08-003779 Nu Way Drywall vs. Department Of Financial Services, Division Of Workers' Compensation Status: Closed Recommended Order on Tuesday, October 28, 2008.

Summary: Because subcontractor had no workers` compensation coverage or exemption from such coverage, the subcontractor is "employee" of Petitioner. Therefore, Petitioner was required to provide workers` compensation coverage.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

NU WAY DRYWALL, LLC, )

)

Petitioner, )

)

vs. ) Case No. 08-3779

)

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF WORKERS' )

COMPENSATION, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the final hearing in this case was held

on September 4, 2008, in Bradenton, Florida, before Carolyn S.

Holifield, Administrative Law Judge of the Division of

Administrative Hearings.

APPEARANCES

For Petitioner: Alex Rivera, pro se

Nu Way Drywall, LLC

384 Snapdragon Loop

Bradenton, Florida 34212

For Respondent: Thomas H. Duffy, Esquire

Division of Legal Services

Department of Financial Services

200 East Gaines Street, Sixth Floor

Tallahassee, Florida 32399-4229

STATEMENT OF THE ISSUES

The issues in this case are: (1) whether Petitioner,

Nu Way Drywall, LLC, was in violation of the workers'

compensation requirements of Sections 440.107 and 440.38,

Florida Statutes (2007), 1 by failing to secure workers'

compensation coverage for its subcontractors and/or employees of

its subcontractors; and (2) if yes, what penalty should be

assessed against Petitioner.

PRELIMINARY STATEMENT

On April 16, 2008, Respondent, Department of Financial

Services, Division of Workers' Compensation ("Department"),

issued a Stop-Work Order for Specific Work Site to Petitioner,

Nu Way Drywall, LLC, which alleged that Petitioner failed to

secure workers' compensation for its subcontractors or employees

of the subcontractors. On April 17, 2008, the Department issued

an Amended Order of Penalty Assessment, which assessed a penalty

of $76,215.95, for the alleged violation. Petitioner timely

requested an administrative hearing.

The Department referred the matter to the Division of

Administrative Hearings on or about July 31, 2008.

Prior to the evidentiary part of the hearing, the

Department indicated that due to a recently discovered

computational error, it had determined that the penalty

assessment for the alleged violation was $72,963.77 and not

$76,215.95, as indicated in the Amended Order of Penalty

Assessment.

At the final hearing, the Department presented the

testimony of one witness, Germaine Green, and offered and had

nine exhibits admitted into evidence. Petitioner cross-examined

the Department's witness, but did not present any witnesses or

offer any exhibits. The record was left open until

September 18, 2008, to allow Petitioner additional time to

obtain and late-file exhibits. However, no late-filed exhibits

were filed by Petitioner.

The Transcript of the hearing was filed on September 23,

2008. The Department filed its Proposed Recommended Order on

October 3, 2008. Petitioner did not file a post-hearing

submittal.

FINDINGS OF FACT

1. On April 15, 2008, Germaine Green, a compliance

investigator for the Department, conducted a random compliance

check of a work site where an office building was under

construction. The work site was located at 698 South Tamiami

Trail in Osprey, Florida. During the compliance check,

Ms. Green observed three men hanging metal framing for the

interior walls.

2. One of the men at the work site identified himself as

Ted Webb and told Ms. Green that he was in charge of the framing

work being done and that the other two men working with him were

his sons.

3. Mr. Webb told Ms. Green that his company, Ted Webb,

Inc., had workers' compensation coverage through an employee

leasing company, Howard Leasing. Ms. Green telephoned the

leasing company and was told that the contract with Ted Webb,

Inc., had been terminated or had lapsed in December 2007.

4. Ms. Green then checked the Department's computerized

database known as Coverage and Compliance Automated System

(CCAS). The information maintained in CCAS allowed Ms. Green to

determine whether Mr. Webb or his sons had workers' compensation

coverage or exemptions from such coverage.

5. After checking CCAS, Ms. Green determined that

Mr. Webb and his company did not have workers' compensation

coverage and that Mr. Webb and his employees had no exemption

from such coverage. Upon making this determination, Ms. Green

issued a Stop-Work Order.

6. Mr. Webb advised Ms. Green that Nu Way Drywall, LLC

("Nu Way"), had subcontracted with him or Ted Webb, Inc., to

perform the framing services at the work site.

7. Under Florida law, a subcontractor that does not have

workers' compensation coverage becomes the "statutory employee"

of the contractor that hired the subcontractor.

8. Upon being told that Mr. Webb was working for Nu Way,

Ms. Green checked CCAS to determine if that company had active

workers' compensation exemptions for any of its employees.

Ms. Green's review of CCAS revealed that Nu Way had an exemption

for only one person, Alex Rivera, the managing member of the

company.

9. Ms. Green contacted Mr. Rivera to determine whether he

had received documentation that Mr. Webb had workers'

compensation coverage prior to Mr. Webb's beginning work on the

Osprey project. Mr. Rivera reported that he had received

information in the past that indicated that Mr. Webb had

workers' compensation coverage. However, Mr. Rivera told

Ms. Green that he had obtained information regarding Mr. Webb's

workers' compensation coverage before Mr. Webb began work on the

subject work site.

10. At all times relevant to this proceeding, Nu Way had

workers' compensation coverage through an employee leasing

company, Employee Leasing Solutions. However, when Ms. Green

called the leasing company, she was advised by someone with the

company that Mr. Webb and his two sons were not listed on the

employee roster for Nu Way. Therefore, they were not covered by

Nu Way's workers' compensation coverage.

11. Employee leasing companies provide workers'

compensation coverage for their clients, but coverage is

provided only to employees that the client company specifically

identifies.

12. Because Mr. Rivera could not provide proof that

Mr. Webb and his sons had workers' compensation coverage

pursuant to Chapter 440, Ms. Green issued a Stop-Work Order for

Specific Worksite Only ("Stop-Work Order") to Nu Way on

April 15, 2008. The Stop-Work Order was posted at the work site

and served on Mr. Rivera on April 16, 2008.

13. On the day that Ms. Green served the Stop-Work Order

on Mr. Rivera, she also served on him a Request for Production

of Business Records for Penalty Assessment Calculation ("Request

for Business Records"). The Request for Business Records

requested that Mr. Rivera provide the business records of Nu Way

to the Department so that it could determine the employer's

payroll for the period of April 17, 2005, through April 16,

2008, for the calculation of the penalty provided in Subsection

440.107(7).

14. In response to the Department's Request for Business

Records Documents, Mr. Rivera provided Nu Way's business

records, which included Nu Way's canceled checks. In auditing

the business records, Ms. Green discovered that in addition to

making payments made to Ted Webb, Inc., in 2006 and 2008, Nu Way

had also made payments to two other companies that did not have

valid workers' compensation coverage for their employees when

they worked for Nu Way.

15. According to its business records, Nu Way paid Santis

Drywall and Construction (Santis) $36,890.00 between July 28 and

August 11, 2006, and paid Hernandez Chico Drywall (Hernandez)

$260,972.50 between March 17 and April 28, 2006. During the

time period Nu Way made those payments to Santis and Hernandez,

neither of those companies had valid workers' compensation

coverage.

16. After auditing Nu Way's business records, Ms. Green

prepared a spreadsheet that included the payments made to

uninsured subcontractors or companies during the relevant time

period of April 17, 2005, through April 16, 2008. Ms. Green

calculated the penalty by dividing the payroll for each

uninsured subcontractor by 100 and then multiplied that number

(the dividend) by the "approved manual rate" for drywall work

for the year in question. Each product of 1/100 of the payroll

and the approved manual yielded the "evaded premium" that Nu Way

should have paid for each uninsured subcontractor in the years

in question. The amount of the "evaded premiums" were then

multiplied by 1.5 and then added together to determine the total

penalty amount.

17. Applying the formula prescribed in Subsection

440.107(7)(d), Ms. Green determined that the total penalty

assessment against Nu Way was $76,215.95.

18. On April 17, 2008, Mr. Rivera was served with the

Amended Order of Penalty Assessment, which showed that the total

penalty assessment against Nu Way was $76,215.95. That same

day, Mr. Rivera, on behalf of Nu Way, entered into an agreement

with the Department to pay ten percent of the penalty assessment

in one lump sum payment and to make 60 interest-free payments

for the balance. After Mr. Rivera signed the agreement, the

Department issued an Order of Conditional Release from the Stop-

Work Order ("Order of Conditional Release"). The Order of

Conditional Release allowed Nu Way to resume work at the work

site, subject to his complying with the terms of the agreement.

19. When Ms. Green served the Amended Order of Penalty

Assessment on Mr. Rivera, she discussed the penalty assessment

with him and also allowed him to review the spreadsheet for

accuracy. Mr. Rivera reviewed the spreadsheet, but did not find

any errors.

20. In preparing for this hearing, Ms. Green reviewed the

spreadsheet and discovered that she had mistakenly included some

payments made by Nu Way. By mistakenly including certain

payments on the spreadsheet, the payroll amount used to

calculate the penalty assessment was higher than it should have

been.

21. After discovering the mistake discussed in

paragraph 20, Ms. Green prepared a new spreadsheet, which did

not include the payments that had been mistakenly included in

the initial spreadsheet. Ms. Green then recalculated the

penalty assessment and properly determined the corrected penalty

assessment to be $72,963.77.

22. The Department prepared a Proposed Second Amended

Order of Penalty Assessment showing that the correct penalty

assessment for Nu Way is $72,963.77. As of the date of this

proceeding, the Department had not served the Proposed Second

Amended Order of Penalty Assessment on Mr. Rivera. However, at

hearing, Mr. Rivera indicated that he did not object to this

amendment as it reduced the penalty assessment.

CONCLUSIONS OF LAW

23. The Division of Administrative Hearings has

jurisdiction over the parties and the subject matter of this

proceeding. §§ 120.569 and 120.57(1), Fla. Stat. (2008).

24. The Department is the state agency responsible for

enforcing the requirements of Section 440.107, Florida Statutes,

which mandates that employers secure the payment of workers'

compensation coverage for their employees.

25. In instances where an employer fails to comply with

the requirement to have workers' compensation coverage, the

Department is empowered to issue stop-work orders and penalty

assessment orders, enforce the terms of a stop-work order, and

levy and pursue actions to recover penalties. § 440.107(3)(g),

(h) and (i), Fla. Stat.

26. The penalty assessment sought in this case is penal in

nature. Therefore, the Department has the burden of proving the

allegations in this case by clear and convincing evidence.

Department of Banking and Finance v. Osborne, Stern, and Co. ,

670 So. 2d 932, 935 (Fla. 1996).

27. 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 workers unless

exempted or excluded under Chapter 400, Florida Statutes.

28. For purposes of Chapter 440, Florida Statutes,

"employer" is defined as "every person carrying on

employment . . . ." § 440.02(16)(a), Fla. Stat. "Employment"

is "any service performed by an employee for the person

employing him or her . . . [and] with respect to the

construction industry, [includes] all private employment in

which one or more of the employees are employed by the same

employer." § 440.02(17)(a) and (b), Fla. Stat.

29. "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."

§ 440.02(15)(a), Fla. Stat.

30. An "employee" also includes a person being paid by a

construction contractor as a subcontractor, unless the

subcontractor has a validly elected exemption or has secured the

payment of compensation as a subcontractor, consistent with

Section 440.10, Florida Statutes, for work performed as a

subcontractor. § 440.02(15)(c)2., Fla. Stat.

31. With respect to subcontractors, Subsection

440.10(1)(b) states:

(b) In 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

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 [workers']

compensation to all such employees, except

to employees of a subcontractor who has

secured such payment.

32. The undisputed evidence established that Nu Way was

an employer, within the meaning of Subsection 440.02(15), during

the time specified in the Amended Order.

33. The undisputed evidence established that Ted Webb and

the two men working with him at the Osprey work site on April 15

or 16, 2008, were Nu Way's "employees" as that term is defined

in Subsection 440.02(15)(c)2., Florida Statutes.

34. As an employer of Ted Webb and the two men working

with him, Nu Way was required to provide workers' compensation

coverage pursuant to Sections 440.10 and 440.38, Florida

Statutes.

35. In this case, Nu Way does not dispute that at the time

relevant to this proceeding, it had not secured workers'

compensation coverage for Mr. Webb and the two men working with

him. Further, Nu Way offered no evidence to establish that

Mr. Webb and his sons had valid workers' compensation exemptions

or proof of workers' compensation coverage as required by law.

§ 440.02(15)(c)2., Fla. Stat.

36. Pursuant to Subsection 440.107(7)(d), Florida

Statutes, an employer who fails to secure workers' compensation

coverage for his employees 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 the 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.

37. The evidence established that during the three-year

period covered by the penalty assessment, the entities listed on

the penalty worksheet dated September 3, 2008, were paid

directly by Nu Way, which did not have workers' compensation

coverage or exemptions from such coverage. 2

38. The Department properly applied the formula and

correctly calculated the penalty assessment as prescribed in

Subsection 440.107(7)(d), Florida Statutes.

39. Nu Way is liable for the penalty assessment of

$72,963.77, as indicated in the Proposed Second Amended Order of

Penalty Assessment.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

RECOMMENDED that Respondent, Department of Financial

Services, Division of Workers' Compensation, enter a final

order:

1. Finding that Petitioner, Nu Way Drywall, LLC, failed

to secure the payment of workers' compensation for its employees

in violation of Subsections 440.10(1)(a) and 440.38(1), Florida

Statutes; and

2. Assessing a penalty of $72,963.77 against Nu Way

Drywall, LLC.

DONE AND ENTERED this 28th day of October, 2008, in

Tallahassee, Leon County, Florida.

S

CAROLYN S. HOLIFIELD

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone]

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 28th day of October, 2008.

ENDNOTES

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

unless otherwise noted.

2/ The use of the penalty worksheet is required by Florida

Administrative Code Rule 69L-6.027.

COPIES FURNISHED :

Alex Rivera

Nu Way Drywall, LLC

384 Snapdragon Loop

Bradenton, Florida 34212

Thomas H. Duffy, Esquire

Division of Legal Services

Department of Financial Services

200 East Gaines Street, Sixth Floor

Tallahassee, Florida 32399-4229

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.