08-000097 All Florida Tree And Landscape, Inc. vs. Department Of Financial Services, Division Of Workers' Compensation Status: Closed Recommended Order on Monday, June 16, 2008.

Summary: Petitioner failed to have workers` compensation insurance for employees. Recommend that the penalty against Petitioner be recalculated.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ALL FLORIDA TREE AND LANDSCAPE, )

INC., )

)

Petitioner, )

)

vs. ) Case No. 08-0097

)

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF WORKERS’ )

COMPENSATION, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a hearing was conducted in this case on

March 25, 2008, in Tallahassee, Florida, before Administrative

Law Judge June C. McKinney of the Division of Administrative

Hearings, pursuant to the authority set forth in Sections 120.569

and 120.57(1), Florida Statutes (2007). 1

APPEARANCES

For Petitioner: Claude Harden, Esquire

Carr Allison

305 South Gadsden Street

Tallahassee, Florida 32301

For Respondent: Thomas H. Duffy, 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 Petitioner violated Chapter 440,

Florida Statutes, by not having workers' compensation insurance

coverage, and if so, whether the Agency's calculation was proper

and accurate based on the methods used to establish the payroll

for Petitioner and the resulting penalty.

PRELIMINARY STATEMENT

On August 30, 2007, the Department of Financial Services,

Division of Workers' Compensation ("Division"), issued a Stop-

Work Order and Order of Penalty Assessment (SWO) against All

Florida Tree & Landscape, Inc. ("All Florida" or "Petitioner"),

alleging that Petitioner had failed to secure workers'

compensation coverage. The Division subsequently provided three

Amended Orders of Penalty Assessment to All Florida. All

Florida filed a Petition for Administrative Hearing on

December 20, 2007. The matter was forwarded to the Division of

Administrative Hearings ("DOAH") in a letter filed on January 4,

2008.

A hearing was scheduled for March 14, 2008. The hearing

was canceled and re-scheduled for March 25, 2008, and proceeded

as scheduled.

All Florida presented the testimony of the following

witnesses: Billy Vaughn, Jr. (by deposition transcript);

Bob Howard (by deposition transcript); Denise McNeal; Alan

McPherson; and Russell Perkins. Petitioner's Exhibits 1 through

9 were offered and received into evidence. The Division

presented the testimony of two witnesses: Tasha Carter and

Denise McNeal. Respondent's Exhibits numbered 1 through 8 were

admitted into evidence.

The proceeding was recorded and transcribed. The

Transcript of the final hearing (consisting of two volumes) was

filed with DOAH on April 8, 2008. The parties were given until

April 28, 2008, to file proposed recommended orders. The

Division requested an extension of time to file its proposed

recommended order May 5, 2008, which was granted. Both

Petitioner and Respondent filed Proposed Recommended Orders,

which have been considered in the preparation of this

Recommended Order.

FINDINGS OF FACT

1. The Division is a component of the Department of

Financial Services. It is responsible for enforcing the

workers' compensation coverage requirements pursuant to Section

440.107, Florida Statutes.

2. All Florida is a corporation operating as a land

clearing and tree trimming or tree debris removal business in

Florida. Alan McPherson is the sole owner and president of All

Florida.

3. On August 30, 2007, as a result of an anonymous tip,

Denise McNeal, a workers' compensation investigator for the

Division went to a land clearing site at 4441 Club Estates Drive

in Naples, Florida, where an All Florida crew of workers was

clearing the land using heavy equipment, to determine whether

the workers had workers' compensation coverage. She interviewed

approximately 11 employees who were working at the site.

Ms. McNeal made inquiry into the employment relationships of

these workers and attempted to determine whether the workers on

the site were covered by appropriate workers' compensation

insurance.

4. After Ms. McNeal had been at the site for approximately

an hour, Mr. McPherson arrived. Mr. McPherson indicated that

All Florida had workers' compensation insurance through AMS

Leasing. Ms. McNeal conducted a search in the Coverage and

Compliance Automated System (CCAS), a database that reliably

reveals whether or not there is coverage by a workers'

compensation policy of insurance. The search revealed that All

Florida did not have its own workers' compensation insurance and

AMS was not covering the workers either. All Florida had failed

to fax the employee information to AMS to start the coverage for

the employees.

5. Based on the information Ms. McNeal had at the time,

and after consulting with her supervisor, Ms. McNeal issued SWO

number 07-269-D7 to All Florida and a Request for Production of

Business Records for Penalty Assessment Calculation ("Request

for Business Records"). The Division's request asked All

Florida to produce business records for the period of August 30,

2004, through August 30, 2007, including payroll records, tax

returns, proof of insurance, and certificates of exemption.

6. The Request for Business Records listed specific

records that All Florida should provide the Division so that the

Division could determine the workers paid by All Florida during

the preceding three years.

7. The Request for Business Records notes that the

requested records must be produced within five business days of

receipt. All Florida did not respond to the Division's Request

for Business Records on time. On or about September 25, 2007,

All Florida produced its first set of documents. At that time,

Ms. McNeal did not calculate the penalty amount and deemed the

records insufficient to calculate penalty.

8. On October 1, 2007, All Florida produced a second set

of business records. Ms. McNeal reviewed the records produced

by All Florida and calculated a penalty of $466,262.62 for

failure to obtain workers' compensation coverage.

9. The next day, Mr. McPherson provided additional

business records and Ms. McNeal recalculated the penalty again.

The new penalty amount was $324,080.01 and Ms. McNeal personally

served All Florida with the penalty assessment.

10. On October 2, 2007, All Florida entered into an

agreement with the Division, which consisted of putting ten

percent of the penalty amount down, demonstrating proof of

coverage, and agreeing upon a conditional payment plan. After

reaching the agreement, All Florida was conditionally released

from the SWO and permitted to resume operations because it had

cured all its violations.

11. Subsequently, All Florida provided the Division

additional business records. The Division calculated a third

amended penalty assessment on October 17, 2007, in the amount of

$300,450.24.

12. On November 28, 2007, Ms. McNeal had to recalculate

the third amended penalty amount because she discovered an error

in her use of class code 5606. She recalculated the penalty

amount with the proper class code 6217, changed Alan McPherson's

earnings to "payroll/premium cap" and added remuneration for

Dana McPherson. The other proper class codes Ms. McNeil used in

her calculations were 8742 and 8810.

13. In Ms. McNeal's calculations, she used the business

records submitted by All Florida and figured the gross payroll

for the period she found to be the period of noncompliance, in

the case of each assumed employee, and divided that amount by

100. She multiplied that figure by the approved manual rate

(risk of injury) for each claimed employee. This figure was

multiplied by 1.5 in order to obtain the penalty for failure to

obtain workers' compensation coverage for each employee. The

figures for each employee used in the calculation were added and

resulted in the total penalty assessment of $281.903.32, which

was the ultimate sum reported in the 4th Amended Order of

Penalty Assessment at issue in this case. Ms. McNeal used the

correct calculation methods to determine the assessed penalty.

14. Ms. McNeal's calculations for the 4th Amended Penalty

amount were accomplished in accordance with the requirements of

Subsection 440.107(7), Florida Statutes, and Florida

Administrative Code Rule 69L-6.035.

15. All Florida submitted Account QuickReport business

records detailing the checks cut from the business to

individuals, the amounts, dates, and a brief description.

Ms. McNeal used the records to calculate payroll for the 4th

Amended Order of Penalty Assessment. She correctly excluded the

check if the memo description listed the payment was for

something other than payroll, if the check was written to a

company name, or if the check was written to a subcontractor

that had an exemption.

16. Ms. McNeal included the payment by All Florida to each

individual whose name was highlighted in blue as set forth in

Petitioner's exhibit 8 (hereinafter referred to as "highlighted

subcontractors") as payroll in her calculation of penalty. 2

Dana McPherson’s $540,000.00 was also included in the gross

payroll calculations.

17. Mr. McPherson conducted All Florida business by

contracting with municipalities to get jobs. Then, All Florida

would give the work from the contract to individuals and

companies with their own equipment and employees to perform and

complete the job for the contract. All Florida hired the

highlighted subcontractors by oral contracts and did not have

time to check the highlighted subcontractors' statuses because

the company was inundated with contract work, on a tight

schedule, and wanted to get the jobs started as soon as

possible. There was a great demand for debris clearing due to

the consecutive hurricanes and their devastation, which provided

All Florida numerous land clearing contract opportunities.

18. Prior to Florida Administrative Code Rule 69L-6.035

becoming effective, the Division determined payroll by reviewing

the actual business records that were provided by the employer.

If the actual cost of the payroll and materials or equipment

rental were separated, the Division would only utilize the

amount identified as payroll for payroll. If the payroll was

not separated out, the whole amount was used as payroll in the

calculation of penalty.

CONCLUSIONS OF LAW

19. The Division of Administrative Hearings has

jurisdiction over the subject matter of this proceeding and the

parties thereto pursuant to Sections 120.569 and 120.57(1),

Florida Statutes.

20. 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 Petitioner violated the

law. Department of Banking and Finance, Division of Securities

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

(Fla. 1996).

21. The Division has met its burden to prove that All

Florida failed to be in compliance with Chapter 440, Florida

Statutes, by not securing the payment of workers' compensation

insurance for the period of August 30, 2004, through August 30,

2007.

22. However, the Division has failed to establish that the

fourth amended penalty amount assessed is accurate due to the

payroll amounts used in the calculation being made pursuant to

Florida Administrative Code Rule 69L-6.035.

23. In Smiley v. State , 966 So. 2d 330 (Fla. 2007) , the

Court set forth the appropriate analysis to undertake when

determining the retroactive application of a change in law. One

of the first "key considerations" is to determine whether the

change constitutes a procedural/remedial change or is a

substantive change in the law. Generally, courts retroactively

apply only remedial statutes, which do not create new rights or

take away vested rights but operate only in furtherance of the

remedy already existing. Id. at 334. If the law constitutes a

substantive change, either by creating new rights or taking away

vested rights, there is a presumption against the retroactive

application of the change in law unless the Legislature has

expressly stated to the contrary. Id. ; See also Arrow Air, Inc. ,

v. Walsh , 645 So. 2d 422, 424 (Fla. 1994).

24. Section 120.54(1) (f), Florida Statutes, provides as

follows in relevant part:

An agency may adopt rules authorized by law

and necessary to the proper implementation

of a statute prior to the effective date of

the statute, but the rules may not be

effective until the statute upon which

they are based is effective. An agency may

not adopt retroactive rules, including

retroactive rules intended to clarify

existing law, unless that power is expressly

authorized by statute.

25. In this case, the Division used a rule to calculate

payroll that went into effect on October 10, 2007, after the SWO

had been issued and the violations had been both committed and

corrected. Based on the facts of how the method of payroll was

determined, the undersigned concludes that the Division applied

Florida Administrative Code Rule 69L-6.035, retroactively and

incorrectly in this case.

26. In addition to challenging the retroactive application

of the rule, All Florida also contends that the total payments

to the highlighted subcontractors should not be included in the

Division's calculations for payroll when assessing a penalty.

27. Mr. McPherson was a contractor, as that term is used

in Subsection 440.10(1), Florida Statutes:

(a) 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 the 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.

28. The evidence demonstrates that All Florida contracted

with municipalities and farmed the contract work out to

highlighted subcontractors to complete. Accordingly, pursuant

to Subsection 410.10(b), Florida Statutes, All Florida's

highlighted subcontractors are deemed employees. No evidence

was presented that any of the highlighted subcontractors had

workers' compensation coverage or demonstrated a current valid

workers' compensation exemption.

29. All Florida also contends that industry standards

dictate that payroll is not more than 33 and one-third of the

contract price in the debris clearing business because the

industry dictates the labor component is a small amount of a

contract and the bulk amount of money goes toward equipment.

The undersigned was not persuaded by All Florida's assertion.

30. The record is clear that prior to Florida

Administrative Code Rule 69L-6.035, the Division calculated the

payroll based on the business records and attributed materials

and equipment rental to payroll only if it was not broken out in

the business records. The record is void of evidence

demonstrating equipment rental being separated or distinguished

from payroll by All Florida for the highlighted subcontractors.

Therefore, the full monetary amounts for each highlighted

subcontractor must be included as payroll.

31. All Florida also claims that Dana McPherson's

$540.000.00 should not be included in payroll when calculating

the penalty. The Division asserts that the issue can not be

addressed since the agency was not put on notice of the claim.

32. The undersigned finds that under the circumstances,

the agency was prejudiced by not being placed on notice of the

issue prior to hearing. All Florida did not raise the issue in

the Petition for Administrative Hearing, Prehearing Stipulation

or Trial Statement. And, even if the agency was not prejudiced,

All Florida failed to overcome the evidence presented by the

Division and demonstrate that Dana McPherson should not be

included in payroll. The testimony related to such is held not

to be credible since the business records show she was actually

cut six checks that totaled $540,000.00 rather than having been

paid with one check as testified. Therefore, All Florida's

proposition that Dana McPherson be excluded from payroll is

rejected.

33. All Florida also claims that the fraudulent actions of

employee, Scott Schmitt, should prohibit his pay from being

calculated as payroll. The undersigned rejects such and finds

that Mr. Schmitt received compensation for services and whether

he subsequently stole money has no effect on the outcome of this

case. Hence, Mr. Schmitt's payments should be part of the

payroll calculation for the penalty to be assessed.

34. Accordingly, the Division should recalculate the

penalty in accordance with this recommended order using the law

that was in effect at the time the violation took place

including the payroll amounts for the highlighted

subcontractors, Dana McPherson, and Mr. Schmitt.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

RECOMMENDED that the Department of Financial Services,

Division of Workers' Compensation enter a final order:

1. Finding that All Florida violated Chapter 440, Florida

Statutes, by failing to secure the payment of workers'

compensation coverage for its employees;

2. Finding that a penalty be imposed for the violation;

and

3. Calculating the penalty amount using the law that was

in effect at the time the violation took place.

DONE AND ENTERED this 16th day of June, 2008, in

Tallahassee, Leon County, Florida.

S

JUNE C. McKINNEY

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 16th day of June, 2008.

ENDNOTES

1 / Unless otherwise indicated, all references are to the 2007

Florida Statutes.

2/ Scott Schmitt is an employee highlighted in blue.

COPIES FURNISHED :

Thomas H. Duffy, Esquire

Department of Financial Services

200 East Gaines Street, 6th Floor

Tallahassee, Florida 32399-4229

Claude M. Harden, Esquire

Carr Allison

305 South Gadsden Street

Tallahassee, Florida 32301

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 32399-0300

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.