09-003912 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. Countywide Siding And Windows, Inc. Status: Closed Recommended Order on Friday, April 2, 2010.

Summary: The evidence did not show that Respondent failed to secure Workers' Compensation insurance for employees from leasing company when no one from leasing company testified and lease contract not introduced into evidence.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF WORKERS’ )

COMPENSATION, )

)

Petitioner, )

)

vs. ) Case No. 09-3912

)

COUNTYWIDE SIDING AND WINDOWS, )

INC., )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a hearing was held before Diane

Cleavinger, Administrative Law Judge, Division of Administrative

Hearings, on January 7, 2010, in Panama City, Florida.

APPEARANCES

For Petitioner: Douglas D. Dolan, Esquire

Department of Financial Services

Division of Legal Services

200 East Gaines Street

Tallahassee, Florida 32399

For Respondents: India Creed, pro se

Countrywide Siding and Windows, Inc.

5314 Peppertree Court

Panama City, Florida 32404

STATEMENT OF THE ISSUES

The issues in this matter are whether Countrywide Siding

and Windows, Inc., failed to secure workers compensation that

meets the requirements of Chapter 440, Florida Statutes, and, if

so was correctly assessed a penalty for violating, the workers’

compensation laws of Florida.

PRELIMINARY STATEMENT

On February 17, 2009, Petitioner issued and served a Stop-

Work Order and Order of Penalty Assessment on Respondent,

alleging that Respondent had failed to obtain workers’

compensation coverage that met the requirements of Chapter 440,

Florida Statutes, and ordering Respondent to cease all business

operations. Petitioner also issued and served on Respondent a

Division of Workers’ Compensation Request for Production of

Business Records for Penalty Assessment Calculation on the same

day. After receiving Respondent’s business records in response

to the request, Petitioner issued and served an Amended Order of

Penalty Assessment (Amended Order) on Respondent on March 13,

2009, assessing a penalty in the amount of $159,002.46 against

Respondent pursuant to Section 440.107(7)(d), Florida Statutes.

On June 9, 2009, in response to additional documents submitted

by Respondent, Petitioner issued and served a 2nd Amended Order

of Penalty Assessment (2nd Amended Order) on Respondent on

June 9, 2009, reducing the assessed penalty to $130,914.99.

On June 29, 2009, Petitioner received a letter from

Respondent challenging the 2nd Amended Order of Penalty

Assessment and requesting a hearing on the matter. The matter

was forwarded to the Division of Administrative Hearings.

At the hearing, Petitioner presented the testimony of

Petitioner’s investigator, Carl Woodall, and Petitioner’s

penalty calculator, Monica Moye, and introduced 11 exhibits into

evidence. Respondent presented the testimony of its

representative, India Creed, but did not introduce any exhibits

into evidence. The record was held open to allow Respondent to

submit additional exhibits. Apparently, some documents were

submitted to Petitioner, but were never filed with the Division

of Administrative Hearings. Therefore, these extra documents

are not part of the record of this proceeding. However, in

response to those additional documents, Petitioner issued and

served a 3rd Amended Order of Penalty Assessment on Respondent

on February 26, 2010, reducing the assessed penalty to

$130,135.03. On March 1, 2010, Respondent filed a Motion to

Amend Order of Penalty Assessment which was not opposed by

Respondent. On March 16, 2010, the Motion to Amend was granted

and this Recommended Order proceeds on the basis of the 3rd

Amended Order of Penalty Assessment.

After the hearing, Petitioner submitted its Proposed

Recommended Order on March 1, 2010. Respondent submitted its

Proposed Recommended Order in letter form on February 26, 2010.

FINDINGS OF FACT

1. Petitioner is the state agency responsible for

enforcing the statutory requirement that employers secure

workers’ compensation for the benefit of their employees.

§ 440.107, Fla. Stat. (2009).

2. Respondent is a corporation domiciled in Florida and

engaged in the construction industry.

3. On February 13, 2009, Petitioner’s investigator, Carl

Woodall, stopped to spot check a house in the Cabrille Lane area

of Panama City, Florida, where he saw workers installing siding.

Petitioner’s investigator is the only employee for Petitioner

who investigated and developed the substantive evidence in this

case. Other employees, who have no direct knowledge of the

underlying facts, calculated the amounts of the proposed

penalties.

4. Mr. Woodall inquired of the workers and ascertained

that they worked for Respondent. The investigator then

contacted the Respondent to determine whether Respondent had

secured or obtained workers’ compensation insurance under

Florida’s workers’ compensation law. Respondent’s

representative indicated that it maintained workers’

compensation insurance through Employee Leasing Service (ELS),

an employee-leasing company. There is no dispute that in

February 2009, Respondent leased its workers from ELS and that

under the lease agreement, ELS provided workers’ compensation

coverage to Respondent and its leased workers. Other evidence

suggested that in past years, Respondent had leased its workers

from other employee-leasing companies. The evidence was not

specific as to who those companies were. The evidence, while

not specific, also suggested that Respondent paid its leased

employees bonuses and sometimes loaned them money. 1 /

5. In general, employee-leasing agreements provide

clerical duties to client companies including tax deduction and

workers’ compensation, in exchange for a fee. Client companies’

workers who are registered with the leasing company are

employees of the leasing company, not the client company.

6. In this case, the specific contract between ELS and

Respondent was not introduced into evidence. Likewise, neither

the contract nor the proof of coverage between ELS and its

workers’ compensation insurer was introduced into evidence and

it is unknown who the actual workers’ compensation insurer was

or is. Therefore, there is no credible evidence regarding the

specific terms of the contract between ELS, Respondent or the

workers’ compensation insurer. Importantly, there is no

evidence regarding any fee arrangement between ELS and

Respondent showing that workers’ compensation coverage was

provided based on payroll or that direct payments to

Respondent’s workers constituted payroll under the terms of the

lease contract for which workers’ compensation had not been

secured.

7. Petitioner’s investigator telephoned ELS and learned

from some person (purportedly Ellen Clark) that it did have an

employee-leasing contract with Respondent and did maintain

workers’ compensation on Respondent’s workers. The investigator

was also told that ELS intended to or had cancelled its

employee-leasing contract with Respondent effective either

February 14 or 15, 2009. No one from ELS testified at the

hearing and the substance of the above conversation, as with all

the testimony about purported ELS statements, constitutes

hearsay that was not corroborated by other credible evidence in

the record. As such, the substance of these conversations is

not found as facts, other than to establish that Petitioner’s

investigator had a conversation with a person purporting to

Represent ELS. However, on February 14, 2010, the investigator

did not take any action against Respondent since he felt

Respondent was in compliance with Florida’s workers’

compensation law.

8. On February 17, 2009, Mr. Woodall again returned to the

Cabrille Lane area and observed Respondent’s workers installing

siding on a house. One of the workers, Mike Moore, revealed to

Mr. Woodall that he was a subcontractor of Respondent, but that

the other worker, Ryan Grantham, was Respondent’s employee. The

subcontractor was in compliance with Florida’s workers’

compensation laws.

9. In order to find out if the other worker was covered by

workers’ compensation insurance, Mr. Woodall met with Ronnie

Creed, Respondent’s owner and officer, who was exempt under

Florida’s workers’ compensation law. Mr. Creed was unaware of

Respondent’s workers’ compensation status but put Mr. Woodall in

contact with his wife, India Creed, who was also exempt from

Florida’s workers’ compensation law. Ms. Creed told Mr. Woodall

that Respondent had received a letter from ELS that day,

purportedly notifying it that ELS intended to cancel or had

cancelled its employee-leasing contract with Respondent. The

letter was not introduced into evidence and it is unclear

whether the letter discussed the workers’ compensation insurance

coverage ELS maintained on its employees that it leased to

Respondent. Again, no one from ELS or its workers’ compensation

insurer testified at the hearing regarding its lease or which

workers were covered under the lease. The record is devoid of

any evidence that these employees were no longer employed by ELS

and, more importantly, not covered by ELS’s workers’

compensation coverage on February 17, 2009. 2 /

10. Mr. Woodall also checked the Department’s Coverage and

Compliance Automated System (CCAS) database. CCAS is a database

that maintains information on business entities in Florida and

whether they have secured workers’ compensation and /or whether

exemptions from workers’ compensation have been granted to

eligible company officers. CCAS did not reflect that Respondent

had a workers’ compensation insurance policy in place. However,

the investigator did not check to see if ELS or another

employee-leasing company had such a policy. Similarly, the

investigator did not investigate the terms of those contracts

and whether those contracts considered any bonuses or loans paid

by Petitioner to its employees to be payroll, and if it was,

whether any workers’ compensation coverage was dependent on such

payments being reported to these companies. As such, the

information in that system is hearsay which may or may not

indicate a need to investigate further. Moreover, CCAS is

simply a database of information reported by others and

maintained by the Petitioner. Its reliability is questionable

in this case given the multiple contractual entities involved in

the provision of workers’ compensation to Respondent and the

lack of any direct evidence from those contractual entities.

Therefore, the fact that CCAS did not reflect that Respondent

had workers’ compensation insurance is not given weight in this

Order and is neither clear nor convincing evidence demonstrating

that Respondent failed to secure workers’ compensation insurance

on February 17, 2009, or for prior years.

11. Based on his belief that Respondent had not secured

workers’ compensation on its workers, Mr. Woodall issued a Stop-

Work Order and Order of Penalty Assessment and a Request for

Production of Business Records for Penalty Assessment

Calculation to Respondent (Request) asking for Respondent’s

business and financial records related to Respondent’s business

and employee leasing for the last 3 years. The records were

requested to construct Respondent’s alleged payroll and

determine the employees of Respondent. There was no evidence

that there was any inquiry into past employment leasing

companies that Petitioner contracted with or the terms of those

contracts. As with the contract with ELS, there was no inquiry

into whether loans or bonuses or any other money paid by

Respondent to its workers was considered payroll, required to be

reported, or had any impact on workers’ compensation coverage

that the leasing companies provided on the employees they leased

to Respondent.

12. Respondent complied with the Request and provided the

requested business records to Petitioner. Mr. Woodall forwarded

the financial records to Petitioner’s penalty calculator, Monica

Moye. Beyond checking CCAS, Ms. Moye was not responsible for

factually determining whether Respondent had properly secured

workers’ compensation insurance during the period under review.

13. Using Respondent’s financial records, Ms. Moye

calculated a penalty to be assessed to Respondent based on class

code 5645 for siding installation as established by the National

Council on Compensation Insurance in the Scopes Manual. She

also separated Respondent’s periods of alleged noncompliance

based on periodically changing approved manual rates. Approved

manual rates are set by the National Council on Compensation

Insurance and represent the amounts employers would pay in

workers’ compensation premiums for tasks performed by their

employees. On March 13, 2009, Petitioner issued an Amended

Order of Penalty Assessment, assessing a penalty of $159,002.46

to Respondent. Based on additional records submitted by

Respondent, Petitioner recalculated the previously-assessed

penalty and issued a 2nd Amended Order of Penalty Assessment to

Respondent on June 9, 2009, reducing the assessed penalty to

$130,914.99.

14. Additionally, following the hearing, the Department

revised the assessed penalty and issued a 3rd Amended Order of

Penalty Assessment (3rd Amended Order) reducing the assessed

penalty to $130,135.03. 3 / The list of employees attached to the

3rd Amended Order of Penalty Assessment contains several

“Star H.” There is nothing in the record that supports a

finding that these amounts were paid for employment purposes.

However, the evidence did not establish that Petitioner did not

secure workers’ compensation coverage and the issues regarding

the correctness of the amount of penalty assessed against

Respondent is not addressed in this Recommended Order. Since

the evidence did not establish that Respondent failed to secure

workers’ compensation, the Stop-work order should be cancelled

and the 3rd Amended Order of Penalty Assessment dismissed.

CONCLUSIONS OF LAW

15. The Division of Administrative Hearings has

jurisdiction over the parties to and subject matter of this

proceeding. §§ 120.569 and 120.57(1), Fla. Stat. (2009).

16. The law defines “employer” in part as “. . . every

Stat. (2009). The law also defines “employment” in respect to

the construction industry as, “. . . all private employment in

which one or more employees are employed by the same employer.”

§ 440.02(17)(a)2., Fla. Stat. There was no dispute that

Respondent was engaged in employment as defined in Section

440.02(17)(b)2., Florida Statutes, as it employed more than one

employee in the operation of a siding business and was an

employer as defined in Section 440.02(16)(a), Florida Statutes.

17. The workers’ compensation law requires employers to

secure the payment of workers’ compensation for their employees.

§§ 440.10(1)(a) and 440.38(1), Fla. Stat. (2009).

18. Pursuant to Section 440.107(2), Florida Statutes

(2009), “securing the payment of workers’ compensation means

obtaining coverage that meets the requirements of Chapter 440,

Florida Statutes and the Florida Insurance Code.”

19. The Department has the burden of proof in this case

and must show by clear and convincing evidence that Respondent

violated the Workers’ Compensation Law during the relevant

period and that the penalty assessments are correct. Department

of Banking and Finance Division of Securities and Investor

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

Dept. of Financial Services, Division of Workers’ Compensation

v. U&M Contractors, Inc. , DOAH Case No. 04-3041 (Final Order

April 27, 2005); Triple M Enterprises, Inc. v. Department of

Financial Services, Division of Workers’ Compensation , DOAH Case

No. 94-2524 (Recommended Order January 13, 2005).

20. In this case, the evidence was neither clear nor

convincing that Respondent did not secure workers’ compensation.

No one from any employee-leasing company who leased its

employees to Respondent testified at the hearing. The lease

contracts were not introduced into evidence. Without this

evidence and under the very vague facts of this case, no

determination on the ultimate factual issue of whether

Respondent failed to secure workers’ compensation on

February 17, 2010, or earlier can be made. Therefore, the Stop-

work Order should be cancelled and the 3rd Amended Order of

Penalty Assessment dismissed.

RECOMMENDATION

Based on the findings of fact and conclusions of law, it is

RECOMMENDED that the Department of Financial Services enter a

Final Order that Petitioner failed to establish by clear and

convincing evidence that Petitioner failed to secure workers’

compensation to its employees and canceling the Stop Work Order

and dismissing the 3rd Amended Order of Penalty Assessment.

DONE AND ENTERED this 2nd day of April, 2010, in

Tallahassee, Leon County, Florida.

S

DIANE CLEAVINGER

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 2nd day of April, 2010.

ENDNOTES

1 / One long-time employee had a serious gambling problem and

routinely got loans from Respondent to cover his gambling debts.

The evidence was not clear what amounts in the list of employees

attached to the 3rd Amended Order of Penalty Assessment were for

loans or bonuses. Ms. Creed testified that most of the amounts

in the penalty assessment were for bonuses and some loans.

2 / It was clear that Ms. Creed was in over her head in

representing Respondent and did not have a good grasp regarding

the importance of the terms of the ELS contract, the exact

cancellation date and the effect such a cancellation may or may

not have on workers’ compensation coverage. She seemed to

assume that they did not have coverage because she was told that

they did not. This assumption is not an admission or credible

evidence of a fact which would relieve Petitioner from its

burden to establish that Respondent had not secured workers’

compensation in accordance with Florida law especially since

there are two contracts at issue—Respondent’s contract with ELS

and the contract of insurance providing workers’ compensation

coverage. For similar reasons, assuming arguendo that

Respondent’s letter requesting a hearing is a pleading,

Petitioner’s argument regarding the pleadings forming the issues

also fails.

3 / Petitioner’s penalty calculator reviewed several documents

submitted by Respondent to Petitioner following the hearing.

None of these documents were filed with the Division of

Administrative Hearings. In its Proposed Recommended Order,

Petitioner describes some of these documents as employee

applications that state the applicant is an employee of the

leasing company, and that should the employee be paid by another

entity and be injured, the injured employee would not be covered

by the leasing company’s workers’ compensation policy. However,

this language does not establish that Respondent did not secure

workers’ compensation coverage through the employee-leasing

company if it paid its, otherwise covered, leased employees

extra money. Indeed, this clause relates more to a situation

where a worker performs labor for multiple subcontractors only

one of whom (in this case the Respondent) may have a contract to

lease that worker as an employee. Understatement of payroll

issues are not the subject of this proceeding.

COPIES FURNISHED :

Douglas D. Dolan, Esquire

Department of Financial Services

Division of Legal Services

200 East Gaines Street

Tallahassee, Florida 32399

India Creed

Countrywide Siding & Windows, Inc.

5314 Peppertree Court

Panama City, Florida 32404

Julie Jones, CP, FRP, Agency Clerk

Department of Financial Services

Division of Legal Services

200 East Gaines Street

Tallahassee, Florida 32399

Honorable Alex Sink

Chief Financial Officer

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399

Benjamin Diamond, General Counsel

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399

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.