06-002509 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. Earl Marshall And Justin Marshall, D/B/A Marshall And Son Painting Company Status: Closed Recommended Order on Friday, November 17, 2006.

Summary: Respondent did not secure workers` compensation coverage as required by Florida law, and Petitioner correctly issued a Stop Work Order and assessed a penalty of $45,649.40.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISIONS OF )

WORKERS' COMPENSATION, )

)

Petitioner, )

)

vs. ) Case No. 06 - 2509

)

EARL MARSHALL AND JUS TIN )

MARSHALL, d/b/a MARSHALL )

AND SON PAINTING COMPANY, )

)

Respondents. )

_ )

RECOMMENDED ORDER

On October 6, 2006, a hearing was held in Lake City,

Florida, pursuant to Sections 1 20.569 and 120.57(1), Florida

Statutes. The case was considered by Lisa Shearer Nelson,

Administrative Law Judge.

APPEARANCES

For Petitioner: Douglas D. Dolan

Assistant General Counsel

Division of Legal Services

200 East Ga ines Street

Tallahassee, Florida 32399 - 6502

For Respondents: Jimmy E. Hunt, Esquire

654 Southeast Baya Drive

Post Office Box 3006

Lake City, Florida 32056 - 6800

STATEMENT OF THE ISSUE

Whether Res pondent committed the violations alleged in

the Stop Work Order and Second Amended Order of Penalty

Assessment and if so, what penalty should be imposed?

PRELIMINARY STATEMENT

On June 16, 2006, the Department of Financial Services,

Division of Worke rs' Compensation (Division) issued a Stop

Work Order and Order of Penalty Assessment, alleging that

Respondents failed to obtain workers' compensation coverage

that meets the requirements of Section 440.107(2), Florida

Statutes. On June 21, 2006, the Divi sion issued an Amended

Order of Penalty Assessment, increasing the penalty assessed

against Respondents to $53,519.52. On June 26, 2006,

Respondents filed a request for a hearing pursuant to Sections

120.569 and 120.57(1), Florida Statutes. The case was

forwarded to the Division of Administrative Hearings (DOAH) on

July 17, 2006, for assignment of an administrative law judge.

The case was originally noticed for hearing on

September 18, 2006. On September 15, 2006, the parties

requested a continuance ba sed upon the unavailability of an

indispensable witness, and it was rescheduled for October 6,

2006. On October 2, 2006, the Division moved to amend the

Order of Penalty Assessment to reduce the amount of penalty

sought. This motion was unopposed and was granted October 4,

2006. The parties also stipulated to certain facts, which

have been incorporated into the findings of fact below.

Petitioner presented the testimony of Katina Johnson, and

Exhibits numbered 1 - 8 and 10 - 14 were admitted into evidence.

Respondents presented the testimony of Earl Marshall, Justin

Marshall and Karen Marshall, and Respondents' Exhibit numbered

1 was admitted.

At hearing, it was anticipated that the transcript would

be filed October 2 0, 2006, making the proposed recommended

orders due October 30, 2006. The transcript, however, was not

filed until October 26, 2006. Petitioner requested an

unopposed extension of time until November 10, 2006, to file

the proposed recommended orders. Gi ven that on November 10,

2006, state offices were closed in observation of Veteran's

Day, an extension was granted until Monday, November 13, 2006.

Petitioner timely submitted a Proposed Recommended Order.

Respondents did not. Petitioner's Proposed Recom mended Order

has been considered in the preparation of this Recommended

Order.

FINDINGS OF FACT

1. The Department of Financial Services, Division of

Workers' Compensation is the state agency charged with

enforcement of workers' compensation compliance pu rsuant to

Chapter 440, Florida Statutes.

2. Respondents Earl Marshall and Justin Marshall were

partners in ownership of Marshall and Son Painting Company on

June 16, 2006.

3. Respondents were working in the construction industry

at Lot 12, Oak Meado ws III, Lake City, Florida 32615, on

June 16, 2006, for which they received payment.

4. On June 16, 2006, Respondents had not secured the

payment of workers' compensation as that term is defined in

Chapter 440, Florida Statutes.

5. Respondents do no t dispute liability for failure to

secure workers' compensation insurance. They contend that the

calculation of the penalty to be imposed is inaccurate.

6. Marshall and Son Painting Company came to the

attention of the Division through a random site visi t by one

of its investigators. The Division's investigator, Katina

Johnson, requested proof of workers' compensation coverage

after observing Earl and Justin Marshall painting a new house.

She was informed that Respondents previously held exemptions

from workers' compensation coverage that had expired at the

end of 2003.

7. Ms. Johnson issued a Stop Work Order and Order of

Penalty Assessment on June 16, 2006. She also issued a

request to Respondents for written business records, including

bank stateme nts for the business, federal tax returns, and

copies of checks from their business ledger. Respondents

supplied the requested records.

8. On June 21, 2006, the Division issued an Amended

Order of Penalty Assessment (Amended Order). The Amended

Order imposed a penalty of $53,519.52.

9. Respondents entered into a payment agreement whereby

they paid 10 percent of the penalty assessment and agreed to

pay the remainder over a 60 - month period. Upon execution of

the payment agreement, the Division issued an Order of

Conditional Release from Stop Work Order.

10. On October 3, 2006, the Division issued a Second

Amended Order of Penalty Assessment, reducing the amount of

the penalty assessment to $43,649.40. A second Payment

Agreement Schedule for Period ic Payments was entered, reducing

the amount of the monthly payments to be made by Respondents.

11. Earl Marshall and Justin Marshall have dissolved

Marshall and Son Painting Company and have formed a new

limited liability company, Marshall and Son Painti ng, LLC.

Each has obtained workers' compensation exemptions under the

new business, and are considered to be in compliance with

Chapter 440, Florida Statutes.

12. Ms. Johnson's calculation for the penalty assessment

was based upon the checks written to Earl Marshall and Justin

Marshall (individually) for the period at issue. She did not

go back a full three years, but began with January 1, 2004,

the point in time that the Marshalls' previous exemptions from

workers' compensation coverage expired. Ms. Johnson used the

Scopes Manual published by the National Council on

Compensation Insurance and assigned occupation code 5474,

which is the appropriate code for painting within the

construction industry.

13. Ms. Johnson based her final calculations on the

amount evidenced by canceled checks payable to Earl Marshall

or Justin Marshall, and upon their admission that these

amounts represented their salaries as partners in the

business. Ms. Johnson multiplied one percent of the payments

to Earl Marshall and Ju stin Marshall for the relevant period

by the manual rate assigned to the class code for painting,

giving the premium Marshall and Son Painting Company would

have paid for workers' compensation insurance. This number

was then multiplied by 1.5.

14. The Re spondents' dispute with the penalty

calculation is that it includes all of the partnership's

profits as wages for the purpose of determining the rate of

pay for insurance coverage. They contend that the Division

should, instead, base the calculations on a n industry standard

for painters in the Lake City area.

15. While the Respondents believe that the penalty

assessment should be based upon a $12 an hour industry

standard for painters in the Lake City area, Earl Marshall

described the checks paid to Respo ndents as salary checks.

These checks are, quite simply, the only evidence of actual

payroll presented to Ms. Johnson in response to her request

for records or presented at hearing. The methodology used by

Investigator Johnson is mandatory.

CONCLUSIONS O F LAW

16. The Division of Administrative Hearings has

jurisdiction over the subject matter and the parties to this

action in accordance with Sections 120.569 and 120.57(1),

Florida Statutes.

17. Given the penal nature of these proceedings,

Petitioner has the burden of proof in this case and must

demonstrate by clear and convincing evidence that Respondents

violated the Workers' Compensation Law during the relevant

period and that the penalty assessments are correct.

Department of Banking and Finance v. Osborne Stern & Co. , 670

So. 2d 932 (Fla. 1996).

18. Every "employer" is required to secure the payment

of workers' compensation for the benefit of its employees

unless exempted or excluded under Chapter 440, Florida

Statutes. §§ 440.10 and 440. 38, Fla. Stat. "Employer"

is defined in part as "every person carrying on any

employment." § 440.02(16), Fla. Stat. An "employee" is

defined as including "a partner or partnership that is

engaged in the construction industry." §

440.02(15)(c)4 ., Fla. Stat.

19. Pursuant to the authority in Section 440.02(8),

Florida Statutes, the Division has adopted construction

industry classification codes contained in the Basic Manual

(Scopes Manual) published by the National Council on

Compensation Insur ance. Fla. Admin. Code R. 69L - 6.021. The

Scopes Manual lists painting as part of the construction

industry.

20. Marshall and Son Painting Company was an employer

engaged in employment in a construction company, and Earl

Marshall and Justin Marshall wer e employees who received

remuneration during a time when the partnership had not

secured workers' compensation for them. The Division acted

within its authority both in issuing the Stop Work Order and

in assessing the penalty.

21. Section 440.107(7), Florida Statutes, provides in

pertinent part:

(7)(a) Whenever the department determines

that an employer . . . 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

em ployer, requiring cessation of all

business operations. . . . The Department

may issue an order of conditional release

from a stop - work order to an employer upon

a finding that the employer has complied

with coverage requirements of this chapter

and has a greed to remit periodic payments

of the penalty pursuant to a payment

agreement schedule with the department. .

. .

* * *

(d)1. In addition to any penalty, stop -

work order, or injunction, the department

shall assess against any em ployer who has

failed to secure 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 i t failed to secure the payment of

workers' compensation required by this

chapter within the preceding 3 - year period

or $1,000, whichever is greater.

22. The method used by Ms. Johnson for assessing the

penalty is mandated by Section 440.107, Florida Sta tutes.

Respondents contend that the method of calculation penalizes

them because it includes any profit the partnership makes.

Section 440.107 does not authorize calculation of a penalty

based upon an industry standard where the employer has

provided bus iness records. It only authorizes calculation of

penalty based on payroll. Respondent Earl Marshall testified

that the checks made out to Earl or Justin Marshall reflected

their salary. The evidence presented demonstrates that

issuance of the Stop Work Order was warranted and the penalty

as calculated in the Second Amended Order of Penalty

Assessment was consistent with the requirements of Section

440.107.

RECOMMENDATION

Upon consideration of the facts found and conclusions of

law reached, it is

RECOMM ENDED:

That a Final Order be entered approving the Stop Work

Order and Second Amended Order of Penalty Assessment that

assessed a penalty of $43,649.40.

DONE AND ENTERED this 17th day of November, 2006, in

Tallahassee, Leon County, Florida.

S

LISA SHEARER NELSON

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.d oah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 17th day of November, 2006.

COPIES FURNISHED:

Douglas D. Dolan

Assistant General Counsel

Division of Legal Services

Division of Workers' Compensation

200 East Gaines Street

Tallahassee, Florida 32399 - 6502

Jimmy E. Hunt, Esquire

654 Southeast Baya Drive

Post Office Box 3006

Lake City, Florida 32056 - 6800

Honorable Tom Gallagher

Chief Financial Officer

Department of Financial Serv ices

The Capitol, Plaza Level 11

Tallahassee, Florida 32399 - 0300

Carlos G. Mu ? niz, 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 th is recommended order. Any exceptions

to this recommended order should be filed with the agency that

will issue the final order in this case.