penalty in excess of $300,000.00. Therefore, it

must prove the charges against Bicon by clear and convincing

evidence. Id. ; see also , e.g. , Latham v. Florida Comm ' n on

Ethics , 694 So. 2d 83, 86 (Fla. 1st DCA 1997)( Personal w ealth is

"entitled to the prophylactic benefit of the clear and

convincing burden of proof.").

25. Regarding the standard of proof, in Slomowitz v.

Walker , 429 So. 2d 797, 800 (Fl a. 4th DCA 1983), the Court of

Appeal, Fourth District, canvassed the cases to develop a

"workable definition of clear and convincing evidence" and found

that of necessity such a definition would need to contain "both

qualitative and quantitative standards ." The court held that:

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 lac king 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.

Id. The Florid a Supreme Court later adopted the fourth

district's description of the clear and convincing evidence

standard of proof. Inquiry Concerning a Judge No. 93 - 62 , 645

So. 2d 398, 404 (Fla. 1994). The First District Court of Appeal

also has followed the Slomow itz test, adding the interpretive

comment that "[a]lthough this standard of proof may be met where

the evidence is in conflict, . . . it seems to preclude evidence

that is ambiguous." Westinghouse Elec. Corp., Inc. v. Shuler

Bros., Inc. , 590 So. 2d 986, 9 88 (Fla. 1st DCA 1991), rev .

denied , 599 So. 2d 1279 (Fla. 1992)(citation omitted).

26. The obligation to provide workers' compensation is set

forth in Section 440.10, Florida Statutes, which provides in

pertinent part as follows:

(1)(a) Every employer c oming 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.

(b) In case a contractor sublets any part

or parts of his or her contract work to a

subcontractor or subcontractors, all of the

employees of such contractor and

subcontractor or subcontractors engaged on

such contract work shall be deemed to be

employed in one and the same busines s or

establishment, and the contractor shall be

liable for, and shall secure, the payment of

compensation to all such employees, except

to employees of a subcontractor who has

secured such payment.

(c) A contractor shall require a

subcontractor to provide evidence of

workers' compensation insurance. A

subcontractor who is a corporation and has

an officer who elects to be exempt as

permitted under this chapter shall provide a

copy of his or her certificate of exemption

to the contractor.

Note the distinct ion between "employers," whose liability for

compensation arises under subparagraph (a); and "contractors,"

whose liability for compensation arises under s ubparagraph (b).

Any person or corporation meeting the statutory definition of

"employer" 8 must secu re compensation for his or its "employees." 9

In contrast, w hen a person or corporation becomes a

"contractor," 10 he or it must secure compensation for the

employees of its uninsured subcontractor(s).

27. The judicial term of art for a "contractor" under

Section 440.10 is "statutory employer." See Motchkavitz v. L.C.

Boggs Indus. , 407 So. 2d 910, 912 (Fla. 1981)("Section 440.10

establishes the concept of 'statutory employer' for contractors

who sublet part of their work to others.") . Notwithstanding

thi s terminology, the employees of an uninsured subcontractor

are neither true employees —— i.e. employees in the commonly

understood sense —— of the statutory employer, nor even,

necessarily, its "employees," as that term is defined in Section

440.02(15), Florid a Statutes. See Gator Freightways, Inc. v.

Roberts , 550 So. 2d 1117, 1118 (Fla. 1989)(driver employed by

company that leased trucking equipment to common carrier was not

the carrier's "employee"; rather, the carrier was the driver's

"statutory employer"). The subcontractor's employees remain, as

a matter of fact, the employees of the subcontractor.

28. In charging Bicon with the offense of failing to

secure the payment of workers' compensation, the Department has

relied on Section 440.107(2), which pro vides in relevant part as

follows:

For the purposes of this section, "securing

the payment of workers' compensation" means

obtaining coverage that meets the

requirements of this chapter and the Florida

Insurance Code. However, if at any time an

employer m aterially understates or conceals

payroll , materially misrepresents or

conceals employee duties so as to avoid

proper classification for premium

calculations, or materially misrepresents or

conceals information pertinent to the

computation and application of an experience

rating modification factor, such employer

shall be deemed to have failed to secure

payment of workers' compensation and shall

be subject to the sanctions set forth in

this section .

(Emphasis added.) B eing penal in nature, this statute mu st be

strictly construed; any ambiguities are to be resolved in favor

of the party charged with an offense. Lester v. Department of

Professional and Occupational Regulations , 348 So. 2d 923, 925

(Fla. 1st DCA 1977). A narrow interpretation guards against

imposing sanctions for conduct not reasonably proscribed. Id.

29. Summarizing the material accusations in this case in

light of the statutory framework reviewed above, B icon , which

allegedly was a statutory employer responsible for providing

compensat ion under Section 440.10(1)(b), Florida Statutes, is

alleged to have materially understated the payrol ls of its

subcontractors' employees . 11 If this alleged practice were

cognizable under Section 440.107(2) , and if the factual

allegations we re true, then i t would be necessary to deem Bicon

guilty of failing to secure payment of workers' compensation,

for which failure a "stop work" order and an administrative

penalty would be available and appropriate sanctions. See §

440.107 (7)(d) , Fla. Stat .

30. The f irst question, then, is whether Bicon was a

statutory employer. To conclude that Bicon was a statutory

employer requires that certain facts be established.

Specifically, "f or a company to be a contractor under [Section

440.10, Florida Statutes], its prim ary obligation in performing

a job or providing a service must arise out of a contract."

Gator Freightways , 550 So. 2d at 1119. This is because

the clear implication in this part of the

[Workers' Compensation Law] is that there

must be a contractual obli gation on the part

of the contractor, a portion of which he

sublets to another. To "sublet" means to

"underlet", Webster's New International

Dictionary; in the context in which it is

here used, the effect of subletting is to

pass on to another an obligati on under a

contract for which the person so

"subletting" is primarily obligated.

Jones v. Florida Power Corp. , 72 So. 2d 285, 289 (Fla.

1954)(italics in original); see also , e.g. , Duran v. Hotelerama

Assocs . , Ltd. , 892 So. 2d 505 (Fla. 3d DCA 2004)(hotel owner,

which was not contractually obligated to give its guests tickets

to club located in hotel, was not the statutory employer of

club's employee); Cuero v. The Ryland Group, Inc. , 849 So. 2d

326 (Fla. 2d DCA 2003)(owner/developer that owed no contractua l

duty to any third party to build project was not statutory

employer of subcontractor's employee); Lizarraga v. American

Airlines, Inc. , 2000 U.S. Dist. LEXIS 14843 (S.D.Fla. Sept. 19,

2000)(airline was statutory employer of airport security guard

who wor ked for subcontractor that discharged airline's implied

contractual duty to provide safe passage of its customers'

cargo).

31. As found, Bicon was engaged in the business of hauling

construction debris for third parties. In their respective

capacities as Bicon's subcontractors, S&S, Mickelson, and

Wheeler sometimes performed hauling operations for Bicon's

customers. Therefore, to the extent th at the employees of S&S,

Mickelson, and Wheeler performed such services on Bicon's

behalf , Bicon was the ir sta tutory employer. Accordingly, it is

concluded that Bicon was liable for compensation to the

employees of S&S, Mickelson, and Wheeler, pursuant to Section

440.10(1)(b), Florida Statutes.

32. It is concluded that Bicon was not liable, however,

for compensa tion to the employees of Precision, for Precision

was not shown to have been performing any of Bicon's contract

work.

33. The next question is whether Bicon, as a statutory

employer, was an "employer" for purposes of Section 440.107(2),

Florida Statutes. The answer is not self - evident, for if the

legislature had intended to make contractors qua contractors

subject to penalty under Section 440.107, then it arguably would

have said so explicitly —— and it did not , which suggests,

perhaps, that statutory emplo yers, as such, are not subject to

being deemed, pursuant to Section 440.107(2), to have failed to

secure payment of workers' compensation . The undersigned has

determined, however, that such argument, though not without

merit, is ultimately unpersuasive be cause another important

provision of the Workers' Compensation Law —— Section 440.11,

Florida Statutes, which confers immunity from additional

liability on employers responsible for workers' compensation ——

likewise fails specifically to mention contractors , y et has been

held consistently to include them. See , e.g. , Motchkavitz v.

L.C. Boggs Industries, Inc. , 407 So. 2d 910, 913 (Fla.

1981)("[T]he liability to secure coverage for [the] employees

[of a subcontractor] . . . immunizes a contractor from suit by

su ch employees."); Lingold vansamerica Ins. Co. , 416 So. 2d

1271, 1272 (Fla. 5th DCA 1982)(as statutory employer, general

contractor is immune from suit by subcontractor's employee

seeking damages for negligence). Thus, the undersigned

concludes that th e term "employer" as used in Section 440.107(2)

reasonably can be understood to include a statutory employer

such as Bicon .

34. A more difficult question is whether, as a matter of

law, a statutory employer can be punished either for (a)

understating a su bcontractor's payroll, or for (b) understating

the amount paid or owed to a subcontractor pursuant to a

subcontract. Uncertainty in these matters stems from the fact

that the term "payroll" is not defined in the Workers'

Compensation Law.

35. To resol ve this uncertainty, the undersigned turns to

a rule of interpretation that the Florida Supreme Court has

called

"one of the most fundamental tenets of

statutory construction[, namely,] that

[courts] give statutory language its plain

and ordinary meaning, unless words are

defined in the statute or by the clear

intent of the legislature. When necessary,

the plain and ordinary meaning of words can

be ascertained by reference to a

dictionary."

The Reform Party of Florida v. Black , 885 So. 2d 303, 312 (Fla.

2004), quoting Nehme v. Smithkline Beecham Clinical Lab s. , Inc. ,

863 So. 2d 201, 204 (Fla. 2003).

36. The following definition of "payroll" is typical of

that found in dictionar ies :

1. A list of employees receiving wages or

salaries, with the amounts due to each. 2.

The total sum of money to be paid out to

employees at a given time

The American Heritage ® Dictionary of the English Language (4th

ed. 2000). The foregoing definition is consistent with and

reflects, the undersigned believes, the common, ordi nary usage

of this word.

37. Mindful of the dictionary definition, the undersigned

does not believe that ordinary people commonly use the term

"payroll" to describe the contract price of a subcontract .

Indeed, one reason that subcontractors are engaged is to avoid

putting additional employees on the contractor's payroll. While

it is possible, the undersigned supposes, that "payroll" is used

as a term of art in the context of workers' compensation to

refer to payments to subcontractors, no evidence of su ch

specialized usage was offered. 12 To the contrary, the evidence

shows that Bridgefield, for one, distinguished between "payroll

of the subcontractor's employees," on the one hand, and "Total

Contract Price" —— that is, payments made or owed by the

contract or to the subcontractor —— on the other. It is concluded,

therefore, that the plain and ordinary meaning of the word

"payroll" does not comprehend payments to subcontractors

pursuant to a subcontract.

38. From this conclusion it follows that , where the on ly

purported "payroll" at issue consist s of payments made , or due

and owing, to a subcontractor pursuant to a subcontract , a

statutory employer cannot be found guilty under Section

440.107(2), Florida Statutes, of materially understating

payroll. 13 Accordi ngly, it is concluded that to the extent the

charge against Bicon is based on the allegation that Bicon

materially understated the prices of its subcontracts, such

charge fails as a matter of law.

39. The question remains whether a statutory employer can

be punished for materially understating a subcontractor's

payroll, using the term "payroll" in its usual and customary

sense to mean the wages and other compensation paid by the

subcontractor to its employees. 14 On this issue, there is no

probative evidenc e in the record. Lacking evidence, the

undersigned reasons that in most circumstances, a contractor

does not have access to its subcontractor's payroll. This is

based on the reasonable assumption that few subcontractors would

agree to share payroll infor mation with a contractor, not only

because such data are sensitive and proprietary , but also

because such information would give the contractor a clearer

picture of the subcontractor's actual costs and thus tend to

strengthen the contractor's bargaining po sition .

40. Since it would be unusual , as far as the undersigned

is aware, for one employer to give its payroll information to

another company simply because the two have entered , or are

about to enter, into an subcontract, 15 the undersigned concludes

th at the term "payroll" as used in Section 440.107(2), Florida

Statutes, cannot reasonably be construed to include the payroll

of another person or entity besides the employer against whom

the charge of failing to secure the payment of workers'

compensation is brought. Consequently, the undersigned

concludes that a statutory employer cannot be found guilty,

under this statute, of materially understating a subcontractor's

payroll. To the extent that the charge against Bicon is based

on the contention that Bi con understated its subcontractors'

payrolls, therefore, the charge fails as a matter of law.

41. Even if, however, the term "payroll" could be

construed liberally to include either a subcontractor's payroll

or a contractor's payments to subcontractors, t he charge against

Bicon would fail anyway, as a matter of fact, because no

persuasive or convincing evidence was offered establishing that

Bicon at any time materially had understated, in its

communications with Bridgefield, either the amounts it had paid

to subcontractors or its subcontractors' payrolls. For this

additional, independent, and alternative reason, Bicon cannot be

punished for the offense of which it stands accused.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

L aw, it is RECOMMENDED that the Department enter a final order

rescinding the Stop Work Order and exonerating Bicon of the

charge of failing to secure the payment of workers' compensation

by materially understating payroll.

DONE AND ENTERED this 16th day o f March, 2006, in

Tallahassee, Leon County, Florida.

S

___________________________________

JOHN G. VAN LANINGHAM

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 16 th day of March, 2006.

ENDNOTES

1 / The Workers ' Compensation Law, Chapter 440, Florida Statutes,

is regularly amended and was, in fact, revised periodically

during (or effective at the outset of) the time frame relevant

to this case. Having studied the legislative history, however,

the undersigned ha s concluded that the pertinent provisions of

the current ( i.e. 2005) code are either the same as, or not

materially different from, any earlier versions that might

otherwise be applicable. Therefore, rather than burden this

Recommended Order with potentia lly confusing and ultimately

unnecessary references to historical statutes whose application

would not affect the outcome, the undersigned has elected to

apply Chapter 440 in its present form.

2 / Bicon had an insurance agent who probably transmitted this

information. There is no evidence, however, as to the

identity(ies) of the individual(s) who actually conveyed the

payroll estimates to Bridgefield, nor is there any evidence as

to the contents of any relevant statements for the initial

policy period (or any subsequent periods).

3 / The audit for the initial policy period, incidentally, had

revealed that the estimated premium of $19,138.46 was too high,

resulting in a downward adjustment, to $17,875.17.

4 / No persuasive or convincing evidence was offe red showing the

information upon which this estimated premium had been based or

where such information had come from.

5 / No persuasive or convincing evidence was offered showing the

information upon which this estimated premium had been based or

where su ch information had come from.

6 / According to the Department, Bicon's counsel stipulated to

the ultimate issue when, at a pre - hearing deposition , he made

the following comment:

There's an issue, we under - recorde d payroll.

We understand that. They've come in and

reclassified people that were subcontractors

as employees, so I stipulate to all of that.

Statement of H. Winderman, Esq., during Depo. of R. Moisuk taken

Jan. 19, 2006, at 11. The Department urges that the foregoi ng

"stipulation" be understo od as an admission that Bicon

"understated its payroll to Bridgefield." Another reasonable

interpretation of the remark, however, is that counsel was

merely restating the principal issue in dispute and stipulating

to Bridgefield's position, namely that Bi con's subcontractors'

employees were covered under the Policy, requiring large premium

increases for the first and second renewal periods. The

statement of Bicon's counsel is too ambiguous, at any rate, to

be taken as far as the Department presses it.

7 / The Department also argues, as mentioned, that Bicon's

counsel stipulated that Bicon had understated its payroll to

Bridgefield —— but the undersigned rejects this argument as

unpersuasive.

8 / T he term "employer" is defined in the Workers' Compensation

Law , s ee § 440.02(16), Fla. Stat. (definition of "employer") ,

but "contractor," interestingly, is not .

9 / "Employee" is a statutorily defined term. See § 440.02(15),

Fla. Stat. (definition of "employee").

10 / A contracting party does not automaticall y become liable for

the payment of compensation to another's employees every time it

enters into a contract with another employer. See Cuero v. The

Ryland Group, Inc. , 849 So. 2d 326, 328 (Fla. 2d DCA

2003)("[O]ne does not become a contractor under sectio n 440.10

merely by entering into a contract with a subcontractor."). To

be a "contractor" requires the entry into a particular kind of

contract, as will be discussed.

11 / A lternatively, it could be said that Bicon allegedly

understated the amounts it pai d (or owed) to the subcontractors,

i.e. the respective contract prices of the subcontracts. The

Department, however, has used the term "payroll"

indiscriminately, failing to distinguish between the payrolls of

subcontractors and the amounts paid to subcon tractors.

12 / Such evidence would have been admissible. Cf. Red Carpet

Corp. v. Calvert Fire Ins. Co. , 393 So. 2d 1160, 1160 - 61 (Fla.

1st DCA 1981)(trial court erred in excluding expert testimony

regarding insurance adjusting, policy provisions, and t rade

custom in insurance industry); Aetna Ins. Co. v. Loxahatchee

Marina, Inc. , 236 So. 2d 12, 14 (Fla. 4th DCA 1970)("Obscure

connotations of an insurance policy can be greatly illuminated

by knowledge of custom and usage in the industry as well as the

ex pert's knowledge of terms which take on a different hue in the

specialized field than in the field of general knowledge.").

13 / This does not mean, of course, that a statutory employer can

with impunity make material misrepresentations to its insurer

rega rding payments to subcontractors. Such wrongdoing likely

would give the insurer a cause or causes of action for damages

or other relief available in a civil lawsuit.

14 / As should be obvious but is perhaps worth stating, the

contract price of a subcontra ct is one thing, the

subcontractor's payroll is quite another. Any subcontractor who

desires to make a profit will charge an amount in excess of the

subcontractor's total cost of performance, which cost typically

would include, but not be limited to, a po rtion of its payroll

expense.

15 / The Department did not try to prove, and it has not argued,

that statutory employers actually have, or reasonably should

have, access to their subcontractors' payrolls. If in fact

subcontractors do disclose their payroll s to contractors as a

result of the Workers' Compensation Law, then the Department

should have presented some evidence of this practice .

COPIES FURNISHED :

Colin M. Roopnarine, Esquire

Department of Financial Services

Division of Workers' Compensation

200 East Gaines Street

Tallahassee, Florida 32399 - 4229

Harry Winderman, Esquire

2255 Glades Road, Suite 218A

Boca Raton, Florida 33431

Carlos G. Muñiz, General Counsel

Department of Financial Services

The Capito l, Plaza Level 11

Tallahassee, Florida 32399 - 0300

Tom Gallagher, Chief Financial Officer

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 s ubmit 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.