08-004411 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. Mike Hill Construction, Inc. Status: Closed Recommended Order on Monday, December 15, 2008.

Summary: Respondent employed Mike Hill, who was eligible for an exemption from workers` compensation insurance, but did not obtain exemption from the Department.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF WORKERS' )

COMPENSATION, )

)

Petitioner, )

)

vs. ) Case No. 08-4411

)

MIKE HILL CONSTRUCTION, INC., )

)

Respondent. )

)

RECOMMENDED ORDER

This cause came on for final hearing before Harry L.

Hooper, Administrative Law Judge with the Division of

Administrative Hearings, on October 21, 2008, in Bronson,

Florida.

APPEARANCES

For Petitioner: Douglas D. Dolan, Esquire

Justin H. Faulkner, Esquire

Department of Financial Services

Division of Legal Services

200 East Gaines Street

Tallahassee, Florida 32399-4229

For Respondent: Michael C. Hill, pro se

Mike Hill Construction, Inc.

9650 Northeast 136th Court

Williston, Florida 32696

STATEMENT OF THE ISSUE

The issue is whether Petitioner's Stop-Work Order and

Amended Order of Penalty Assessment are lawful.

PRELIMINARY STATEMENT

On July 10, 2008, the Department of Financial Services

(Department) issued a Stop-Work Order (SWO) and Order of Penalty

Assessment to Mike Hill Construction, Inc. (Hill, Inc.). Hill,

Inc., asserted its right to a hearing, and the matter was

forwarded to the Division of Administrative Hearings and filed

on September 8, 2008. The hearing was scheduled for October 21,

2008, in Bronson, Florida, and was held at the time and place

noticed.

At the hearing, Petitioner presented the testimony of two

witnesses and offered nine exhibits into evidence. Respondent

testified and offered two exhibits into evidence. All offered

exhibits were accepted into evidence.

A Transcript was filed on November 12, 2008. After the

hearing, both Petitioner and Respondent timely filed their

Proposed Recommended Orders.

References to statutes are to Florida Statutes (2007)

unless otherwise noted.

FINDINGS OF FACT

1. The Division of Workers' Compensation (Division) is a

component of the Department. The Department is a state agency

charged with the administration of portions of the "Workers'

Compensation Law." Among the Division's duties is enforcing the

statutory requirement that employers secure the payment of

workers' compensation coverage for the benefit of their

employees and corporate officers who are required to be covered.

2. William Pangrass is an investigator for the Division.

Specifically, Mr. Pangrass works in the Bureau of Compliance in

the Division's office in Ocala, Florida.

3. In that capacity, Mr. Pangrass was doing a routine

compliance check on July 10, 2008, at the premises located at

2942 Northwest 144th Terrace in Gainesville, Florida. There was

new construction on the site. Mr. Pangrass saw two men talking

to one another and going about the site and concluded they were

involved in the construction. He went inside and saw a third

man on a ladder located in the interior of the house being

built. The third man was finishing drywall.

4. The activities observed by Mr. Pangrass were

construction industry activities as defined and classified by

Florida Administrative Code Rule 69L-6.021. This Rule adopts

the SCOPES Manual of the National Council on Compensation

Insurance (NCCI).

5. One of the three men identified himself as Mike Hill,

the principal of Hill, Inc. Mr. Pangrass inquired into

Mr. Hill's workers' compensation status. Mr. Hill provided an

expired exemption card. Inquiry as to the other two men

revealed that one, Mr. Beauregard, had an expired exemption card

and the other, Mr. Petrokowski, had no exemption at all.

6. Mr. Pangrass verified that Mr. Hill was not covered by

a policy of workers' compensation insurance and did not have an

exemption from coverage, by using the Coverage and Compliance

Automated System (CCAS) website. He also reviewed the Florida

Department of State, Division of Corporations' website to verify

the status of Hill, Inc. Mr. Pangrass learned that Hill, Inc.,

had no workers' compensation coverage. Furthermore, it was

verified that Mr. Hill, who was eligible for an exemption, had

not obtained an exemption when his previous exemption expired on

June 29, 2008.

7. After consulting with higher authority, Mr. Pangrass

issued a Stop-Work Order and served it on July 10, 2008. He

also served Mr. Hill with a Request for Business Records for

Penalty Assessment Calculation. Mr. Hill responded with records

as requested. The records consisted of bank statements and

copies of checks signed by Mike Hill on behalf of Hill, Inc.,

and a statement by Mr. Hill that he had earned $2,571.91 during

the period June 30, 2008, through July 10, 2008.

8. It was Mr. Hill's duty to obtain an exemption from the

Department, and he failed in that duty. Undoubtedly, the

failure was due to an oversight on his part. Although one may

be eligible for an exemption, as Mr. Hill was, the exemption

does not occur absent an applicant satisfying the Department's

documentary requirements, and Mr. Hill did not. Because he was

out of compliance from June 30, 2008, until July 10, 2008, Hill,

Inc., employed a person without insuring that the person was

covered or exempt.

9. The records provided were the sourced documents for an

Amended Order of Penalty Assessment prepared by Mr. Pangrass and

served on Mr. Hill on July 21, 2008. This document listed names

of purported employees or subcontractors, as determined from the

business records. They were Mike Beauregard; Daryl Miller, LLC;

Fred Atkins; Ashley's Top Shop; and Mike Hill.

10. A Penalty Worksheet was used to calculate the

penalties. On the Penalty Worksheet, the five people or

entities were assigned NCCI class codes as discussed in

paragraph 4, above. Thereafter, the periods of noncompliance

were set forth, followed by the payroll for the period. The

payroll for each person or entity was divided by 100, and the

result was multiplied by the manual rate for the class to

determine the premium that should have been paid. Thereafter,

the premium was multiplied by 1.5, which is the statutory

penalty. This resulted in a total penalty for Hill, Inc., of

$1,447.13

11. It was determined that Hill, Inc., made payments to

Mr. Beauregard, who had no exemption, and that Mr. Beauregard

paid Mr. Petrokowski, who had no workers' compensation coverage.

They were properly included on the Penalty Worksheet.

12. With regard to Fred Atkins, none of the records

provided to Mr. Pangrass indicate a $250.00 payment to anyone

named Fred Atkins. Mr. Pangrass could not explain from where he

derived the name Fred Atkins and could not document any payment

to him by Hill, Inc. The $41.70 on the Penalty Worksheet

attributable to the Fred Atkins entry should be deducted from

the total penalty.

13. Daryl Miller, LLC, appeared twice on the Penalty

Worksheet, because it was assumed that the entity was engaged in

floor covering and the approved manual rate for floor covering

increased. However, there is nothing in the business records

introduced into evidence to support any payment to Daryl Miller,

LLC, either on June 20, 2007, or between September 26, 2006, and

November 16, 2006, as appears on the Penalty Worksheet.

14. There is a check in evidence with a payee of Daryl

Floor Covering in the amount of $2,140.00, and dated June 27,

2008. Mr. Hill's unrebutted testimony was that Daryl Miller,

LLC, an entity without workers' compensation coverage, and Daryl

Floor Covering, a company with workers' compensation coverage,

are totally different entities. The lack of evidentiary support

for payments to Daryl Miller, LLC, requires that the portion of

the penalty attributable to that entity, in the amount of

$593.10, be deducted from the amount calculated by Mr. Pangrass.

15. With regard to Ashley's Top Shop, Mr. Hill's

unrebutted testimony was that Ashley's Top Shop was a fabricator

of counter tops. Mr. Hill stated that he would typically take a

pattern to Ashley's Top Shop and that a countertop would be made

from it. Thereafter, Mr. Hill testified that he obtained the

countertop and installed it. This procedure is a retail sale as

opposed to a contractor-subcontractor or employment

relationship. The portion of the penalty attributable to

Ashley's Top Shop in the amount of $151.61, should be deducted

from the amount calculated by Mr. Pangrass.

16. It is therefore demonstrated by the evidence of record

that the correctly calculated penalty is $660.72.

17. Mr. Hill paid the assessment of $1,447.13, and

properly applied for an exemption. The exemption was granted,

and on July 21, 2008, Mr. Hill received an Order of Release from

Stop-Work Order, and Amended Order of Penalty Assessment. On

that date, he also signed a statement that he had terminated all

subcontractors and employees who were not in compliance with the

workers' compensation law and that he will not hire anyone

unless in compliance with the workers' compensation law.

CONCLUSIONS OF LAW

18. The Division of Administrative Hearings has

jurisdiction over the subject matter of and the parties to this

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

19. Because administrative fines are penal in nature, the

Department has the burden to prove by clear and convincing

evidence that Hill, Inc., failed to be in compliance with the

coverage requirements set forth, by not securing a certificate

of exemption for Mr. Hill, who was entitled to a certificate of

exemption for the period June 30, 2008, through the time he was

designated exempt on July 10. The Department must further prove

by clear and convincing evidence that Hill, Inc., failed to

ensure that Mr. Beauregard and Mr. Petrokowski were covered by

workers' compensation insurance when Mr. Hill employed them.

Department of Banking and Finance, Division of Securities and

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

1996) and L and W Plastering and Drywall Services, Inc. v.

Department of Financial Services, Division of Workers'

Compensation , Case No. 06-3261 (DOAH, March 16, 2007).

20. The Florida Legislature has determined that the

failure of an employer to comply with the requirement to provide

workers' compensation coverage to employees ". . . poses an

immediate danger to public health, safety, and welfare."

§ 440.107(1), Fla. Stat.

21. Pursuant to Sections 440.10 and 440.338, Florida

Statutes, employers must secure the payment of workers'

compensation for their employees. Specifically, Subsection

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 or her employees, or any

physician, surgeon, or pharmacist providing services under the

provisions of s. 440.13 , 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."

22. Subsections 440.107(2), (3), and (7), Florida

Statutes, authorize the Department to issue stop-work orders and

penalty assessment orders in its enforcement of workers'

compensation coverage requirements, and read in pertinent part:

440.107 --Department powers to enforce

employer compliance with coverage

requirements

* * *

(2) For purposes of this section,

'securing the payment of workers'

compensation' means obtaining coverage that

meets the requirements of this chapter and

the Florida Insurance Code. . . .

* * *

(3) The department shall enforce workers'

compensation coverage requirements,

including the requirement that the employer

secure the payment of workers' compensation,

and the requirement that the employer

provide the carrier with information to

accurately determine payroll and correctly

assign classification codes. In addition to

any other powers under this chapter, the

department shall have the power to:

* * *

(g) Issue stop-work orders, penalty

assessment orders, and any other orders

necessary for the administration of this

section.

* * *

(7)(d)1. 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.

23. The definition of employee and the status of corporate

officers as employees for purposes of workers' compensation are

outlined in Subsections 440.02(15)(a) and (b), Florida Statutes,

which provide in part:

440.02. Definitions --When used in this

chapter, unless the context clearly requires

otherwise, the following terms shall have

the following meanings:

* * *

(15)(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, and includes, but is not limited

to, aliens and minors.

(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 s.440.05.

2. As to officers of a corporation who

are engaged in the construction industry, no

more than three officers of a corporation or

of any group of affiliated corporations may

elect to be exempt from this chapter by

filing written notice of the election with

the department as provided in s. 440.05.

Officers must be shareholders, each owning

at least 10 percent of the stock of such

corporation and listed as an officer of such

corporation with the Division of

Corporations of the Department of State, in

order to elect exemptions under this

chapter. For purposes of this subparagraph,

the term "affiliated" means and includes one

or more corporations or entities, any one of

which is a corporation engaged in the

construction industry, under the same or

substantially the same control of a group of

business entities which are connected or

associated so that one entity controls or

has the power to control each of the other

business entities. The term "affiliated"

includes, but is not limited to, the

officers, directors, executives,

shareholders active in management,

employees, and agents of the affiliated

corporation. The ownership by one business

entity of a controlling interest in another

business entity or a pooling of equipment or

income among business entities shall be

prima facie evidence that one business is

affiliated with the other.

3. An officer of a corporation who

elects to be exempt from this chapter by

filing a written notice of the election with

the department as provided in s. 440.05 is

not an employee.

Services are presumed to have been

rendered to the corporation if the officer

is compensated by other than dividends upon

shares of stock of the corporation which the

officer owns.

24. Section 440.05, Florida Statutes, provides the

procedure for corporate officers to exempt themselves from

workers' compensation coverage. It provides in relevant part,

as follows:

440.05. Election of exemption; revocation of

election; notice; certification

(1) Each corporate officer who elects not

to accept the provisions of this chapter or

who, after electing such exemption, revokes

that exemption shall mail to the department

in Tallahassee notice to such effect in

accordance with a form to be prescribed by

the department.

* * *

(3) Each officer of a corporation who is

engaged in the construction industry and who

elects an exemption from this chapter or

who, after electing such exemption, revokes

that exemption, must mail a written notice

to such effect to the department on a form

prescribed by the department. The notice of

election to be exempt from the provisions of

this chapter must be notarized and under

oath. The notice of election to be exempt

which is submitted to the department by the

officer of a corporation who is allowed to

claim an exemption as provided by this

chapter must list the name, federal tax

identification number, social security

number, all certified or registered licenses

issued pursuant to chapter 489 held by the

person seeking the exemption, a copy of

relevant documentation as to employment

status filed with the Internal Revenue

Service as specified by the department, a

copy of the relevant occupational license in

the primary jurisdiction of the business,

and the registration number of the

corporation filed with the Division of

Corporations of the Department of State

along with a copy of the stock certificate

evidencing the required ownership under this

chapter. The notice of election to be

exempt must identify each corporation that

employs the person electing the exemption

and must list the social security number or

federal tax identification number of each

such employer and the additional

documentation required by this section. In

addition, the notice of election to be

exempt must provide that the officer

electing an exemption is not entitled to

benefits under this chapter, must provide

that the election does not exceed exemption

limits for officers provided in s. 440.02,

and must certify that any employees of the

corporation whose officer elects an

exemption are covered by workers'

compensation insurance. Upon receipt of the

notice of the election to be exempt, receipt

of all application fees, and a determination

by the department that the notice meets the

requirements of this subsection, the

department shall issue a certification of

the election to the officer, unless the

department determines that the information

contained in the notice is invalid. The

department shall revoke a certificate of

election to be exempt from coverage upon a

determination by the department that the

person does not meet the requirements for

exemption or that the information contained

in the notice of election to be exempt is

invalid. The certificate of election must

list the name of the corporation listed in

the request for exemption. A new

certificate of election must be obtained

each time the person is employed by a new or

different corporation that is not listed on

the certificate of election. A copy of the

certificate of election must be sent to each

workers' compensation carrier identified in

the request for exemption. Upon filing a

notice of revocation of election, an officer

who is a subcontractor or an officer of a

corporate subcontractor must notify her or

his contractor. Upon revocation of a

certificate of election of exemption by the

department, the department shall notify the

workers' compensation carriers identified in

the request for exemption.

25. Even though a person meets all of the requirements for

an exemption, that person does not become exempt until the

process outlined by Sub section 440.05(3), Florida Statutes , has

been accomplished. Accordingly, Mr. Hill was an employee during

all times pertinent, and Hill, Inc., was required to obtain

coverage and failed to do so.

26. Mr. Hill and his employees, Mr. Beauregard and

Mr. Petrokowski, were not covered by workers' compensation

insurance during the times indicated on the Penalty Worksheet,

and the penalties calculated by the Department in the case of

these three men are correct.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions

of Law, it is

RECOMMENDED that the Department of Financial Services enter

a final order requiring Hill, Inc., to pay a penalty of $660.72,

and to refund any amounts paid by Hill, Inc., in excess of that

amount.

DONE AND ENTERED this 15th day of December, 2008, in

Tallahassee, Leon County, Florida.

S

HARRY L. HOOPER

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 15th day of December, 2008.

COPIES FURNISHED :

Douglas D. Dolan, Esquire

Department of Financial Services

Division of Legal Services

200 East Gaines Street

Tallahassee, Florida 32399-4229

Michael C. Hill

Mike Hill Construction, Inc.

9650 Northeast 136th Court

Williston, Florida 32696

Justin H. Faulkner, Esquire

Department of Financial Services

Division of Legal Services

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

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.