07-005059 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. Lockhart Builders, Inc. Status: Closed Recommended Order on Monday, March 31, 2008.

Summary: Respondent violated workers` compensation laws by not securing insurance coverage for three employees of one of its subcontractors. However, Petitioner only proved one day of non-compliance and, should recalculate the penalty accordingly.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF WORKERS' )

COMPENSATION, )

)

Petitioner, )

)

vs. ) Case No. 07-5059

)

LOCKHART BUILDERS, INC., )

)

Respondent. )

)

RECOMMENDED ORDER

The final hearing in this case was held on February 7,

2008, by video-teleconference at sites in Tallahassee and Tampa,

Florida, before Bram D.E. Canter, an Administrative Law Judge of

the Division of Administrative Hearings (DOAH).

APPEARANCES

For Petitioner: Colin M. Roopnarine, Esquire

Department of Financial Services

Division of Legal Services

200 East Gaines Street

Tallahassee, Florida 32399-4229

For Respondent: Keith A. Mann, Esquire

Mann Legal Group

1952 Field Road

Sarasota, Florida 34231

STATEMENT OF THE ISSUES

The issues to be determined in this case are whether

Respondent Lockhart Builders, Inc., violated state laws

applicable to workers’ compensation insurance coverage by

failing to secure coverage for three employees and failing to

produce records requested by Petitioner Department of Financial

Services, Division of Workers’ Compensation (Department) and, if

so, what penalty should be assessed for the violations.

PRELIMINARY STATEMENT

On September 21, 2007, the Department issued a stop-work

order to Respondent regarding its job site located in Bradenton,

Florida for Respondent’s failure to secure workers’ compensation

insurance coverage for three employees of its subcontractor, BY

Construction Services, Inc. (BY Construction). The stop-work

order required Respondent to cease all business operations at

the worksite specified in the order.

Respondent timely requested an administrative hearing, and

the Department referred the matter to DOAH on April 27, 2007, to

conduct an evidentiary hearing.

An Amended Order of Penalty Assessment and a Second Amended

Order of Penalty Assessment were subsequently served on

Respondent. The Second Amended Order assessed a penalty against

Respondent of $70,272.51.

Petitioner presented the testimony of Germaine Green and

Colleen Wharton. It also presented the testimony, through

deposition transcripts, of Burak Yavalar and Stacey Green.

Petitioners Exhibits 1 through 19, 40 and 41 were admitted into

the record. Respondent presented the testimony of William

Lockhart. Respondent’s Exhibits 20 through 39 were admitted

into the record.

The one-volume Transcript of the final hearing was filed

with DOAH. Proposed Recommended Orders were submitted by both

parties which were carefully considered in the preparation of

this Recommended Order.

FINDINGS OF FACT

1. Petitioner is the state agency responsible for the

enforcement of the workers’ compensation insurance coverage

requirements established in Chapter 440, Florida Statutes

(2007). 1

2. Respondent is a Florida corporation with its office in

Bradenton. William Lockhart is Respondent’s president.

Respondent is licensed to engage in construction activity in

Florida.

3. Respondent was engaged to construct a two-story duplex

at 2315 Gulf Drive in Bradenton. Respondent began work at the

job site on or about February 21, 2007.

4. On August 22, 2007, Lockhart received a proposal from

Burak Yavalar, owner of BY Construction, to do the exterior

stucco work on the duplex building for a flat fee of $10,750.

The proposal was accepted by Respondent on August 23, 2007.

5. Yavalar presented Lockhart with a certificate of

liability insurance which indicated that he had obtained

workers’ compensation coverage for his employees. The

certificate was issued by Employee Leasing Solutions, Inc.

(ELS), a professional leasing company in Bradenton. ELS

provides mainly payroll services and workers’ compensation

insurance coverage for its clients. Lockhart did not ask for,

and Yavalar did not provide Lockhart with, a list of the names

of the BY Construction employees who were covered by the

insurance.

6. Lockhart made a call to ELS to verify that BY

Construction had workers’ compensation insurance coverage, but

he did not ask for a list of BY Construction employees covered

by its insurance policy.

7. BY Construction began work at Respondent’s job site on

or about September 10 or 11, 2007. On September 12, 2007, BY

Construction had eight employees at the job site. One employee,

Justin Ormes, had previously worked for BY Construction, had

quit for a while, and had just returned. Two other employees,

Carlos Lopez and Jaime Alcatar, had been working on a nearby job

site and were asked by Yavalar to come to work at Respondent’s

job site.

8. Yavalar claims that on the morning of September 12,

2007, Ormes, Lopez, and Alcatar had not yet been employed or

authorized to start work for BY Construction.

9. On September 12, 2007, Petitioner’s investigators

Germaine Green and Colleen Wharton performed a random compliance

check at Respondent’s job site. Without being specific about

what particular work was being performed at the site by Ormes,

Lopez, and Alcatar, the investigators testified that when they

arrived at the job site they observed all eight men performing

stucco work.

10. The investigators spoke to Yavalar, Lockhart and the

workers at the job site to determine their identities and

employment status. Yavalar told the investigators his eight

employees had workers’ compensation insurance coverage through

ELS. However, upon checking relevant records, the investigators

determined that insurance coverage for Ormes, Lopez, and

Alcatar had not been secured by either BY Construction or

Respondent.

11. Wharton issued a statewide stop-work order to BY

Construction for its failure to obtain workers’ compensation

coverage for the three employees. After the stop work order was

issued, Yavalar left the job site with Lopez and Alcatar to

complete their paperwork to obtain insurance coverage through

ELS. Yavalar’s wife was able to re-activate Ormes’ insurance

coverage with ELS over the telephone. By the end of the day on

September 12, 2007, insurance coverage was secured by BY

Construction for Ormes, Lopez, and Alcatar.

12. The business records of BY Construction produced for

the Department indicated that Ormes had been paid by BY

Construction in the period from March to July 2007, and then on

September 12, 2007; Lopez had been paid on August 24, 2007, and

then on September 12, 2007; Alcatar had been paid on

September 12, 2007.

13. All three men were paid only $28 on September 12,

2007. This evidence supports the testimony of Yavalar that

these three had arrived at Respondent’s job site for the first

time on September 12, 2008.

14. BY Construction was later served with an amended order

of penalty for its failure to obtain workers’ compensation

coverage for the three employees. It arranged with the

Department to pay the penalty through installments and was

conditionally released from the stop-work order.

15. When the Department's investigators were at the job

site on September 12, 2007, they informed Lockhart about the

stop-work order being issued to BY Construction and gave

Lockhart a Request for Production of Business Records for the

purpose of determining whether Respondent had obtained proof of

workers’ compensation insurance coverage from BY Construction

before BY Construction commenced work at Respondent’s job site.

Respondent produced the requested records.

16. As discussed in the Conclusions of Law, Florida law

charges a contractor with the duty to secure workers’

compensation insurance coverage for any uninsured employees of

its subcontractors. On this basis, the Department served

Respondent with a Stop-Work Order and an Order of Penalty

Assessment on September 21, 2007, for failing to secure coverage

for Ormes, Lopez, and Alcatar.

17. On September 21, 2007, the Department served a Request

for Production of Business Records for Penalty Assessment

Calculation to Respondent. The Department’s request asked

Respondent to produce records for the preceding three years,

including payroll records, tax returns, and proof of insurance.

Respondent produced some records in response to this second

request, which the Department deemed insufficient to calculate a

penalty. However, the evidence shows Respondent produced the

only records that it possessed regarding its association with BY

Construction. The Department’s proposed penalty does not

include an assessment based solely on Respondent’s failure to

produce requested records.

18. When an employer fails to provide requested business

records within 15 days of the request, the Department is

authorized to assess a penalty by imputing the employer's

payroll using "the statewide average weekly wage as defined in

Section 440.12(2), multiplied by l.5." § 440.107(7)(e), Fla.

Stat., and Fla. Admin. Code R. 69L-6.028.

19. Imputing the gross payroll for Ormes, Lopez and

Alcatar for the years 2004, 2005, 2006, and 2007, by using the

average weekly wage for the type of work, the Department

assessed Respondent with a penalty of $138,596.67 and issued an

Order of Penalty Assessment to Respondent on October 31, 2007.

20. Petitioner later amended the penalty to $70,272.51,

based on the fact that BY Construction was not incorporated

until January 1, 2006, and issued a Second Amended Order of

Penalty Assessment on December 20, 2007.

CONCLUSIONS OF LAW

21. The Division of Administrative Hearings has

jurisdiction over this matter pursuant to Sections 120.569,

120.57(1), and 440.107(13), Florida Statutes.

22. Because an administrative fine deprives the person

fined of substantial rights in property, such fines are punitive

in nature. The Department has the burden of proof and must

establish through clear and convincing evidence that Respondent

violated the law. Department of Banking and Finance Division of

Securities and Investor Protection v. Osborne Stern and Co. , 670

So. 2d 932, 935 (Fla. 1996) (the imposition of administrative

fines which are penal in nature and implicate significant

property rights must be justified by a finding of clear and

convincing evidence of a related violation).

23. Proceedings under Section 120.57, Florida Statutes,

are intended to formulate final agency action, not to review

action taken earlier and preliminarily. Dept. of Transportation

v. J.W.C. Co., Inc. , 396 So. 2d 778 (Fla. 1st DCA 1981).

24. Section 440.10(1)(a), Florida Statutes, provides:

Every employer coming within the provisions

of this chapter shall be liable for, and

shall secure, the payment to his of her

employees... 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.

25. It is undisputed that Respondent is a “contractor,” as

the party responsible for the general contract at the job site,

and that BY Construction is a “subcontractor” for the stucco

work at the job site.

26. It is undisputed that Ormes, Lopez, and Alcatar were

present at Respondent’s job site on September 12, 2007, and that

they were there at Yavalar’s request for the purpose of doing

stucco work for BY Construction. Petitioner’s investigators

claim that all three were working when the investigators arrived

at the job site. Yavalar claimed the three were not yet

employed and not working when the investigators arrived. BY

Construction and Respondent cannot escape the requirements of

the law by claiming that Ormes, Lopez, and Alcatar were not

actually working, because they were present to do stucco work

and were exposed to job-site injuries for which the workers’

compensation insurance requirements were established.

27. Section 440.10(1)(b), Florida Statutes, imposes on

contractors the duty to secure workers’ compensation insurance

coverage for any employees of a subcontractor who are not

insured under the subcontractor’s insurance policy. The law

makes the contractor the “statutory employer” of the

subcontractor’s uninsured employees for the purpose of the

workers’ compensation law. Therefore, Respondent was

responsible for securing insurance coverage for Ormes, Lopez,

and Alcatar.

28. Section 440.10(1)(c) requires a contractor to obtain

evidence of workers’ compensation insurance coverage from its

subcontractors . Florida Administrative Code Rule 69L-6.032(3)

provides that if a subcontractor is a client company of an

employee leasing company, the evidence of insurance from a

subcontractor shall be a Certificate of Liability Insurance and

a list of the employees leased to the subcontractor as of the

date the subcontractor commenced work for the contractor on each

project.

29. Respondent should have verified that Ormes, Lopez, and

Alcatar were covered by BY Construction’s workers’ compensation

insurance policy before allowing them to work at his job site.

By failing to obtain a list of covered employees from BY

Construction before BY Construction commenced work at

Florida Statutes.

30. The Department is authorized to issue a stop-work

order to employers who are unable to provide proof of workers’

compensation coverage. Failure to provide such proof is deemed

an immediate serious danger to public health, safety, or

welfare. § 440.107(7)(a), Fla. Stat.

31. Section 440.107(7)(d)1., Florida Statutes, states that

an employer who fails to secure the payment of workers’

compensation is subject to a penalty equal to 1.5 times the

amount the employer would have paid in premium when applying

approved manual rates to the employer's payroll during periods

for which it failed to secure the payment of workers'

compensation required by this chapter within the preceding 3-

year period or $1,000, whichever is greater.

32. Petitioner assessed a penalty against Respondent based

on the premise that Respondent was the statutory employer of

Ormes, Lopez, and Alcatar from the date that BY Construction was

first incorporated, January 1, 2006. However, Respondent could

not have become the statutory employer of any of BY

Construction’s uninsured employees until those individuals

became employees of BY Construction to do work at Respondent’s

job site. The record evidence shows Respondent did not engage

BY Construction to do the stucco work until August 23, 2007, and

the three employees did not start work at Respondent’s job site

until September 12, 2007.

33. The Department argues that when an employer fails to

provide requested business records, the Department is

“statutorily obligated” to impute the payroll for the entire

period for which the requested business records were not

produced, but it cites no statute or rule which expressly

authorizes it to assess a penalty based on dates other than

dates of actual non-compliance.

34. Section 440.107(7)(e), Florida Statutes, provides:

When an employer fails to provide business

records sufficient to enable the department

to determine the employer's payroll for the

period requested for the calculation of the

penalty provided in paragraph (d), for

penalty calculation purposes, the imputed

weekly payroll for each employee, corporate

officer, sole proprietor, or partner shall

be the statewide average weekly wage as

defined in s. 440.12(2) multiplied by 1.5.

Similar language can be found in Florida Administrative Code

Rule 69L-6.028(2)(a), but nothing in the statute or rule

suggests that, not only can the Department impute a wage for the

uninsured workers, it can impute a time-period of non-

compliance. The statute says “the imputed weekly payroll . . .

shall be the statewide average weekly wage .” (emphasis

supplied). Similarly, Florida Administrative Code Rule 69L-

6.035, entitled "Definition of Payroll for Calculating Penalty,"

refers only to forms of income to employees.

35. There is a substantial difference between imputing a

wage and imputing a period of non-compliance. State-wide

average wages are established public statistics that can be used

when the actual wage of an employee is unknown. On the other

hand, there are no established state-wide statistics on periods

of non-compliance. Furthermore, a state-wide average wage for a

particular class code is just a number, while non-compliance is

a determination of wrongdoing.

36. The "non-compliance" referred to in the governing

statutes and rules logically refers to the employer’s failure to

provide required insurance coverage. Even if the Department

construed the references to non-compliance to include the

employer’s failure to produce requested business records, that

period of non-compliance would only run from the deadline for

producing the records.

37. The only case cited in support of the Department’s

argument that it can impute a time period of non-compliance is a

2006 DOAH case, Department of Financial Services, Division of

Workers’ Compensation v. Simpro Homes, Inc. , DOAH Case 06-0731

(Final Order September 29, 2006), where the Department imputed

the payroll for the entire three-year period for which the

requested business records were not produced. However, that

cased involved an insurance policy that the Department

determined did not meet the requirements for such a policy.

Therefore, the entire term of the deficient policy was a period

of non-compliance. The period of non-compliance was supported

by record evidence regarding the date when the deficient policy

was issued.

38. The Department’s interpretation of its statutes and

rules to allow it to calculate a penalty on its unilateral

determination of what time period to use in its request for

records from the employer, without regard to contradictory,

competent evidence regarding the actual period of non-

compliance, is an unreasonable interpretation that would often

lead to absurd results. In fact, the Department acknowledged

the arbitrariness of such an application of the law in this case

when it conceded that it was inappropriate to impute a penalty

against Respondent for a time period prior to the existence of

BY Construction, notwithstanding that the Department had

requested documents from Respondent that covered a longer time

period.

39. The Department points out that Yavalar paid Ormes,

Lopez and Alcatar at various times prior to September 12, 2007.

However, this case is not about the appropriate penalty against

BY Construction. The period of non-compliance by BY

Construction and the period of non-compliance by Respondent are

not the same. For Respondent, the period of non-compliance is

the period of time for which it failed to secure workers’

compensation insurance coverage for the uninsured employees of

its subcontractor, BY Construction, which cannot have been

sooner than the date Ormes, Lopez, and Alcatar began work on

Respondent’s job site, which was September 12, 2007.

40. Another factor that indicates the unreasonableness of

the Department’s interpretation of the law is that the evidence

shows Respondent produced the only records that existed

regarding its association with BY Construction. There were no

other business records Respondent possessed that the Department

could have used to determine a period of non-compliance. If it

is the Department’s position that Respondent was required to

produce the records of BY Construction, the evidence presented

in this case shows that those records (which the Department

obtained from BY Construction) did not indicate a period of non-

compliance by Respondent greater than one day, September 12,

2007.

41. Finally, the Department’s argument that it can impute

the period of non-compliance renders meaningless the fundamental

principle that, to impose a penalty, an agency must prove a

violation of law by clear and convincing evidence. The

Department is arguing that it needs no evidence of actual non-

compliance; it can impute dates of non-compliance and it can do

so even when the imputed dates are contradicted by competent

evidence.

42. The courts are not required to defer to an implausible

or unreasonable interpretation by an agency of its rules or the

statutes it administers. See Atlantis at Perdido Association,

Inc. v. Dept. of Environmental Protection , 932 So. 2d 1206 (Fla.

1st DCA 2006).

43. The Department satisfied its burden to prove clearly

and convincingly that Respondent failed to secure the payment of

workers’ compensation for Ormes, Lopez, and Alcatar for one day,

September 12, 2007. The Department did not meet its burden of

proof to show Respondent failed to secure the payment of

workers’ compensation for any other dates.

RECOMMENDATION

Based on the Findings of Fact and Conclusions of Law, it is

recommended that the Department enter a final order that amends

its penalty assessment to reflect one day of non-compliance by

Respondent.

DONE AND ENTERED this 31st day of March, 2008, in

Tallahassee, Leon County, Florida.

BRAM D. E. CANTER

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 31st day of March, 2008.

ENDNOTE

1 / All references to the Florida Statutes are to the 2007

codification.

COPIES FURNISHED :

Honorable Alex Sink

Chief Financial Officer

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399-0300

Daniel Sumner, General Counsel

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399-0307

Colin M. Roopnarine, Esquire

Department of Financial Services

Division of Workers' Compensation

200 East Gaines Street

Tallahassee, Florida 32399-4229

Keith A. Mann, Esquire

1952 Field Road

Sarasota, Florida 34231

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.