08-006237 Millenium Homes, Inc. vs. Department Of Financial Services, Division Of Workers' Compensation Status: Closed Recommended Order on Friday, May 28, 2010.

Summary: DFS proved by clear and convincing evidence that Petitioner failed to obtain workers' compensation coverage for at least 3 of its carpenters and all of its clerical help; Petitioner's explanation not credible; recommended penalty of $66,099.37.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MILLENIUM HOMES, INC., )

)

Petitioner, )

)

vs. ) Case No. 08-6237

)

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF WORKERS’ )

COMPENSATION, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was held in this case

before Daniel M. Kilbride, Administrative Law Judge of the

Division of Administrative Hearings (DOAH), on December 15,

2009, in Naples, Florida.

APPEARANCES

For Petitioner: Peter T. Flood, Esquire

125 North Airport Road, Suite 202

Naples, Florida 34104

For Respondent: Timothy L. Newhall, Esquire

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399

STATEMENT OF THE ISSUES

Whether Millenium Homes, Inc. (Petitioner) conducted

operations in the State of Florida without obtaining workers’

compensation coverage which meets the requirements of

Chapter 440, Florida Statutes (2008), in violation of

Subsection 440.107(2), Florida Statutes (2008) 1 , as alleged in

the Stop-Work Order and Order and Penalty Assessment and the

Fifth Amended Order of Penalty Assessment.

If so, what penalty should be assessed by the Department of

Financial Services, Division of Workers’ Compensation

(Respondent), pursuant to Section 440.107, Florida Statutes.

PRELIMINARY STATEMENT

On September 4, 2008, Respondent issued and served a Stop-

Work Order and Order of Penalty Assessment, directing Petitioner

to immediately stop work and cease all business operations in

Florida. Respondent requested and received business records and

calculated that Petitioner owed a penalty in the amount of

$425,104.38. Respondent served an Amended Order of Penalty

Assessment (AOPA) upon Petitioner on October 9, 2008. A Second

Amended Order of Penalty Assessment increasing the assessed

penalty to $426,359.94 was subsequently served on Petitioner.

Petitioner timely filed a Petition for Hearing on or about

October 16, 2008, and this matter was referred to DOAH to

conduct the formal hearing. This matter was set for hearing for

February 17, 2009, and after two continuances granted at the

request of the parties, this matter was placed in abeyance,

although discovery continued. On June 19, 2009, a Third Amended

Order of Penalty Assessment was filed, lowering the penalty

assessment to $316.072.72. Following additional discovery this

matter was reset for hearing. Following the transfer of this

matter to the undersigned Administrative Law Judge the final

hearing was held in Naples, Florida, on December 15, 2009.

At the beginning of the hearing, Respondent was granted

leave to file a Fourth Amended Order of Penalty Assessment,

which lowered the assessed penalty to $314,377.87. Respondent

called two witnesses: Maria Seidler, an investigator for

Respondent, and Lynne Murcia, Respondent’s penalty calculator.

Respondent’s Exhibits 1-4, 6, 7, and 8 were received into

evidence. Petitioner offered the testimony of two witnesses:

Javier Lopez, an employee of Petitioner, and James Loubert,

President and sole shareholder of Petitioner. Petitioner’s

Exhibits 1-5 were offered and received into evidence.

The Transcript of the proceeding was filed with DOAH on

January 15, 2010. On March 25, 2010, Respondent again filed a

Motion to Amend Order of Penalty Assessment, seeking leave to

file the Fifth Amended Order of Penalty Assessment (Fifth AOPA).

Without objection, the motion was granted, and the Fifth AOPA

was filed on March 30, 2010. The Fifth AOPA deleted all per

diem payments from the penalty worksheet, decreasing the

assessed penalty to $66,099.37. After five extensions requested

by the parties, Respondent filed its Proposed Recommended Order

on March 30, 2010. Petitioner’s proposals were received on

April 5, 2010. Both parties’ proposals have been given careful

consideration in the preparation of this Recommended Order.

FINDINGS OF FACT

1. Respondent is the state agency charged with the

responsibility of enforcing the requirements of Chapter 440,

Florida Statutes, that employers in Florida secure the payment

of workers’ compensation coverage for their employees.

§ 440.107(3), Fla. Stat.

2. Workers’ compensation coverage is required if a

business entity has one or more employees and is engaged in the

construction industry in Florida. The payment of workers’

compensation coverage may be secured via three non-mutually

exclusive methods: 1) the purchase of a workers’ compensation

insurance policy; 2) arranging for the payment of wages and

workers’ compensation coverage through an employee leasing

company; and 3) applying for and receiving a certificate of

exemption from workers’ compensation coverage if certain

statutorily mandated criteria are met.

3. On September 4, 2008, Maria Seidler, a compliance

investigator employed by Respondent, was making random site

visits at the Bella Vida development in North Fort Myers.

Seidler observed eight workers unloading a truck, taking

measurements, and performing various tasks on new homes under

construction. All eight of the men were engaged in some type of

activity on the job site. None were merely standing around,

sitting in a truck, or otherwise idle.

4. Seidler had all eight men stand in front of her, spoke

to them in Spanish, and recorded their names on her field

interview worksheet. All eight men advised Seidler, in Spanish,

that they worked for Millenium Homes. None of the men advised

Seidler that they did not work for Petitioner, nor that they

were present in hopes of applying for a job. The individual

apparently in charge at the job site, did not advise Seidler

that not all of the men present were working for Petitioner.

5. The evidence demonstrated that D.R. Horton was the

general contractor for the project, and that D.R. Horton had

contracted with Petitioner to frame out the housing units at the

project. The eight men, who were present on the job site and

who identified themselves as employees of Petitioner, confirmed

that they were present on September 4, 2008, to perform framing.

6. Framing is a construction activity as contemplated by

Subsection 440.02(8), Florida Statutes, and Florida

Administrative Code Rule 69L-6.021.

7. James Loubert, president and sole shareholder of

Petitioner, was not on the job site at the time of Seidler’s

arrival, and she initially spoke with him by telephone. Loubert

arrived at the job site a short time later. Loubert advised

Seidler that Petitioner had secured workers’ compensation

coverage for its employees through an employee leasing

arrangement with Employee Leasing Solutions (ELS). This

coverage was later confirmed by Seidler. However, of the eight

workers found on the job site, three workers, Alejandro Osorio,

Josue Sanchez Bautista, and Luis Aguilar, were not named on the

ELS list of Petitioner’s active, covered employees.

8. Seidler was very definite and precise in her testimony

that she observed Alejandro Osorio, Josue Sanchez Bautista, and

Luis Aguilar wearing hard hats and engaging in work activities

upon her arrival at the job site. Her testimony is found to be

credible.

9. When Loubert arrived at the job site, he informed

Seidler that two of the workers, not listed on Petitioner’s

active employee roster, were to have been sent home to pick up

their Social Security cards, and that he had called in the third

worker, Josue Sanchez Bautista, to ELS. Loubert did not inform

Seidler that Osorio, Bautista, and Aguilar were not employees of

Petitioner and were merely present at the job site in hopes of

applying for a job.

10. The Pre-hearing Stipulation signed by counsel for the

parties and filed with the DOAH clerk on December 8, 2009,

contained the following statements of admitted facts in

section E:

6) Respondent’s [sic] employees Josue Sanchez

Bautista, Luis Aguilar, and Juan Perez had not

been called into and accepted as employees by ELS

as of September 4, 2008.

7) Respondent [sic] was not in compliance with

the coverage requirements of Chapter 440, Florida

Statutes, as of September 4, 2008. 2

11. At the hearing, both Javier Perez and Loubert

testified that Osorio, Bautista, and Aguilar were not employees

of Petitioner, but rather were waiting on site for Loubert to

arrive, so that they could ask for jobs. However, they were all

wearing hard hats.

12. The testimony of Perez and Loubert is inconsistent

with the observations of Seidler, as well as the statements made

to Seidler by Loubert at the job site on September 8, 2008, and

is, therefore, not credible.

13. Petitioner had no workers’ compensation coverage other

than that provided though ELS, and no active exemptions. James

Loubert is the only officer of Petitioner, and did not have an

exemption from coverage as of September 4, 2008.

14. At the work-site, a Stop-Work Order 08-234-D7 was

issued and personally served upon James Loubert based upon

Petitioner’s failure to secure the payment of workers’

compensation for its employees Josue Sanchez Bautista, Luis

Aguilar, and Alejandro Osorio. A business records request was

also served on Loubert in order to obtain the records necessary

to calculate and assess a penalty on Petitioner based upon its

failure to comply with the coverage requirements of Chapter 440,

Florida Statutes. Pursuant to Section 440.107(5), Florida

Statutes, Petitioner’s business records were requested back to

September 5, 2005, or three years prior to the issuance of the

Stop-Work Order.

15. Petitioner produced the register for its primary

checking account to Respondent on September 4, 2008, in response

to Respondent’s request for business records.

16. Lynne Murcia is a compliance specialist for

Respondent. She reviews business records produced by employers

to determine the amount of payroll on which workers’

compensation premium was not paid, in order to calculate an

appropriate penalty for violations of the coverage requirements

of Chapter 440, Florida Statutes.

17. Upon review of the business records initially produced

by Petitioner, it was determined that the register from one of

Petitioner’s two business checking accounts was missing. The

records initially produced by Petitioner were, therefore,

insufficient for the calculation of an appropriate penalty. It

was requested that Petitioner produce the register for the

second checking account, and those records were quickly

produced. Thereafter, a 45-page summary of all transactions

potentially meeting the definitions of payroll set forth in

Florida Administrative Code Rule 69L-6.035 (the Rule), was

prepared and an Order of Penalty Assessment issued.

18. In determining which payments should potentially be

considered payroll, pursuant to the Rule, all payments made by

Petitioner directly to its employees that did not pass through

ELS were included. To the extent that those direct payments

meet the definition of payroll, they were subject to workers’

compensation premium and would be properly included in an

assessed penalty.

19. Petitioner also made direct “per diem” payments to

reimburse its employees for the cost of meals and lodging which

they incurred during the times that they were required to travel

away from home to perform their jobs. The per diem rates were

calculated pursuant to Internal Revenue Service guidelines, and

were deducted as a business expense on Petitioner’s income tax

returns for the years 2005-2007.

20. The Rule requires that expense reimbursements by an

employer to employees be included as payroll subject to workers’

compensation premium to the extent that the business records of

the employer do not confirm that the expenses were incurred as

valid business expenses.

21. All per diem payments made by Petitioner to its

employees were included in the calculations, because Petitioner

did not produce the receipts reflecting that its employees had

actually incurred meal and lodging expenses in those amounts.

However, following the December 15, 2009, hearing, Respondent

examined the issue further and concluded that Petitioner’s per

diem payments to its employees were properly documented as

business expenses on Petitioner’s income tax returns.

Respondent thereafter sought leave to file its Fifth Amended

Order of Penalty Assessment deleting all per diem payments from

the assessed penalty.

22. Petitioner made numerous payments to third parties who

provided construction, maintenance, or janitorial services at

the homes of James Loubert, his father, Adrian Loubert, and his

wife, April White, or who provided child care services for the

Loubert family. For example, Petitioner paid $1,500.00 for tile

work performed at James Loubert’s residence; $478.00 to Alex

Ortiz, Antonio Elias, and Candy Ortiz for pressure-washing the

homes of James Loubert and April White; $2,548.14 to Pedro

Delgano for building cabinets for the homes of James Loubert and

his father; $11,326.40 to Rick Wilson for painting the houses of

James and Adrian Loubert; and beginning August 23, 2007, through

December 20, 2007, $1,433.66 to Diane Berger for cleaning James

Loubert’s home. Petitioner also paid $3,402.00 to Cinta Smollis

for babysitting services provided to Loubert. These individuals

do not appear on the penalty work sheet of the Fifth Amended

Order of Penalty Assessment, since they do not meet the

statutory definition of employees.

23. Petitioner also paid large sums of money to Adrian

Loubert for the purchase of a farm in Canada. In addition,

James Loubert testified that some of the payments to his father

represented expense reimbursements, suggesting that, at some

point, Adrian Loubert had been an employee of Petitioner.

Petitioner did not introduce any exhibits into evidence

reflecting the nature or amount of the reimbursements allegedly

being made to Adrian Loubert.

24. James Loubert was actively involved in the carpentry

work performed by Petitioner, on the project on which the stop-

work order was issued as well as on prior projects.

Nevertheless, he received only a minimal salary through

Petitioner’s employee leasing company, ELS. In 2007, Loubert

received a total salary of $11,000.00 through ELS. In 2008, he

received a total salary through ELS of only $7,200.00. Any

payments that James Loubert received directly from Petitioner,

that meet the definition of payroll set forth in the Rule, were

subject to workers’ compensation premium, and are therefore

subject to penalty.

25. During the three-year penalty period specified by the

statute, Petitioner made many cash payments to, or for the

benefit of, James Loubert. The business records produced by

Petitioner indicate that these cash payments were made to payees

such as Blockbuster Video, Toys-R-Us, and PetsMart, as well as

for vacation expenses. In addition, James Loubert took large

amounts of cash from Petitioner to facilitate his hobby of

racing cars.

26. Throughout the penalty period, Petitioner also made

numerous payments to Loubert’s wife, April White, and to his

daughter, Alexa Seagate. Petitioner also made numerous payments

to Gary White, his father-in-law and one of Petitioner’s

employees. James Loubert testified that the payments made to,

or on behalf of, family members, the payments made to third-

party payees, and the cash payments which he took from

Petitioner reflected shareholder distributions. However, the

memo lines on those payment entries do not indicate that those

payments were intended to be shareholder distributions.

Petitioner’s business records reflect that the memo line on a

check would indicate that it was a shareholder distribution, if

that was what it was intended to be. This was the practice on

other transactions. In addition, James Loubert testified that

the memos for his Quick Books entries reflect “exactly what”

each payment was for. Presumably those memo entries are the

same as the memo entries on the corresponding checks.

27. The payments made by Petitioner to third parties from

which it appears that Petitioner did not receive services or a

benefit, including but not limited to the payments made to

family members of James Loubert, and the cash payments made by

Petitioner to finance James Loubert’s auto racing hobby, do not

constitute legitimate business expenses.

28. Petitioner frequently made loans or wage advances to its

employees. Although Loubert testified that those loans were

repaid to him, he later acknowledged that a $2,000.00 loan to

employee Rachel Broulet was never paid back, and that a $975.00

loan to Nicholas Susa was never repaid. Petitioner did not

produce business records or documentary evidence at the hearing

that indicates that any of the loans which it made to employees

were repaid.

29. The State of Florida has adopted a classification code

developed by the National Council of Compensation Insurance

(NCCI), which assigns individual four digit codes to various

classes of labor. This classification code is utilized to

segregate different categories of labor by risk and to determine

appropriate workers’ compensation premiums for those classes of

labor in Florida. Fla. Admin. Code R. 69L-6.021.

30. As noted above, Petitioner was performing framing work

at the time of the September 4, 2008, inspection. Because

Petitioner’s employees were observed at work constructing

residential homes, classification code 5645, detached one or two

family dwellings, was correctly applied to Petitioner’s

employees directly engaged in construction activities. This

includes Javier Perez, as he was working along with and directly

supervising the other seven carpenters who were working on site

when the inspection took place.

31. Classification code 8742, outside sales, has been

applied to James Loubert, as he was not observed working on

September 4, 2008. However, Loubert did testify at his

deposition that he usually performed construction work along

side Petitioner’s other employees, but Respondent did not apply

the construction code to him in the Fifth Amended Order of

Penalty Assessment.

32. Classification code 8810 was correctly applied to

those employees of Petitioner who performed clerical work in the

office.

33. The appropriate manual rates for each year of the

penalty period of September 5, 2005, through September 4, 2008,

was applied for each classification code assigned to

Petitioner’s employees.

34. In preparing the Fifth Amended Order of Penalty

Assessment, the amount of unsecured payroll attributable to each

employee of Petitioner listed on the penalty worksheet was

correctly calculated. From the evidence, Luis Aguilar and

Alejandro Osorio were to be paid $10.00 per hour. There was no

evidence that Aguilar and Osorio had worked prior to the

issuance of the Stop-Work Order, and therefore, earnings of

$80.00 assigned, reflecting eight hours at $10.00 per hour for

September 4, 2008, was correct. Petitioner failed to provide

any business records or other information concerning the rate

of pay for Josue Sanchez Bautista, the third non-compliant

worker. Bautista’s wages for September 4, 2008, can be imputed

utilizing the statewide average wage pursuant to Subsection

440.107(7)(e), Florida Statutes.

CONCLUSIONS OF LAW

35. DOAH has jurisdiction over the subject matter and the

parties to this action in accordance with Sections 120.569 and

120.57(1), Florida Statutes (2009).

36. The Legislature has delegated to Respondent the

authority to enforce the workers’ compensation coverage

requirements of Chapter 440, Florida Statutes. See § 440.107(3),

Fla. Stat. In Respondent’s interpretation of the statutes it is

charged with enforcing, including Section 440.107, Florida

Statutes, it is entitled to great deference. Verizon Florida,

Inc. v. Jacobs , 810 So. 2d 906 (Fla. 2002); Florida Hospital v.

Agency for Health Care Administration , 823 So. 2d 844 (Fla. 1st

DCA 2002).

37. Respondent is seeking to assess an administrative fine

against Petitioner. As administrative fines are penal in

nature, Respondent is required to prove that Petitioner failed

to secure the payment of workers’ compensation insurance

coverage for its employees by clear and convincing evidence.

Department of Banking and Finance, Division of Securities and

Investor Protection v. Osborne Sterne, Inc. , 670 So. 2d 932, 935

(Fla. 1996); Department of Financial Services, Division of

Workers’ Compensation v. John H. Woods d/b/a Woods Construction ,

Case No. 08-5348 (DOAH July 17, 2009, adopted in toto).

38. Subsection 440.10(1)(a), Florida Statutes, reads as

follows:

(1)(a) 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.

39. Subsection 440.38(1)(a), Florida Statutes, reads as

follows:

(1) Every employer shall secure the payment

of compensation under this chapter:

(a) By insuring and keeping insured the

payment of such compensation with any stock

company or mutual company or association or

exchange, authorized to do business in the

state.

40. Section 440.107, Florida Statutes, reads in pertinent

part:

(1) The Legislature finds that the failure

of an employer to comply with the workers’

compensation coverage requirements under

this chapter poses an immediate danger to

public health, safety, and welfare.

(2) For the 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, . . . .

* * *

(7)(a) 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 the 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.

* * *

(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 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.

41. An “employer” is defined as “every person carrying on

means any service performed by an employee for the person

means any person who received remuneration from an employer for

the performance of any work or service while engaged in any

employment. . . .” § 440.02(15)(a), Fla. Stat.

42. Subsection 440.02(8), Florida Statutes, reads as

follows:

(8) “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.

43. Subsection 440.02(17)(b), Florida Statutes, defines

employment subject to workers’ compensation coverage as:

(b) “Employment” includes:

* * *

2. 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.

44. Subsection 440.09(1), Florida Statutes, requires that

“[t]he employer must pay compensation or furnish benefits

required by this chapter if the employee suffers an accidental

compensable injury or death arising out of work performed in the

course and the scope of employment. . . .”

45. Florida Administrative Code Rule 69L-6.035, reads in

pertinent part:

(1) For purposes of determining payroll for

calculating a penalty pursuant to Section

440.107(7)(d)1., F.S., the Department shall

when applicable include any one or more of

the following as remuneration to employees

based upon evidence received in its

investigation:

(a) Wages or salaries paid to employees by

or on behalf of the employer;

(b) Payments, including cash payments, made

to employees by or on behalf of the

employer;

(c) Payments, including cash payments, made

to a third person or party by or on behalf

of the employer for services provided to the

employer by the employees;

(d) Bonuses paid to employees by or behalf

of the employer;

(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;

(f) Expense reimbursements made to

employees by or on behalf of the employer,

to the extent that the employer’s business

records do not confirm that the expense was

incurred as a valid business expense;

(g) Loans made to employees by or on behalf

of the employer to the extend that such

loans have not been repaid to the employer;

* * *

(2) For the purposes of calculating a penalty

pursuant to Section 440.107(7)(d)1., F.S.,

payroll for an officer of a corporation as

defined in Section 440.02(9), F.S., shall be

based on remuneration factors listed in

paragraphs (1)(a) through (j) of this rule

where applicable, or the state average weekly

wage as defined in Section 440.12(2), F.S.,

that is in effect at the time the stop-work

order was issued to the employer, multiplied

by 1.5, whichever is less.

46. Florida Administrative Code Rule 69L-6.028 (2008)

reads, in pertinent part:

(1) In the event an employer fails to

produce business records sufficient for the

department to determine the employer’s

payroll for the period requested for the

calculation of the penalty pursuant to

Section 440.107(7)(e), F.S., the department

shall impute payroll at any time after the

expiration of fifteen business days after

receipt by the employer of a written request

to produce such business records.

(2) When an employer fails to provide

business records sufficient to enable the

department to determine the employer’s

payroll for the period requested for

purposes of calculating the penalty provided

for in Section 440.107(7)(d), F.S., the

imputed weekly payroll for each employee,

corporate officer, sole proprietor or

partner of the portion of the employer’s

non-compliance occurring on or after

October 1, 2003 shall be calculated as

follows:

(a) For employees other than corporate

officers, for each employee identified by

the department as an employee of such

employer at any time during the period of

the employer’s non-compliance, the imputed

weekly payroll for each week of the

employer’s non-compliance for each such

employee shall be the statewide average

weekly wage as defined in Section

440.12(2), F.S., that is in effect at the

time the stop-work order was issued to the

employer, multiplied by 1.5.

47. The payments which Petitioner made to third parties,

including but not limited to those detailed above, and to Adrian

Loubert, as set forth in paragraph 23, are properly reallocated

to James Loubert as personal compensation for services which he

performed on behalf of Petitioner, pursuant to the Rule.

48. The large cash payments which Petitioner made to James

Loubert, which he used primarily to finance his auto racing

hobby, and to a lesser extent for family expenses, were also

properly accounted for as personal compensation to James Loubert

pursuant to the Rule. As with the payments made to third

parties and Adrian Loubert, James Loubert utilized the cash

payments from Petitioner for his own personal benefit and for

the benefit of his family members.

49. The payments made by Petitioner, to or on behalf of,

James Loubert’s wife and daughter were also properly

reclassified as personal compensation to James Loubert, pursuant

to the Rule. Those payments made by Petitioner to third parties

were in return for services performed by James Loubert for

Petitioner.

50. The reallocation of payments made by Petitioner to

third parties, including members of James Loubert’s family, as

well as Petitioner’s cash payments made directly to James

Loubert, as personal compensation to Loubert is particularly

appropriate in light of the fact that James Loubert performed

services on behalf of Petitioner and yet took only a minimal

salary through Petitioner’s employee leasing company. By

providing large sums of money to James Loubert while he drew

only a minimum salary through ELS, Petitioner has wrongly

avoided workers’ compensation premiums on payments which

squarely meet the definition of payroll set forth in the Rule.

51. Florida Administrative Code Rule 69L-6.035(2), limits

the amount of payroll that may be assigned to a corporate

officer to the amount calculated pursuant to Sections (a)-(j) of

Florida Administrative Code Rule 69L-6.035(1) or the statewide

average wage, times 1.5, whichever is lower. The evidence

demonstrates that payments to third parties and cash totaling

$300,564.40 have been properly reallocated to James Loubert as

personal compensation. However, correctly applying Florida

Administrative Code Rule 69L-6.035(2) would limit the amount of

those payments reallocated to James Loubert as wages subject to

workers’ compensation premium and penalty to the appropriate

state average weekly wage for each year of the penalty period

times 1.5. Therefore, the sum of $17,424.43 is correctly

allocated to James Loubert as payroll for the period of

September 5, 2005, through December 31, 2005, $53,962.98 for

2006, and $55,950.00 for 2007. To the extent that those

payments reallocated to James Loubert for the years in question

exceed the state average weekly wage times 1.5, they are

properly designated as shareholder distributions which are

excluded from payroll.

52. Petitioner failed to produce business records of any

type demonstrating that any payments made to Gary White, during

the penalty period were, in fact, reimbursements. As the

records and testimony provided by Petitioner make it impossible

to determine which payments to White constitute payroll and

which constitute expense reimbursements, it is proper to include

all such payments as payroll.

53. Petitioner did not produce any records that reflect

that any alleged loans or payroll advances made to its employees

were in fact repaid. Therefore, it is proper to include all

such loans as payroll pursuant to the Rule.

54. The income of Josue Sanchez Batista for one day,

September 4, 2008, is properly imputed, given the failure of

Petitioner to provide any information as to the amount of his

pay. The earnings of Alejandro Osorio and Luis Aguilar, based

upon information provided by Petitioner that they were to be

paid at the rate of $10.00 per hour, is proper.

55. In his deposition testimony, James Loubert testified

that in 2006 he made a loan to Petitioner in the amount of

$254,000.00. Respondent’s Exhibits 6 and 7 indicate that

payments were made by Petitioner to James Loubert in 2007

totaling $54,600.00 for “2007 (sic) loan reimbursement.”

Petitioner offered no evidence at the hearing to verify the

making of such a loan, or that any of the 2007 payments made to

James Loubert were loan repayments.

56. However, even if it is accepted that Petitioner made

loan repayments to James Loubert in the amount of $54,600.00 in

2007, this does not make the assignment of income to James

Loubert, as payroll, in the amount of $55,950.00 for 2007

incorrect. In 2007, James Loubert received direct payments

totaling in excess of $15,000.00 in addition to those payments

notated as loan repayments. Subtracting the $54,600 in loan

repayments from the total of the direct payments and third party

payments reallocated to James Loubert leaves more than

$62,000.00, an amount well in excess of the maximum attributable

as income to Loubert as a corporate officer for 2007.

57. The procedure mandated by Subsection 440.107(7)(d)1.,

Florida Statutes, to calculate the penalty owed by Petitioner by

virtue of its failure to comply with the coverage requirements

of Chapter 440, Florida Statutes is proper. Using the penalty

worksheet, mandated by Florida Administrative Code

Rule 69L-6.027, those transactions constituting payroll for

which no workers’ compensation premiums had been paid were

properly identified, assigned the appropriate classification

code, and then the applicable period of non-compliance for each

individual employee was also identified. The gross payroll

amount for each employee for each period of non-compliance,

divided by 100 and multiplied by the applicable approved manual

rate, results in the amount of workers’ compensation premium

that Petitioner should have paid. The amount of premium that

Petitioner should have paid multiplied by 1.5 determines the

correct amount of the penalty owed by Petitioner as a result of

its failure to comply with the coverage requirements of

Chapter 440, Florida Statutes.

58. Based upon the findings of fact and the definitions

set forth above, the evidence is clear and convincing that,

Petitioner, Millenium Homes, Inc. is an employer engaged in the

construction industry. Petitioner is, therefore, required to

provide workers’ compensation insurance coverage for its

employees, as well as employees of subcontractors who have not

secured the payment of workers’ compensation.

59. Based upon the findings of fact and statutory

provisions set forth above, the evidence is clear and convincing

that Petitioner was not in conformance with the coverage

requirements of Chapter 440, Florida Statutes, on September 4,

2008, and the Stop-Work Order was properly issued.

60. Therefore, it has been demonstrated by clear and

convincing evidence, that Petitioner was not in compliance with

the coverage requirements of Chapter 440, Florida Statutes, and

that a penalty, in the amount of $66,099.37, should be assessed

for Petitioner’s failure to secure the payment of workers’

compensation for its employees.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is RECOMMENDED that the Department of Financial Services

enter a final order finding that Millenium Homes, Inc., failed

to secure the payment of workers’ compensation insurance

coverage for its employees, in violation of Section 440.38(1),

Florida Statutes, and that a penalty in the amount of $66,099.37

should be imposed for the failure to provide the required

workers’ compensation insurance coverage.

DONE AND ORDERED this 28th day of May, 2010, 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]

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 28th day of May, 2010.

ENDNOTES

1/ All references to Florida Statutes are to Florida Statutes

(2008), unless otherwise indicated.

2/ Admitted facts 6 and 7 were clearly intended to state that

Petitioner, Millenium Homes, Inc., was not in compliance with

Chapter 440, Florida Statutes. However, due to the unusual

circumstances in which Millenium Homes, Inc. was designated as

the Petitioner and the Department was designated as the

Respondent, the Petitioner was mistakenly referred to as the

Respondent and vice versa throughout the entire proceedings.

COPIES FURNISHED :

Timothy L. Newhall, Esquire

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399

Peter T. Flood, Esquire

125 North Airport Road, Suite 202

Naples, Florida 34104

Julie Jones, CP, FRP, Agency Clerk

Department of Financial Services

Division of Legal Services

200 East Gaines Street

Tallahassee, Florida 32399-0390

Honorable Alex Sink

Chief Financial Officer

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399-0300

Benjamin Diamond, 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.