08-000350 Brian`s Painting And Wall Papering, Inc. vs. Department Of Financial Services, Division Of Workers' Compensation Status: Closed Recommended Order on Thursday, May 22, 2008.

Summary: Petitioner`s owner had workers` compensation insurance for himself and two employees through a leasing company. Owner was not covered while acting as a manager. No exemption obtained, and "dividends" are treated as salary under the rules.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

BRIAN’S PAINTING AND WALL )

PAPERING, INC., )

)

Petitioner, )

)

vs. ) Case No. 08-0350

)

DEPARTMENT OF FINANCIAL SERVICES, DIVISION OF WORKERS’ )

COMPENSATION, )

)

)

Respondent. )

)

RECOMMENDED ORDER

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

Kilbride, Administrative Law Judge of the Division of

Administrative Hearings, on March 26, 2008, in Ft. Myers,

Florida.

APPEARANCES

For Petitioner: Brian Galvin, Pro se

Brian’s Painting and Wall Papering, Inc.

206 South East 5th Avenue

Cape Coral, Florida 33990

For Respondent: Anthony B. Miller, Esquire

Kristian Dunn, Esquire

Department of Financial Services

Division of Workers’ Compensation

200 East Gaines Street

Tallahassee, Florida 32399-4229

STATEMENT OF THE ISSUES

Whether Petitioner, Brian’s Painting and Wall Papering,

Inc., conducted operations 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 Respondent,

Department of Financial Services, Division of Workers’

Compensation, pursuant to Section 440.107, Florida Statutes, and

Florida Administrative Code Chapter 69L.

PRELIMINARY STATEMENT

On December 4, 2007, Respondent issued and served a

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

number 07-367-07, to Petitioner alleging that Petitioner failed

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

The SWO required Petitioner to cease all business operations.

Respondent then requested business records from Petitioner,

which when reviewed, caused Respondent to assess a penalty

against Petitioner. An Amended Order of Penalty Assessment

(Amended Order) was issued and served on Petitioner on

December 13, 2007, which assessed a penalty in the amount of

$45,363.76. The SWO requiring Petitioner to cease all business

operations remained in effect with the issuance of the Amended

Order. On December 18, 2007, a 2nd Amended Order of Penalty

Assessment (2nd Amended Order) was issued and served, which

revised the assessed penalty down to $19,943.08. Petitioner

timely requested an administrative hearing and on

January 18, 2008, Respondent filed the petition and other

documents with the Division of Administrative Hearings (DOAH).

Petitioner raised the issue of whether the penalty is excessive.

The petition was not amended prior to the final hearing. Prior

to the hearing, Respondent served Petitioner with an

interlocking discovery request which included requests for

admissions.

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

was represented by its owner/operator. Respondent’s Motion to

Deem Matters Admitted was granted without objection, and

admissions 1, 2, 3, 4, 5, 6, 7, 8, and 10 were deemed admitted,

and the facts admitted were treated as conclusively established.

Respondent presented the testimony of one witness, Investigator

Ira Bender. Petitioner presented the testimony of one witness,

Brian Galvin. Respondent’s Exhibits lettered A through N were

offered and received into evidence and marked as Respondent’s

Composite Exhibit 1. Petitioner did not offer any documents

into evidence. 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 DOAH on April 9, 2008.

Petitioner has not filed proposed findings of fact or

conclusions of law as of the date of this Recommended Order.

Respondent filed its Proposed Recommended Order on

April 21, 2008.

FINDINGS OF FACT

1. Respondent 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. Petitioner is a corporation domiciled in Florida and

engaged in the construction industry, providing painting and

wallpapering services to private residences in Florida.

3. On December 4, 2007, Investigator Ira Bender conducted

a random workers’ compensation compliance check of a new home

construction site located at 4009 Twenty-second Street,

Southwest, in Lehigh Acres, Florida. Investigator Bender

observed two men painting. He later identified the two men as

Larry Zoelner and Brian Zack, who were later determined to be

Petitioner’s employees.

4. Investigator Bender continued the investigation of

Petitioner, utilizing the Respondent’s Compliance and Coverage

compensation insurance policy information from the carrier to an

insured and lists all the workers’ compensation exemptions in

the State of Florida. Based on his search of CCAS, Investigator

Bender determined that for the period, December 3, 2004, through

have a State of Florida workers’ compensation insurance policy

or a valid, current exemption for any of Petitioner’s employees,

including Zoelner and Zack. Based on his search of CCAS, he

also determined that Petitioner did not have a State of Florida

workers’ compensation insurance policy or a valid, current

exemption for Brian Galvin, Petitioner’s owner and operator, for

the assessed penalty period. Galvin admitted that he did not

have an exemption prior to December 4, 2007.

5. Section 440.05, Florida Statutes, allows a corporate

officer to apply for a construction certificate exemption from

workers’ compensation benefits or compensation. Only the named

individual on the application is exempt from carrying workers’

compensation insurance coverage. Petitioner was not in

possession of a current, valid construction industry exemption

for its corporate officer, Galvin, during the three-year search

period.

6. To be eligible for the exemption in the construction

industry, an employer must pay a $50 processing fee and file a

“notice of election to be exempt” application with Respondent

for each corporate officer and have that application processed

and approved by it.

7. Subsections 440.107(3) and 440.107(7)(a), Florida

Statutes, authorized Respondent to issue SWOs to employers

unable to provide proof of workers’ compensation coverage,

including proof of a current, valid workers’ compensation

exemption. Failure to provide such proof is deemed “an

immediate serious danger to public health, safety, or

welfare . . .” § 440.107(7)(a), Fla. Stat.

8. Based on the lack of worker’s compensation coverage and

a current, valid workers’ compensation exemption for its

employees, including Galvin, Respondent issued a SWO on

Petitioner on December 4, 2007. The SWO ordered Petitioner to

cease all business operations for all worksites in the State of

Florida.

9. On the day the SWO was issued, Investigator Bender also

served Petitioner with a “Request for Production of Business

Records for Penalty Assessment Calculation,” for the purpose

of enabling Respondent to determine a penalty under

Subsection 440.107(7), Florida Statutes. Pursuant to Florida

Administrative Code Rule 69L-6.015, Investigator Bender

requested business records from Petitioner for the assessed

penalty period. The requested records included payroll

documents, copies of certificates of exemptions, employee

leasing records, and other business records.

10. Investigator Bender was satisfied that the records

produced by Petitioner were an adequate response to the business

records request.

11. Based on Investigator Bender’s review of the business

records, he determined that Galvin was dually-employed during

the assessed period. Dual employment occurs when an employee is

paid remuneration by two different employers. Galvin was

simultaneously employed by SouthEast Personnel Leasing, Inc., as

a painter and by Petitioner as its chief operating officer.

12. In calculating the assessed penalty, Investigator

Bender only took into account Petitioner’s payroll. It was

determined that the payroll from the leasing company

demonstrated secured payment of workers’ compensation coverage

for the two painters and for Galvin, when he was operating as a

painter.

13. Pursuant to Florida Administrative Code Rule 69L-

6.035, Investigator Bender included “dividends” paid by

Petitioner to Galvin during the assessed penalty period, in

calculating Petitioner’s total payroll amount used in the

calculation of the assessed penalty. Galvin argued that

dividends paid to him by Petitioner should be excluded from the

calculation. However, the dividends that Petitioner paid to

Galvin constituted unsecured payment for workers’ compensation

coverage, in violation of Chapter 440, Florida Statutes, and the

Florida Insurance Code.

14. Through the use of the produced records, Respondent

calculated a penalty for the assessed period. The Amended

Order, which assessed a penalty of $45,363.76, was issued and

served to Petitioner on December 13, 2007.

15. Based on business records Investigator Bender received

from SouthEast Personnel Leasing, Inc., on December 17, 2007,

Investigator Bender determined that the classification code

assigned for Galvin should be changed from 5474 to 5606.

Classification code 5474 represented the designation for a

painter while classification code 5606 represented the

designation for a manager. In the course of his investigation,

Investigator Bender also deleted Charlie Galvin after he

determined Charlie Galvin was not Petitioner’s employee.

16. Investigator Bender assigned the new class code to the

type of work performed by Galvin while working as a manger for

Petitioner, utilizing the SCOPES Manual. He multiplied the

class code’s assigned approved manual rate with the payroll per

$100, and then multiplied all by 1.5. Consequently, the 2nd

Amended Order, which was issued and served to Petitioner on

December 18, 2007, assessed a penalty in the amount of

$19,943.08. The recalculated penalty, as calculated, was

consistent with the method in which the investigator had

calculated the previous penalties.

CONCLUSIONS OF LAW

17. The Division of Administrative Hearings has

jurisdiction over the subject matter of and the parties to these

proceedings, pursuant to Section 120.569 and Subsection

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

notice of the administrative hearing.

18. Respondent has the burden of proof in this case and

must show by clear and convincing evidence that Petitioner

violated the Workers' Compensation Law during the relevant

period and that the penalty assessment is correct. Department

of Banking and Finance Division of Securities and Investor

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

19. 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.

20. 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. . . .

21. 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(17)(b)(2), Fla. Stat.

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

employment. . . . If the employer is a corporation, parties in

actual control of the corporation including, but not limited to,

the president, . . . are considered the employer . . .” .

§ 440.02(16), Fla. Stat.

23. "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 all private

employment in which one or more employees are employed by the

same employer.” § 440.02(17)(a) and (b)(2), Fla. Stat.

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

Florida Statutes, in pertinent part:

(a) “Employee” means any person who

receives remuneration from an employer for

the performance of any work or service while

engaged in any employment under any

appointment or contract for hire or

apprenticeship, express or implied, oral or

written, whether lawfully or unlawfully

employed. . . .

* * *

(b) "Employee" includes any 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

§ 440.05.

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

Respondent’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

Respondent to issue SWOs and penalty assessment orders in its

enforcement of worker’s compensation coverage requirements.

26. Florida Administrative Code Rule 69L-6.015 states, in

relevant part:

In order for the Division to determine that

an employer is in compliance with the

provisions of Chapter 440, F.S., every

business entity conducting business within

the state of Florida shall maintain for the

immediately preceding three year period true

and accurate records. Such business records

shall include original documentation of the

following, or copies, when originals are not

in the possession of or under the control of

the business entity:

* * *

(1) All workers' compensation insurance

policies of the business entity, and all

endorsements, notices of cancellation,

nonrenewal, or reinstatement of such

policies.

* * *

(3) Records indicating for every pay period

a description of work performed and amount

of pay or description of other remuneration

paid or owed to each person by the business

entity, such as time sheets, time cards,

attendance records, earnings records,

payroll summaries, payroll journals, ledgers

or registers, daily logs or schedules, time

and materials listings.

* * *

(4) All contracts entered into with a

professional employer organization (PEO) or

employee leasing company, temporary labor

company, payroll or business record keeping

company. If such services are not pursuant

to a written contract, written documentation

including the name, business address,

telephone number, and FEIN or social

security number of all principals if an FEIN

is not held, of each such PEO, temporary

labor company, payroll or business record

keeping company; and

* * *

(a) For every contract with a PEO: a

payroll ledger for each pay period during

the contract period identifying each worker

by name, address, home telephone number, and

social security number or documentation

showing that the worker was eligible for

employment in the United States during the

contract for his/her services, and a

description of work performed during each

pay period by each worker, and the amount

paid each pay period to each worker. A

business entity may maintain such records or

contract for their maintenance by the PEO to

which the records pertain.

* * *

(6) All check ledgers and bank statements

for checking, savings, credit union, or any

other bank accounts established by the

business entity or on its behalf; and

* * *

(7) All federal income tax forms prepared

by or on behalf of the business and all

State of Florida, Division of Unemployment

Compensation UCT-6 forms and any other forms

or reports prepared by the business or on

its behalf for filing with the Florida

Division of Unemployment Compensation.

27. 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

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

is greater.

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

Respondent adopted a penalty calculation worksheet to use in

calculating penalties to assess against employers who do not

secure the payment of workers’ compensation.

29. The evidence was clear and convincing that Petitioner

was an employer that was required to secure the payment of

workers' compensation for its employees. Petitioner secured the

payment of workers' compensation as required by statute for its

employees through a contract with a PEO. However, Petitioner

did not possess a current, valid workers' compensation exemption

for its owner/operator, Galvin. Instead of paying him a salary,

it paid him in “dividends.”

30. Respondent is required by Section 440.107, Florida

Statutes, to assess the penalty for Petitioner’s failure to

secure workers’ compensation coverage for its employee, Galvin,

Petitioner’s president, owner and registered agent.

31. By clear and convincing evidence, Respondent has

proven that Petitioner violated Sections 440.10 and 440.38,

Florida Statutes, for the assessed penalty period, by not

securing the payment of workers’ compensation for its employee,

Brian Galvin, or in the alternative, because Petitioner did not

have a valid, current workers’ compensation exemption for its

corporate officer, Galvin.

32. Petitioner paid remuneration to its employees during

the assessed penalty period. Therefore, during the assessed

penalty period, Petitioner was an “employer” engaged in the

construction industry for workers’ compensation purposes, as

that term is defined in Subsection 440.02(16), Florida Statutes.

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

33. 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 to 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 issued in this case, therefore, was not only justified,

it was statutorily mandated.

34. Further, Florida Administrative Code Rule 69L-

6.035(1)(e) states:

(1) For purposes of determining payroll for

calculating a penalty pursuant to Subsection

440.107(7)(d)1., Fla. Stat., the Department

shall when applicable include any one or

more of the following as remuneration to

employees based upon evidence received in

its investigation:

* * *

(e) Payments made to employees by or on

behalf of the employer on any basis other

than time worked, such as piecework, profit

sharing, dividends , income distributions, or

incentive plans. (Emphasis added)

35. Respondent proved that the proper methodology was

applied in calculating the assessed penalty, which was based on

records Investigator Bender received in the course of

investigating Petitioner. Contrary to Petitioner’s contention,

Investigator Bender properly included the dividends that

Petitioner paid to Brian Galvin as part of the total payroll

used in calculating the penalty for the assessed penalty period.

Petitioner presented no witnesses or other evidence to rebut

Respondent’s methodology.

36. Petitioner failed to secure the payment of workers’

compensation and did not possess a valid, current workers’

compensation exemption certificate for its employees, including

its corporate officer, Galvin during the assessed penalty

period. Therefore, Respondent correctly assessed the penalty

prescribed in Section 440.107, Florida Statutes.

37. Respondent satisfied its burden of proving, clear and

convincingly, that (a) Petitioner failed to secure payment of

workers’ compensation as that term is defined in

Subsection 440.107(2), Florida Statutes, for the assessed

penalty period, and (b) Respondent correctly issued the SWO and

the 2nd Amended Order, assessing the penalty prescribed in

Subsection 440.107(7)(d), Florida Statutes, for such failure.

RECOMMENDATION

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

is,

RECOMMENDED that Petitioner enter a final order, as

follows:

1. Petitioner failed to secure workers’ compensation

coverage for its employees, including its corporate officer, as

required by statute; and

2. Petitioner be assessed a penalty of $19,943.08.

DONE AND ENTERED this 22nd day of May, 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 22nd day of May, 2008

ENDNOTE

1/ All references to Florida Statutes are to Florida Statutes

(2007), unless otherwise indicated.

COPIES FURNISHED :

Brian Galvin

Brian’s Painting and Wallpapering, Inc.

206 Southeast 5th Avenue

Cape Coral, Florida 33990

Anthony B. Miller, Esquire

Kristian Dunn, Esquire

Department of Financial Services

Division of Workers’ Compensation

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

Daniel Y. 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.