06-002259 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. Richard Whitehurst, D/B/A Allied Quality Carpet And Tile Status: Closed Recommended Order on Thursday, March 22, 2007.

Summary: The imposition of a fine for failure to have appropriate workers` compensation coverage is supported by the evidence.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF WORKERS' )

COMPENSATION , )

)

Petitioner , )

)

vs. ) Case No. 06 - 2259

)

RICHARD WHITEHURST, d/b/a )

ALLIED QUALITY CARPET AND TILE , )

)

Respondent . )

)

RECOMMENDED ORDER

Pursuant to notice, a final hearing was conducted in this

case on January 23, 2007, in Orlando, Florida, before

Administrative Law Judge R. Bruce McKibben of the Division of

Administra tive Hearings.

APPEARANCES

For Petitioner: Stephen H. Thomas, Jr., Esquire

Colin M. Roopnarine, Esquire

Department of Financial Services

Division of Legal Services

200 East Gaines Street

Tallahassee, Florida 32399

For Respondent: Richard Whitehurst , pro se

Allied Quality Carpet and Tile

Post Office Box 2292

Winter Park, Florida 3 2790

STATEMENT OF THE ISSUE

The issue in this case is whether Respondent had sufficient

or complete workers ' compensation coverage for his employees

pursuant to Chapter 440, Florida Statutes (2006) . 1

PRELIMINARY STATEMENT

On or about May 10, 2006, Petiti oner served a Stop Work

Order and Order of Penalty Assessment on Respondent. This was

followed by an Amended Order of Penalty Assessment, then by yet

another Amended Order of Penalty Assessment, and the Order of

Penalty Assessment was amended again just p rior to the final

hearing.

Respondent filed a Petition for Hearing under

Sections 120.569 and 120.57, Florida Statutes, which was

transmitted to the Division of Administrative Hearings on

June 23, 2006.

At the final hearing, Petitioner called one witness :

Margaret Cavozos, an investigator for the Department of

Financial Services. Petitioner offered 11 exhibits, all of

which were admitted. Respondent testified on his own behalf and

proffered the testimony of Ken Sullivan. Respondent did not

offer any e xhibits into evidence.

At the close of the evidentiary portion of the final

hearing, the parties were given ten days from the filing of the

hearing transcript within which to file their respective

proposed recommended orders. A one - volume hearing T ranscri pt

was filed on February 21, 2007. Respondent had filed a

"Proposed Order" on January 31, 200 7 , i.e. , prior to the filing

of the T ranscript. Petitioner filed its Proposed Recommended

Order on March 5, 2007. The parties' proposals have been

carefully con sidered during the preparation of this Recommended

Order.

FINDINGS OF FACT

1. Respondent owns and operates a business engaged in the

practice of installing flooring, including carpets, tile,

hardwood, etc. He is a sole proprietor with no one else on his

payroll. His work is performed by subcontractors whom he hires

for each individual job.

2. Respondent has been involved in the construction

industry for many years and is generally aware of the concept of

workers ' compensation coverage. He has always op erated under

the assumption that an employer is only responsible for

providing workers ' compensation coverage for persons who are

directly employed, i.e. , that contracted employees

(subcontractors) were exempt or had to pay their own coverage.

3. Respond ent did not make workers ' compensation

contributions for the subcontractors who did work for him. He

acted on a good faith belief that such coverage was not his

responsibility.

4. On April 7, 2006 , an investigator f o r Petitioner

conducted a compliance in vestigation at Pegasus Point apartments

in Orlando, Florida , pursuant to a public request. In

A partment J of the complex, the investigator observed a man

(later identified as Jeff Menendez) , who stated he was

installing carpet. When a sked about workers ' compensation

coverage, he replied that he was a subcontractor and did not

believe he needed coverage. He said he got this job from

"Allied" (the Petitioner in this case).

5. As a result of this encounter, Petitioner contacted

Respondent and asked for ce rtain records in order to determine

whether appropriate coverage was in place for its employees.

When the requested records were not forthcoming, Petitioner

entered a Stop Work Order. This prompted another request for

business records so that Petitioner could calculate the

appropriate penalty.

6. Once it received the necessary records from Respondent,

Petitioner determined there were several employees (as that term

is defined in statute) working for Respondent for whom workers '

compensation coverage had not been paid for the period of May 3,

2003, through May 3, 2006. When those workers were checked

against Petitioner's data base - - called the Coverage & Compliance

Automated System, or CCAS - - no coverage was found for Respondent

or the identified employees for that period of time.

7. One or more of the named employees had exemptions in

place for a portion of the time they did work for Respondent .

After taking that into consideration, Petitioner calculated a

penalty of $28,619.97 against Respondent. The pe nalty was

calculated using the Scopes Manual, a tool promulgated by rule.

8. Respondent's business was identified in the Scopes

Manual as Code 5478: carpet or flooring installation. The

assigned rate for this code was then compared to the designated

ins urance rate. Once the amount was determined, it was

multiplied by 1.5 to ascertain the penalty amount.

9. The Stop Work Order was lifted by Petitioner after

Respondent signed a "Payment Agreement Schedule for Periodic

Payment of Penalty" on June 1, 2006. At that time , Respondent

made a down payment of $2,867.19 and agreed to pay the sum of

$403.08 per month for 60 months.

10. Upon reaching agreement with Petitioner to pay the

fine, Respondent also terminated all "employees" doing

subcontract work for hi m at that time.

CONCLUSIONS OF LAW

11. T he Division of Administrative Hearings has

jurisdiction over the parties to and the subject matter of this

proceeding pursuant to Section 120.569 and Subsection 120.57(1),

Florida Statutes.

12. The Department has t he burden of proof in this case.

The standard of proof is clear and convincing evidence. See

Department of Banking and Finance Division of Securities and

Investor Protection v. Osborne Stern and Co. , 670 So. 2d 932

(Fla. 1996).

13. Pursuant to Section 44 0.10, Florida Statutes, a

contractor is required to secure the payment of workers’

compensation for the benefit of subcontractors if the

subcontractor has not secured and paid compensation . Strict

compliance with the Workers' Compensation Law is, therefor e,

required by the employer. See Griggs v. Ryder , 625 So. 2d 950 ,

951 (Fla. 1st DCA 199 3 ).

14. Section 440.10, Florida Statutes (2002) (as well as

the 2006 version) , states, in relevan t part:

440.10. Liability for compensation

(1)(a) Every employe r coming within the

provisions of this chapter shall be liable

for, and shall secure, the payment to his or

her employees. . . . Any contractor or

subcontractor who engages in any public or

private construction in the state shall

secure and maintain compe nsation 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 business 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.

15. "Employer" is defined, in relevant part, as "every

person carrying on any employment . . ." § 440.02(16), Fla .

Stat . (2002) and (2006). " ' Employment ' . . . means any service

performed by an employee for the person employing him or her.

. . . [and] with respect to the construction industry,

[includes] all private employment in which one or more employees

are employed by the same employer." § 440.02(17)(a) a nd (b)2. ,

Fla . Stat . (2002) and (2006).

16. "Employee" was defined in S ubs ection 440.02(15),

Florida Statutes (2002), as:

(a) “Employee” means any person engaged

in any employment under any appointment or

contract of hire or apprenticeship, express

or implied, oral or written, whether

lawfully or unlawfully employed. . . .

17. S ubs ection 440.02(15), Florida Statutes , was

subseque ntly amended by the Legislature and now provides in

pertinent part:

(a) “Employee” means any person who

receives remunera tion from an employer for

the performance of any work or service while

engaged in any employment under any

appointment or contract for hire or

apprenticeship, express or implied, oral or

written, whether lawfully or unlawfully

employed, and includes, but i s not limited

to, aliens and minors.

18. S ubs ection 440.02(15), Florida Statutes, further

defines “employee” for purposes of the W orkers’ C ompensation L aw

and states:

(c) “Employee” includes:

* * *

2. All persons who are paid by a

constr uction contractor as a subcontractor,

unless the subcontractor has validly elected

an exemption as permitted by [Chapter 440],

or has otherwise secured the payment of

compensation coverage as a subcontractor,

consistent with s. 440.10, for work

performed a s a subcontractor .

3. An independent contractor working or

performing services in the construction

industry.

Id. at (15)(c) 2. and 3. This definition went into effect on

January 1, 2004.

19. Thus, under the law in effect in this case from

January 1, 2004 , forward, subcontractors and independent

contractors in the construction industry are considered to be

employees of an employer or contractor who pays them

remuneration. Respondent’s contention that his workers were

actually independent contractor s is an admission that they were

his employees, at least for the purposes of the W orkers’

C ompensation L aw.

20. Prior to January 1, 2004, S ubs ection 440.02(15),

Florida Statutes (2002) , was the effective statutory definition

of “employee” for Chapter 440 , S ubs ection 440.02(15), Florida

Statutes (2002) , which stated, in relevant part:

(c)1. . . . For purposes of this

chapter, an independent contractor is an

employee unless he or she meets all of the

conditions set forth in subparagraph (d)1.

* * *

(d) “Employee” does not include:

1. An independent contractor if:

a. The independent contractor maintains

a separate business with his or her own work

facility, truck, equipment, materials, or

similar accommodations;

b. The independe nt contractor holds or

has applied for a federal employer

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 complet e 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 services;

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 re lationship of business receipts to

expenditures. [Emphasis supplied]

Id.

21. F or the portion of the penalty period prior to

January 1, 2004, Respondent has the burden of proving that its

workers are independent contractors rather than employees. In

De partment of Financial Services v. WMW Enterprises, d/b/a

Family Flooring , p. 16, Case No. 05 - 2651 (DOAH February 6, 2006)

( Final Order March 28, 2006), it was stated:

Family Flooring contends that the four

subcontractors that it hired were not

employees, b ut independent contractors; and,

therefore, Family Flooring was not required

to secure workers’ compensation coverage for

the subcontractors. Family Flooring’s claim

is in the nat ure of an affirmative defense.

As to an affirmative defense, the burden of

proof is on the party asserting the defense.

See Captain’s Table, Inc. v. Khouri , 208 So.

2d 677 ( Fla. 4 th DCA 1968). By asserting

the affirmative, as to the status of the

four contractors, Family flooring has the

burden to show that they were independen t

contractors.

Id. ; see also Department of Labor and Employment Security,

Div. Of Workers’ Compensation v. Nelly , DOAH Case No. 00 -

1748 (DOAH June 5, 2001) (Final Order, p. 9 , September 20,

2001) . (“A claim that workers are independent contractors

rather than employees is in the nature of an affirmative

defense. Ordinarily the burden of proof is assigned to the

party asserting the affirmative. The facts necessary to

establish the exception are more readily obtained by the

employer than the Division. . . . Section 440.02(14)(d)1.

expresses no Legislative intent to assign the Division the

difficult burden of proving the negative.”) appeal

dismissed , Fla. 1 st DCA Case No. 1D01 - 4183 (June 5 2002).

22. S ubs ection 440.107(5) , Florida Statutes, requires

Petit ioner to “specify by rule the business records that

employers must maintain and produce to comply with [Section

440.107].” Florida Administrative Code Rule 69L - 6.015(10)(b)

requires employers to maintain employment, payroll , and contract

records and produ ce them at the request of Petitioner , and

states, in relevant part:

(10) Contracts. Each employer shall

maintain:

* * *

(b) Any records that establish the

statutory elements of independent contractor

prescribed in Section 440.02(15)(d), F .S.,

for each worker who claims to be or who the

employer claims to be an independent

contractor and not an employee under the

workers’ compensation law. [Emphasis added]

Id.

23. "Construction Industry" is defined in Subsection

440. 02 (8), Florida Statu tes, as follows:

"Construction Industry" means for - profit

activities involving any building, clearing,

filling, excavation, or substantial

improvement in the size or use of any

structure or the appearance of any land.

However, "construction" does not mea n a

homeowner's act of construction or the

result of a construction upon his or her own

premises, provided such premises are not

intended to be sold, resold, or leased by

the owner within 1 year after the

commencement of construction. The division

may, by rule, establish standard industrial

classification codes and definitions thereof

which meet the criteria of the term

"construction industry" as set forth in this

section.

Classification codes and definitions are found in Florida

Administrative Code Rule 69L - 6.021, which adopts by reference

the Florida Contracting Classification Premium Adjustment

Program, as published in the Florida exception pages of the

National Council on Compensation Insurance, Inc. (NCCI) Basic

Manual. Included at subpart (jj) of th e R ule is the code 5478,

defined as "Carpet, Linoleum, Vinyl, Asphalt or Rubber Floor

Tile Installation."

24. Petitioner issued the Stop Work Order and the Amended

Stop Work Order under S ubs ection 440.107(7)(a), Florida Statutes

(2006), which states:

When ever the department determines that an

employer who is required to secure the

payment to his or her employees of the

compensation provided for by this chapter

has failed to secure the payment of workers'

compensation required by this chapter or to

produce the required business records under

subsection (5) within 5 business days after

receipt of the written request of the

department, such failure shall be deemed an

immediate serious danger to public health,

safety, or welfare sufficient to justify

service by the department of a stop - work

order on the employer, requiring the

cessation of all business operations . . . .

The order shall remain in effect until the

department issues an order releasing the

stop - work order upon a finding that the

employer has come i nto compliance with the

coverage requirements of this chapter and

has paid any penalty assessed under this

section. The department may issue an order

of conditional release from a stop - work

order to an employer upon a finding that the

employer has complie d with coverage

requirements of this chapter and has agreed

to remit periodic payments of the penalty

pursuant to a payment agreemen t schedule

with the department. [Emphasis added]

Id.

25. Petitioner calculated the penalty assessment pursuant

to S ubs ec tion 440.107(7)(d)1., Florida Statutes, which states:

In addition to any penalty, stop - work order,

or injunction, the department shall assess

against any employer who has failed to

secure the payment of compensation as

required by this chapter a penalty e qual 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 workers' compensation

required by this chapter within the

precedi ng 3 - year period or $1,000, whichever

is greater.

26. Petitioner satisfied its burden of proving that

Respondent failed to secure the payment of workers’ compensation

as that term is defined in S ubs ection 440.107(7)(2), Fl orida

Stat utes , and correctly as sessed the penalty prescribed in

S ubs ections 440.107(7)(c) and (d), Fl orida Stat utes , for such

failure.

2 7. Despite the lack of any traditional employer - employee

arrangement between Respondent and his workers, they are by

definition "employees" for worker s ' compensation purposes. It

is clear that Respondent was not aware of this fact and did not

intentionally fail to provide workers ' compensation coverage.

However, neither the statutes nor the rules allow a person to be

excused due to failure to understa nd the pre scribed definition

of employee.

28. Petitioner, who as the party asserting the affirmative

of the issue, has the burden of proof in this matter. Balino v.

Department of Health and Rehabilitative Services , 348 So. 2d 349

(Fla. 1st DCA 1988). Pe titioner has met its burden.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

RECOMMENDED that a final order be entered by the Department

of Financial Services upholding the Penalty assessed against

Respondent for failur e to provide workers ' compensation coverage

for employees. Inasmuch as the parties have already agreed to a

payment plan, it is RECOMMENDED that the plan remain in effect

until the penalty has been paid.

DONE AND ENTERED this 22nd day of March, 2007 , in

T allahassee, Leon County, Florida.

S

R. BRUCE MCKIBBEN

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675 SUNCOM 278 - 96 75

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 22nd day of March , 2007 .

ENDNOTE

1/ Unless otherwise stated, all references to Florida Statutes

herein shall be to the 2006 version.

COPIES FURNISHED :

Stephen H. Thomas, Jr., Esquire

Colin M. Roopnarine, Esquire

Department of Financial Services

Division of Legal Services

200 East Gaines Street

Tallahassee, Florida 32399

Richard Whitehurst

Allied Quality Carpet and Tile

Post Office Box 2292

Winter Park, Florida 32790

Honorable Alex Sink

Chief Financial Officer

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399 - 0300

Daniel Summer, General Counsel

Department of Financial Services

The Capitol, Pl aza Level 11

Tallahassee, Florida 32399 - 0307

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.