08-000256 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. Randall Lee Southerland Status: Closed Recommended Order on Tuesday, June 3, 2008.

Summary: Applying grout is part of tiling which is "construction," and under Chapter 440, Respondent is required to have workers` compensation insurance as a sole proprietor; penalty $1,168.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF WORKERS’ )

COMPENSATION, )

)

Petitioner, )

)

vs. ) Case No. 08-0256

)

RANDALL LEE SOUTHERLAND, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, this case was heard before Daniel M.

Kilbride, Administrative Law Judge of the Division of

Administrative Hearings (DOAH), on March 26, 2008, in Fort

Myers, Florida.

APPEARANCES

For Petitioner: Kristian Dunn, Esquire

Anthony B. Miller, Esquire

Department of Financial Services

Division of Workers’ Compensation

200 East Gaines Street

Tallahassee, Florida 32399-4229

For Respondent: Randall Lee Southerland, pro se

12330 Coyle Road

Fort Myers, Florida 33905

STATEMENT OF THE ISSUES

Whether Respondent, Randall Lee Southerland, conducted

operations in the construction industry in the State of Florida

without obtaining workers’ compensation coverage, meeting the

requirements of Chapter 440, Florida Statutes (2007), 1 in

violation of Subsection 440.107(2), Florida Statutes.

If so, what penalty should be assessed by Petitioner,

Department of Financial Services, Division of Workers’

Compensation, pursuant to Section 440.107, Florida Statutes

(2007), and Florida Administrative Code Chapter 69L.

PRELIMINARY STATEMENT

On November 30, 2007, Petitioner issued and served a

Stop-Work Order (SWO) and Order of Penalty Assessment,

number 07-364-D7, to Respondent alleging that Respondent failed

to abide by the requirements of the Workers’ Compensation Law.

The SWO required Respondent to cease all business operations.

Petitioner then requested business records from Respondent,

which when reviewed, caused Petitioner to assess a penalty

against Respondent. An Amended Order of Penalty Assessment

(Amended Order) was issued and served on Petitioner on March 26,

2008, which assessed a penalty in the amount of $1,168.68.

Petitioner timely requested an administrative hearing, and, on

January 15, 2008, Respondent filed the petition and other

documents with the DOAH. Petitioner raised the issue of whether

Respondent was working in the construction industry when the SWO

was issued. The final hearing proceeded under the Amended

Order.

The final hearing took place on March 26, 2008. Petitioner

presented the testimony of one witness, Investigator Eric

Duncan. Respondent proceeded pro se and testified in his own

behalf. Petitioner’s Exhibits numbered 1 through 5 were offered

and received into evidence. Respondent did not offer any

documents into evidence at the hearing.

The parties were directed to file proposed findings of

fact and conclusions of law within ten days of the filing of the

transcript. A one-volume Transcript of the hearing was filed

with the DOAH on April 7, 2008.

Respondent filed “Written Arguments for the Respondent,” on

April 11, 2008. These have been considered. Respondent also

included folders containing exerpts from Chapter 440, Florida

Statutes; instructions and forms for Schedule C (Form 1040) from

the IRS; and other documents which were not offered as an

exhibit during the hearing but were submitted along with the

written arguments. These have not been considered. Petitioner

filed its Proposed Recommended Order on April 17, 2008, which

has been considered.

FINDINGS OF FACT

1. Petitioner is the state agency responsible for

enforcing the statutory requirement that employers secure the

payment of workers’ compensation for the benefit of their

employees. § 440.107, Fla. Stat.

2. Respondent is a sole proprietor, allegedly engaged in

the construction industry, providing tile and grouting services

and carpet removal to private residences in Florida.

3. On November 30, 2007, Eric Duncan and Alison Pasternak,

both of whom are workers’ compensation investigators for

Petitioner, were conducting random compliance checks in Lee

County. Investigator Duncan noticed two men working outside of

a residence in Cape Coral, one using a power saw and the other

mixing a substance in a bucket. Investigators Duncan and

Pasternak decided to conduct a compliance check of these two men

to ensure they were workers’ compensation coverage compliant.

The two men identified themselves as Randall Lee Southerland and

Tim Weaver.

4. Weaver produced his Exemption Certificate for workers’

compensation coverage. No further action was taken in regards

to that investigation.

5. Southerland was observed mixing the substance, which

was later determined to be tiling grout. Southerland did not

have a workers’ compensation insurance policy, a coverage

exemption certificate, nor was he employed via a leasing agency.

6. After consulting with his supervisor, Investigator

Duncan issued SWO No. 07-364-D7 to Respondent along

with a Business Records Request for the time-period of

December 1, 2004, through November 30, 2007.

7. Respondent provided records to Petitioner shortly

thereafter, and, subsequently, a penalty assessment was

calculated. The calculations of Respondent’s gross payroll was

necessary since it was alleged that he worked in the

construction field of tiling.

8. Respondent disputes this classification and argues that

grouting is separate from the installation of tiles and is not a

classification within the construction field. Therefore,

neither a workers’ compensation insurance policy, nor an

exception is required.

9. The National Counsel on Compensation Insurance (NCCI)

established a codification of construction employment

activities; all of which have been adopted by Petitioner and are

commonly referred to as “class codes.” The NCCI class code for

tiling is “5348.”

10. It is undisputed that Respondent was doing the grout-

work for the newly installed tiles. It is further undisputed

that the definition of tiling, per the NCCI class code “5348,”

included the finishing, setting, and installation of tiles. It

was also established that loose tiles, merely laying on the

floor, are not finished, nor set, until the grout is laid.

11. Pursuant to Section 440.107, Florida Statutes, the

calculation of the penalty was completed on a penalty

calculation worksheet. The worksheet was completed by examining

the records received from Respondent and calculating the gross

payroll that was paid to him. The penalty was later amended to

reflect additional records provided through discovery, the

evidence of the payment for the November 30, 2007, job

consisting of a $500.00 check from the real estate agent. The

Amended Order assessed a penalty of $1,168.68, which is the

applicable amount of the premium evaded and includes the

50 percent penalty for the time period of December 1, 2004,

through November 30, 2007.

CONCLUSIONS OF LAW

12. The Division of Administrative Hearings has

jurisdiction pursuant to Section 120.569 and Subsection

120.57(1), Florida Statutes. The parties received adequate

notice of the administrative hearing.

13. Because administrative fines are penal in nature,

Petitioner has the burden to prove by clear and convincing

evidence that Respondent failed to be in compliance with the

coverage requirements set forth, by not securing the payments of

workers’ compensation with mandatory coverage. Department of

Banking and Finance Division of Securities and Investor

Protection v. Osborne Stern and Co. , 670 So. 2d 932 (Fla. 1996).

14. Pursuant to Sections 440.10 and 440.38, Florida

Statutes, 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.

Strict compliance with the Workers' Compensation Law is,

therefore, required by the employer.

15. Subsection 440.10(1), Florida Statutes, provides in

pertinent part:

(a) Every employer coming within the

provisions of this chapter shall be liable

for, and shall secure, the payment to his or

her employees . . . of the compensation

payable under [the workers' compensation

statute]. . . . 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.

16. The policy or endorsement for such employees must

utilize Florida class codes, rates, rules, and manuals that are

in compliance with the provisions of Chapter 440, Florida

Statutes, as well as the Florida Insurance Code.

See § 440.02(8), Fla. Stat.

17. "Employer" is defined as "every person carrying on any

employment.” § 440.02(16) Fla. Stat.

18. "Employment" is defined, in pertinent part as,

“any service performed by an employee for the person employing

him or her.” “Employment includes: . . . All private

employments in which four or more employees are employed by the

same employer, or with respect to the construction industry [it

includes] all private employment in which one or more employees

Fla. Stat.

19. "Employee" is defined in Subsection 440.02(15),

Florida Statutes, in pertinent part:

(c) “Employee” includes:

* * *

2. All persons who are being paid by

a construction contractor as a

subcontractor . . .

3. An independent contractor working or

performing services in the construction

industry.

4. A sole proprietor who engages in the

construction industry . . .

20. Section 440.107, Florida Statutes, also sets out the

Petitioner’s duties and powers to enforce compliance with the

requirement to provide for the payment of workers’ compensation.

Subsection 440.107(3)(g), Florida Statutes, authorizes

Petitioner to issue SWOs and penalty assessment orders in its

enforcement of workers’ compensation coverage requirements.

21. As to penalties, Subsection 440.107(7)(d)1., Florida

Statutes, 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 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

preceeding 3-year period or $1,000, which

ever is greater.

22. Respondent was an “employer” and “employee” for

workers’ compensation purpose because he was a sole proprietor

engaged in the construction industry. §§ 440.02(15)(c)4.,

440.02(16)(a), and 440.02(17)(b)2., Fla. Stat.

23. Pursuant to Florida Administrative Code

Rule 69L-6.021, tiling includes the act of grouting and

installation of tiles.

24. Subsection 440.107(7)(a), Florida Statutes, states in

relevant part:

Whenever the department determines that an

employer who is required to secure the

payment of 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 . . .

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. If the department makes

such a determination, the department shall

issue a stop-work order within 72 hours.

The SWO therefore was not only justified, it was mandated.

25. By Florida Administrative Code Rule 69L-6.027,

Petitioner adopted a penalty calculation worksheet to use in

calculating penalties to assess against employers who do not

secure the payment of workers’ compensation.

26. The penalty was based on records received from

Respondent, and Petitioner applied the proper methodology in

calculating the ultimate penalty of $1,686.68. This is the true

and correct penalty for Respondent’s violation.

27. The testimony of Respondent and the evidence were not

persuasive in rebutting Petitioner’s evidence. Even though

Respondent admitted that he engaged in the trade of grouting

tiles, he argued that he should not be assessed a penalty based

on his own interpretation of “construction.” If Respondent is

involved in a construction activity, his claims that his

interpretation of what constitutes construction and what does

not, are without merit, since Petitioner has already adopted a

codification of “construction.”

28. The central issue in Respondent’s argument appears to

be that since he did not place the tile, which Petitioner does

not controvert, he was not actually engaged in “tiling,” per the

NCCI class code definition. That argument is not persuasive

because merely laying the tile is not actually completing the

tile job. From the evidence and the adopted NCCI class code

definition of tiling, admitted into evidence, it is conclusive

that “tiling” includes the finished product such as putting the

“quick-set cement” beneath the recently-laid tiles and the

grouting and then sealing of the grout between the tiles. The

adopted class code considers the finished product as the fruit

of the multiple labors and processes involved, not just the

simplistic act of bringing in the tiles and putting them on the

floor, without the quick-set cement, grout, or grout-sealing

agents.

29. Respondent also argues that his activities did not

meet the “substantial-ness” requirement of the statute.

Respondent argues that his involvement in a minor job of tiling

in the house does not rise to the level of “substantial

improvement.”

30. Subsection 440.02(8), Florida Statutes, states:

“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 mean 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.

31. Respondent confuses the application of the term

“construction industry,” as it relates to his activities.

Although Respondent contends that his labor was insubstantial,

he admitted that the floor of the house he was working on

suffered significant water damage to the point that the carpet

had to be replaced and 465 square feet of new tile installed.

Although his labor may have only cost $500.00, the amount of

improvement to the house would likely be much more.

32. Furthermore, what is allowed for a certificate of

occupancy in Lee County was not considered, since this was not

offered into evidence at the time of the hearing, and is

irrelevant in any event.

33. Respondent also contends that since the house he was

working on was not under construction, his activities were not

construction. This argument is fallacious because under his

definition only new construction would be considered

construction, and home improvements, whether roofing, tiling,

carpentry, plumbing, and a myriad of other jobs, no matter how

large or small, would not be under the umbrella of workers’

compensation coverage guidelines. Nowhere in Subsection

440.02(8), Florida Statutes, is it mentioned that construction

only means new construction.

34. Respondent further argues that as a sole proprietor he

is not liable for non-compliance with workers’ compensation

coverage requirements. Essentially, his argument is that if a

sole proprietor has a worker laboring for him, then the worker

is an employee; therefore, the sole proprietor is the employer.

Respondent further contends that an employer acting as a sole

proprietor is shielded from the requirements of workers’

compensation coverage because a sole proprietor with no

employees is the worker, the paymaster, and the boss of himself

all at once. Respondent attempts to invoke an equitable concept

that since exemption certificates for workers’ compensation

coverage exist for qualified individuals who have gone though

the process of incorporating their business, there should be a

similar provision for sole proprietors. However, such an

assertion is not based on any applicable statute or rule.

35. The allegation that Investigator Duncan violated the

law by computing the penalty via bank statements and tax returns

is incorrect. Respondent contends that since he did not have

payroll receipts to himself that Petitioner improperly

calculated the penalty. Respondent asserts that the income

derived from his construction activities should not be

considered payroll since it went to his bank and not to his

billfold. This ideal of cash-in-hand only equaling effective

pay is not logical nor legally consistent with any existing law.

36. In Respondent’s third argument, he seeks to introduce

evidence not admitted at the hearing. Therefore, any such

reference or consideration has not been considered.

37. The amount established by uncontroverted proof was

that Respondent earned $500.00 on this job. To now claim that

he only earned $465.00 is entirely inappropriate and has been

disregarded. Further Respondent claims that the $500.00 job

initially observed is now divided into a $232.00 job for grout

installation and $233.00 for carpet removal. The use of

Respondent’s written arguments to introduce new evidence is not

appropriate and has not been considered.

38. By clear and convincing evidence, Petitioner has

proven that Respondent violated Sections 440.10 and 440.38,

Florida Statutes, in the period from December 1, 2004, to

November 30, 2007. By not complying with the requirements for

workers’ compensation coverage, Respondent was in clear

violation of the law. Petitioner was justified and mandated by

law to issue and serve a SWO to Respondent and was further

justified in assessing the mandated penalty of $1,686.68 to him,

based on the records provided to Petitioner.

RECOMMENDATIONS

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

RECOMMENDED that Petitioner enter a final order:

1. Finding that Respondent failed to secure the

payment of workers’ compensation coverage for the sole

proprietor, Randall Lee Southerland, in violation of

Subsections 440.10(1)(a) and 440.38(1), Florida Statutes; and

2. Assessing a penalty against Respondent, in the amount

of $1,168.68, which is equal to 1.5 times the evaded premium

based on the payroll records provided by Respondent and the

applicable approved manual rate and classification code.

DONE AND ENTERED this 3rd day of June, 2008, in

Tallahassee, Leon County, Florida.

S

DANIEL M. KILBRIDE

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 3rd day of June, 2008.

ENDNOTE

1/ All references to Florida Statutes are to Florida Statutes

(2007), unless otherwise indicated.

COPIES FURNISHED :

Kristian E. Dunn, Esquire

Anthony B. Miller, Esquire

Department of Financial Services

Division of Workers’ Compensation

200 East Gaines Street

Tallahassee, Florida 32399-4229

Randall Lee Southerland

12330 Coyle Road

Fort Myers, Florida 33905

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

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.