07-004144 Scotts Exteriors, Inc. vs. Department Of Financial Services, Division Of Workers' Compensation Status: Closed Recommended Order on Thursday, February 7, 2008.

Summary: Petitioner`s shareholder was eligible for an exemption from workers` compensation coverage, but failed to provide the Department with a completed application.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SCOTTS EXTERIORS, INC. , )

)

Petitioner , )

)

vs. ) Case No. 07 - 4144

)

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF WORKERS' )

COMPENSATION , )

)

Respondent . )

)

RECOMMENDED ORDER

This cause came on for f ina l hearing before Harry L.

Hooper, Administrative Law Judge with the Division of

Administrative Hearings, on November 29, 2007, in Pensacola,

Florida.

APPEARANCES

For Petitioner: Michael James R udicell, Esquire

Michael J. Rudicell, P.A.

4303 B Spanish Trail Road

Pensacola, Florida 32504

For Respondent: Kristian E. Dunn, Esquire

Department of Financial Services

Division of Workers' Compensation

200 East Gaines Street

Tallahassee, Florida 32399 - 4229

STATEMENT OF THE ISSUE

The issue is whether the Department's Stop - Work Order and

Amended Order of Penalty Assessment were lawful.

PRELIMINARY STATEMENT

On August 23, 2007, Angelia Brown of the Division of

Workers' Compensation (Divis i on) , Department of Financial

Services (Department) , issued a Stop - Work Order (SWO) in the

cas e of Pe titioner Scotts Exteriors, Inc. (Scotts) . Ms. Brown

followed up with an Amended Order of Penalty A ssessment

reflecting a penalty totaling $1 8,581.80. On September 1, 2007,

Scotts filed a request for hearing that contested the lawfulness

of the Department's actions .

The Division forwarded the matt er to the Division of

Administrative Hearings in a letter filed September 13, 2007.

The case was set for hearing in Pensacola, Florida , on

October 31, 2007. Pursuant to Petitioner's Motion for

Continuance , the case was re - scheduled for November 29, 2007,

and was heard on that date.

At the hearing, Respondent presented the testimony of three

witnesses and offered four exhibits into evidence. Scotts

presented the testimony of t wo witnesses and offered two

exhibits into evidence and they were admitted . Alt hough Scotts

is listed as Petitioner in this cause, it was the Division that

had the burden of proof and the burden of going forward with the

evidence in this case.

The one - volume Transcript of the final hearing was filed on

January 18, 2008. At the reque st of the parties, 20 days

subsequent to the filing of the transcript were allowed for the

filing of proposed recommended orders. Scotts and the Division

timely filed their proposed findings of fact and conclusions of

law on February 4, 2008 .

References to statutes are to Florida Statutes (200 7 )

unless otherwise noted.

FINDINGS OF FACT

1. The Division is a component of the Department of

Financial Services. The Department is a state agency charged

with the administration of portions of the "Workers'

Compensation Law." Among the Division's duties is enforcing the

statutory requirement that employers secure the payment of

workers' compensation coverage for the benefit of their

employees and corporate officers who are required to be covered.

2. Scotts is a corporation engaged in the business of

installing siding on buildings. Scotts is engaged in

construction as that term is used in Chapter 440, Florida

Statutes. Scotts' headquarters is located at 4130 Bayfront

Terrace, Pace, Florida.

3. Angelia Br own has worked for the D epartment since

June 2007. She is a workers' compensation compliance

investigator , and on August 23, 2007, she was doing random

checks on Pensacola Beach, Florida. In the course of her work ,

and w hile accompanied by Investigator Vanessa Hernandez ,

Ms. Brown came upon 801 Ariola Drive, Pensacola Beach, Florida .

There the two investigators observed an individual on the ground

floor of a home and another on a ladder on the exterior of the

home. These two men were working on the hou se.

4. Ms. Brown also observed a white van parked by the home

that had painted on it the words, "Scotts Exterior, Inc."

Ms. Brown exited her vehicle and approached the man using the

circular saw and identified herself. The individual identified

himself as Tim othy Willard , an employee of Scotts .

5. Ms. Brown asked Mr. Willard for contact information ,

including his social security number. He provided the requested

information and stated that he had a workers' compensation

exemption form and that it was in the white van .

6. At this time, the man who had been on the ladder

descended and stated that he was Scott Henderson and that he was

the owner of Scotts. He provided contact information , including

his social security number.

7. Using the informat ion provided by the two men,

Investigator Hernandez searched the Coverage and Compliance

Automated System (CCAS), an online database maintained by the

Dep artment . The investigators observed that the CCAS revealed

that Mr. Henderson had a current exemption and that

Mr. Willard's exemption had expired September 8, 2006.

8. One is eligible for an exemption if one owns at least

ten percent of the stock of the corporation for which one is

working and is an officer of the corporation. If such a person

correct ly completes the appropriate form, and pays the required

fee, the Department will declare that person exempt from the

requirement to obtain workers' compensation insurance.

9 . Subsequent to relaying the information she received on

the job site to her sup ervisor, and after obtaining his

approval, Ms. Brown issued a n SWO, dated August 23, 2007, to

Scotts. She served it on Mr. Henderson. She also served a

"Request for Production of Business Records for Penalty

Assessment Calculation " (Request for Productio n) , which was

provided to Scotts on the same day.

1 0 . Scotts responded to the Request for Production with

their ledgers and other business records for the three years

pr ior to August 23, 2007 . These documents indicated that Scotts

paid Mr. Willard as an employee from at least, September 8,

2006, until August 23, 2007. Ms. Brown used these figures to

determine the penalty that should be assessed for Mr. Willard's

noncompliance . I n 2006 , the penalty was $5 , 644.94 and for 2007,

it was $ 12,936.86 . The par ties stipulated that these figures

were correct, and if owed, would amount to $18,581.80 in the

aggregate.

1 1 . On August 24, 2007, Mr. Henderson and Mr. Willard

entered into a Penalty Payment Agreement, whereby Scotts agreed

to pay t en percent of the pen alty , provide proof of compliance,

and make periodic payments for 60 months . After Mr. Willard

correctly completed a Notice of Election to be Exempt, the

Department agreed to allow them to work. The Department did not

require the payment of another $50 f ee.

12 . M r. Willard 's previously obtained exemption expired on

September 8, 2006, and subsequent to that date he worked for

Scotts without an exemption and without making any effort to

obtain one until December 5, 2006. On December 7, 2006, he

filed a N otice of Election to b e Exempt in the Bureau of

Compliance Office in Pensacola that was notarized on December 5,

2006 . The Pensacola Office of the Bureau of Compliance is

authorized to receive such notices. Mr. Willard paid the $50

fee , and the Departmen t eventually negotiated the money order he

submitted with the form.

13 . The application of Mr. Willard failed to note the

scope of business or trade, the Federal Employer Identification

Number was incorrect, and the fraud notice was not signed. The

fail ure to accomplish the foregoing rendered the application

unacceptable. The Department informed Scotts by mail that the

form was incomplete. This information was accompanied by the

incomplete application he submitted.

14. Mr. Henderson provided the le tter informing

Mr. Willard that his application was incomplete and returned the

application to Mr. Willard. Although Mr. Willard testified that

he received this material, completed it, and returned it to the

Department via the U. S. Postal Service, there is no record that

the Department received it. There is no evidence in the record

that Mr. Willard, or anyone on behalf of Scotts, thereafter

inquired as to the status of the exemption request.

15. On more than one occasion Mr. Willard had previously

a pplied for exemption, was determined to be exempt, and received

a card reflecting exemption from the Department. Mr. Willard

testified that he understood that it was his responsibility to

know when his exemptions expired. It was not the fault of the

Depa rtment that Mr. Willard failed to obtain an exemption. It

was Scotts ' or Mr. Willard's failure.

16. It is a fact that Mr. Willard was eligible for an

exemption from September 9 , 2006, until he actually obtained one

on August 24, 2007. If officially exe mpt, he was responsible

for his own medical expenses should he suffer an injury while on

the job. If he failed to get an exemption, he was likewise

responsible for his own expenses should he suffer an injury

while on the job. This situation is very diffe rent from that

where an employer fails to obtain coverage for workers not

having an ownership interest in the employer .

CONCLUSIONS OF LAW

17 . The Division of Administrative Hearings has

jurisdiction over the subject matter of and the parties to this

p roceeding. § 120.57(1), Fla. Stat.

18. Because administrative fines are penal in nature, the

Department has the burden to prove by clear and convincing

evidence that Scotts failed to be in compliance with the

coverage requirements set forth, by not sec uring the payment of

workers' compensation or a certificate of exemption for

Mr. Willard, who was entitled to a certificate of exemption for

the period September 8, 2006, through the time he was designated

exempt on August 24 , 2007 . Department of Banking and Finance,

Division of Securities and Investor Protection v. Osborne Stern,

Inc. , 670 So. 2d 932 (Fla. 1996) and L a nd W Plastering a nd

Drywall services, Inc. v. Department of Financial Services,

Division of W orkers' Com p ensation , Case No. 06 - 3261 (DOAH,

March 16, 2007).

19. The Florida Legislature has determined that the

failure of an employer to comply with the requirement to provide

workers' compensation coverage to employees " . . . poses an

immediate danger to public health, safety, and welfare."

§ 440.107(1), Fla. Stat.

2 0. Subsections 440.10(1) and 440.38(1), Florida Statutes,

require every employer coming within the provisions of

Chapter 440 to secure coverage under that Chapter.

2 1. S ubs ection s 440.107 (2) , (3), and (7) , Florida

Statutes, author ize the Department to issue stop - work orders and

penalty assessment orders in its enforcement of workers'

compensation coverage requirements, and read in pertinent part:

440.107 -- Department powers to enforce

employer compliance with coverage

requirements

* * *

(2) For 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. . . .

* * *

(3) The department shall enforce workers '

compensation coverage requirements,

including the requirement that the employer

secure the payment of workers' compensation,

and the requirement that the employer

provide the carrier with information to

accurately determine payroll and correctly

assign c lassification codes. In addition to

any other powers under this chapter, the

departmen t shall have the power to:

* * *

(g) Issue stop - work orders, penalty

assessment orders, and any other orders

necessary for the administration of this

section.

(7)(d)1. 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 equal

to 1.5 times the amount the employer wo uld

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

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

is gre ater.

2 2 . The definition of employee and the status of corporate

officers as employees for purposes of workers' compensation are

outlined in Subsections 440.02(15) ( a) and (b), Florida Statutes,

which provide in part:

440.02. Definitions -- When used i n this

chapter, unless the context clearly requires

otherwise, the following terms shall have

the following meanings:

* * *

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

receives remuneration from an employer for

the performance of any work or service whi le

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 an y 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.

2. As to officers of a corporation

who are engaged in the construction

industry, no more than three officers of a

corporation or of any group of affiliated

corporati ons may elect to be exempt from

this chapter by filing written notice of the

election with the department as provided in

s. 440.05 . Officers must be shareholders,

each owning at least 10 percent of the stock

of such corporation and listed as an officer

of such corporation with the Division of

Corporations of the Department of State, in

order to elect exemptions under this

chapter. For purposes of this subparagraph,

the term "affiliated" means and includes one

or more corporations or entities, any one of

w hich is a corporation engaged in the

construction industry, under the same or

substantially the same control of a group of

business entities which are connected or

associated so that one entity controls or

has the power to control each of the other

busines s entities. The term "affiliated"

includes, but is not limited to, the

officers, directors, executives,

shareholders active in management,

employees, and agents of the affiliated

corporation. The ownership by one business

entity of a controlling interest in another

business entity or a pooling of equipment or

income among business entities shall be

prima facie evidence that one business is

affiliated with the other.

3. An officer of a corporation who

elects to be exempt from this chapter by

filing a written notice of the election with

the department as provided in s. 440.05 is

not an employee.

Services are presumed to have been

rendered to the corporation if the officer

is compensated by other than dividends upon

shares of stock of the corpo ration which the

officer owns.

2 3. Section 440.05, Florida Statutes, provides the

procedure for corporate officers to exempt themselves from

workers' compensation coverage. It provides in relevant part,

as follows:

440.05. Election of exemption; revoc ation

of election; notice; certification

(1) Each corporate officer who elects not

to accept the provisions of this chapter or

who, after electing such exemption, revokes

that exemption shall mail to the department

in Tallahassee notice to such effect i n

accordance with a form to be prescribed by

the department.

* * *

(3) Each officer of a corporation who is

engaged in the construction industry and who

elects an exemption from this chapter or

who, after electing such exemption, revokes

that exempt ion, must mail a written notice

to such effect to the department on a form

prescribed by the department. The notice of

election to be exempt from the provisions of

this chapter must be notarized and under

oath. The notice of election to be exempt

which i s submitted to the department by the

officer of a corporation who is allowed to

claim an exemption as provided by this

chapter must list the name, federal tax

identification number, social security

number, all certified or registered licenses

issued pursua nt to chapter 489 held by the

person seeking the exemption, a copy of

relevant documentation as to employment

status filed with the Internal Revenue

Service as specified by the department, a

copy of the relevant occupational license in

the primary jurisdic tion of the business,

and the registration number of the

corporation filed with the Division of

Corporations of the Department of State

along with a copy of the stock certificate

evidencing the required ownership under this

chapter. The notice of election to be

exempt must identify each corporation that

employs the person electing the exemption

and must list the social security number or

federal tax identification number of each

such employer and the additional

documentation required by this section. In

a ddition, the notice of election to be

exempt must provide that the officer

electing an exemption is not entitled to

benefits under this chapter, must provide

that the election does not exceed exemption

limits for officers provided in s. 440.02 ,

and must ce rtify that any employees of the

corporation whose officer elects an

exemption are covered by workers'

compensation insurance. Upon receipt of the

notice of the election to be exempt, receipt

of all application fees, and a determination

by the department t hat the notice meets the

requirements of this subsection, the

department shall issue a certification of

the election to the officer, unless the

department determines that the information

contained in the notice is invalid. The

department shall revoke a ce rtificate of

election to be exempt from coverage upon a

determination by the department that the

person does not meet the requirements for

exemption or that the information contained

in the notice of election to be exempt is

invalid. The certificate of el ection must

list the name of the corporation listed in

the request for exemption. A new

certificate of election must be obtained

each time the person is employed by a new or

different corporation that is not listed on

the certificate of election. A copy of the

certificate of election must be sent to each

workers' compensation carrier identified in

the request for exemption. Upon filing a

notice of revocation of election, an officer

who is a subcontractor or an officer of a

corporate subcontractor must no tify her or

his contractor. Upon revocation of a

certificate of election of exemption by the

department, the department shall notify the

workers' compensation carriers identified in

the request for exemption.

24. Florida Administrative Code Rule 69L - 6. 012 illuminates

the requirement for a person in the construction industry, like

Mr. Willard, to be exempt. It requires the applicant to provide

his or her Federal Employment Identification Number; Social

Security Number or the individual taxpayer identifi cation

number; t he Florida Department of State, Division of

Corporations, registration number of the corporation or limited

liability company, as applicable, named on the Notice of

Election to be Exempt; and a copy of the stock certificate(s)

issued to the applicant by the corporation named on the Notice

of Election to be Exempt evidencing at least ten percent

ownership of the named corporation by the applicant on the date

that the Notice of Election to be Exempt is filed with the

Department .

25. Florida Administrative Code Rule 69L - 6.009, Forms and

Instructions, adopts the DWC 250 Notice of Election to be

Exempt, which has on it the "Fraud Notice" that Mr. Willard

failed to sign.

2 6 . A letter properly addressed, stamped , and mailed is

presumed to have b een received by the addressee. Brown v.

Griffen Industries, Inc. , 281 So. 2d 897 (Fla. 1973 ) (on

rehearing); Home Insurance Co. v. C & G Sporting Goods, Inc. ,

453 So. 2d 121 (Fla. 1st DCA 1984 ); Berwick v. Prudential

Property & Casualty Assurance Co. , 436 So. 2d 239 (Fla. 3d DCA

1983 ). Conversely, if a letter has not been received that one

claims was properly addressed, stamped, and mailed, it may be

presumed that it was not properly mailed. Accordingly, and in

conjunction with other testimony provided b y Mr. Willard , it is

found that he did not submit an application subsequent to his

attempt to secure exemption in December 2006.

2 7 . Florida Administrative Code Rule 69L - 6. 012(8) provides

that " Any Notice of Election to be Exempt (DWC 250) which is

ret urned to the applicant by the Department within 30 days after

receipt by the Department for failure to meet the eligibility

requirements of Section 440.05, F. S. and this rule is not

'receive d ' for purposes of Section 440.05(5), F. S."

2 8 . A review of th e forgoing requires the conclusion that

despite Mr. Willard's protestations to the contrary, he did not

return the defective application sent to him by the Department ,

and the Department is not required to process applications that

they do not receive.

2 9 . Even though a person meets all of the requirements for

an exemption, that person does not become exempt until the

process outlined by Subsection 440.05(3), Florida Statutes, has

been accomplished. Accordingly, Mr. Willard was an employee

during all times pertinent, and Scotts was required to obtain

coverage and failed to do so.

30 . However, during all times pertinent, Mr. Willard was

eligible for exemption . I n terms of carrying out the

legislative intent set forth in Subsection 440.107(1) , Florid a

Statutes , nothing is gained by the Department in assessing

penalties of the magnitude proposed by the Department. In other

words, if they were exempt and were injured on the job, they

would have no coverage. Likewise, if they failed to obtain

exemption , and were injured on the job, they would have no

coverage. Applying the maximum penalties set forth in

Subsection 440.107(7)(d)1., Florida Statutes, for the time

Mr. Willard worked for Scotts from September 8, 2006, going

forward, is too harsh and does n ot further the purposes of

Chapter 440.

3 1 . Despite the fact that the $18,581.80 penalty is

completely out of proportion to the failure of Mr. Willard to

comply with the workers' compensation law, the "shall" language

found in Subsection 440.107(7) ( d)1 . , Florida Statutes, prevents

the Department from mitigating the penalty. Accordingly, the

SWO issued on August 23 , 2007, and the Amended Order of Penalty

Assessment were lawful , and the $18,581.80 penalty may be

assessed .

RECOMMENDATION

Based upon the f oregoing Findings of Fact and Conclusions

of Law, it is

RECOMMENDED that the Department of Financial Services enter

a final order requiring Scotts Exteriors, Inc., to pay a penalty

of $18,581.80.

DONE AND ENTER ED this 7th day of Febr uary , 2008 , in

Tallah assee, Leon County, Florida.

S

HARRY L. HOOPER

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 7th day of February , 2008 .

COPIES FURNISHED :

Kristian E. Dunn, Esquire

Department of Financial Services

Division of Workers' Compensation

20 0 East Gaines Street

Tallahassee, Florida 32399 - 4229

Michael James Rudicell, Esquire

Michael J. Rudicell, P.A.

4303 B Spanish Trail Road

Pensacola, Florida 32504

Daniel Sumner, General Counsel

Department of Financial Services

Division of Legal Servic es

200 East Gaines Street

Tallahassee, Florida 32399 - 4229

Honorable Alex Sink

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 t he 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.