14-002618 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. Mex Group Maintenance And Repair, Inc. Status: Closed Recommended Order on Friday, February 13, 2015.

Summary: Respondent failed to secure payment of workers' compensation and materially understated and concealed payroll. Department proved that penalty calculation of $1,213,357.30 was correct.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL

SERVICES, DIVISION OF WORKERS'

COMPENSATION,

Petitioner,

vs. Case No. 1 4 - 2618

MEX GROUP MAINTENANCE AND

REPAIR, INC.,

Respondent .

_______________________________/

RECOMMENDED ORDER

The final hearing was held in this case, beginning on

October 6 and 7, 2014, by video teleconference with sites in Fort

Myers and Tallahassee, Florida, and continuing on October 8 and

17, 2014, in Tallahassee, Florida, before Elizabeth W. McArthur,

Administrative Law Judge, Division of Administrative Hearings

(DOAH).

APPEARANCES

For Petitioner: Alexander Brick, Esquire

Elizabeth A. Miller, Esquire

Department of Financial Services

Division of WorkersÓ Compensation

200 East Gaines Street

Tallahassee, Florida 32399 - 4229

For Respondent: Kristian E. Dunn, Esquire

Bennett M. Miller, Esquire

Dunn & Miller, P.A.

1606 Redwood Drive

Tallahassee, Florida 32301

STATEMENT OF THE ISSUE S

The issues in this case are whether Respondent, Mex Group

Maintenance and Repair, Inc. (Respondent or Mex Group), failed to

secure the payment of workers Ó compensation as required by

chapter 440, Florida Statutes, 1/ and if so, what penalty should be

imposed.

PRELIMINARY STATEMENT

On May 1, 2014, Petitioner, the Department of Financial

Services, Division of WorkersÓ Compensation (Petitioner or

Department) , served by hand delivery a Stop - Work Order (SWO) on

Mex Group. The SWO alleged that Mex Group failed to provide

workersÓ compensation coverage as required by law and materially

understated or concealed payroll. The SWO included an Order of

Penalty Assessm ent, which described, but did not quantify, the

penalty to be assessed for the alleged violations.

Pursuant to the SWOÓs notice of rights, Mex Group filed a

petition for a disputed - fact administrative hearing, and the case

was forwarded to DOAH. At the pa rtiesÓ agreed request, a one - day

hearing was set for August 26, 2014, by video teleconference in

Fort Myers and Tallahassee, Florida.

On June 24, 2014, the Department moved for leave to file an

Amended Order of Penalty Assessment to quantify the proposed

p enalty in the amount of $1,616,426.91. The motion was granted

over Mex GroupÓs objection, in a July 11, 2014, Order.

On August 1, 2014, Respondent filed an unopposed motion to

continue the final hearing, because it had become apparent

through discovery th at two hearing days would be needed due to

the complexity of the case and increasing number of witnesses.

Respondent requested that the hearing be rescheduled for two days

between October 3 and 14, 2014, when both parties were available.

A continuance wa s ultimately granted, and the final hearing was

rescheduled for October 7 through 9, 2014.

On September 22, 2014, the D epartment moved for leave to

file a Second Amended Order of Penalty Assessment, to reduce the

proposed penalty to $1,293,153.87. Mex Gro up opposed this

request, but it was granted. One final amendment to the

D epartment Ós proposed penalty assessment was permitted during the

course of the hearing to correct a calculation error, which

further reduced the proposed penalty to $1,213,357.30. 2/

The parties did not file a joint pre - hearing stipulation.

At the final hearing, Petitioner presented testimony of the

following witnesses: contractor representatives Christian Bowe,

Gloria Vasquez, Grant Williams, David Sasser, Glen Rapp, Henry

Ryan, Jess ica Armstrong, Jeff Spencer, Brad Henderson, Deborah

Landis, Tom Losey, John King, and Gregory Kendall; Jeff Lewis,

accepted as an expert in southwest Florida construction industry

standards for profit margins/payroll for labor - only contracts;

Pedro Salmer on, a former Mex Group employee; Department

compliance investigators Aysia Elliott and Jack Gumph; Karen

Phillips, Esquire, and Amy Dorsch, employees of Mex GroupÓs

workersÓ compensation insurance carrier; Thomas Keegan, a Collier

County contractor licensi ng compliance officer; Department

penalty auditor Chad Mason; and Frederick Carroll, III, CPA,

accepted as an expert in accounting. PetitionerÓs Exhibits 1

through 7, 9 through 12, 14 through 20, 22, 24 through 28, 29

(without pages 429 - 431 and 435), 31 ( without pages 492 - 503), 33,

35 through 40, 41 (without page 1223), 42, 45, 46 (without pages

1397 - 1398), 47, 48 (without pages 1659 - 1660), 50 (without pages

1715 - 1721), 51 through 60, and 63 through 66. 3/

Respondent presented the testimony of the followin g

witnesses: Kathleen Petracco, accepted as an expert in the

sufficiency of business records for penalty calculation purposes;

Antonio Lopez, insurance agent for Mex Group; Jessenia Reyes,

former corporate officer of Mex Group and wife of Mex GroupÓs

owne r; and Marco Rosales Trejo (Mr. Rosales), Mex GroupÓs owner

and sole corporate officer. A certified interpreter was present

and assisted Mr. Rosales with English - Spanish translation for his

testimony and documents, as he does not speak English well.

Resp ondentÓs Exhibits 1 through 7, 9 through 12, and 30 were

received in evidence. RespondentÓs ÐSupplementary ExhibitsÑ 13

through 16 (filed and served on October 15, 2014) and 17 through

29 (filed and served on October 16, 2014), were not admitted in

eviden ce, but were proffered. 4/

The seven - volume Transcript of the final hearing was filed

on November 24 and 25, 2014. The original filing deadline for

proposed recommended orders (PROs) was extended twice on

RespondentÓs unopposed motions. Both parties timel y filed PROs

by the extended deadline. The PROs have been considered in the

preparation of this Recommended Order.

FINDING S OF FACT

1. The Department is the state agency responsible for

enforcing the statutory requirement in chapter 440, Florida

Statutes , that employers secure the payment of workersÓ

compensation for the benefit of their employees.

2. Respondent is a Florida for - profit corporation, first

incorporated on October 10, 2012, as Mex Group Cleaning Service,

Inc. As initially organized, Respon dent had two corporate

officers: Mr. Rosales and his wife, Ms. Reyes.

3. In RespondentÓs annual report filed with the Division of

Corporations on January 9, 2014, Ms. Reyes was removed from the

listing of corporate officers, leaving Mr. Rosales as

Respon dentÓs sole corporate officer.

4. By articles of amendment filed on January 13, 2014,

Respondent changed its name to Mex Group Maintenance and Repair,

Inc., but the name Mex Group Cleaning Service remained in use.

5. From October 10, 2012, through Septe mber 30, 2013,

Respondent had no workersÓ compensation insurance.

6. Mr. Rosales and Ms. Reyes were informed by their

insurance agent that if Mex Group was a non - construction

business, it could have up to three employees before the business

would be requ ired to obtain workersÓ compensation insurance.

7. Mr. Rosales and Ms. Reyes attempted to characterize Mex

GroupÓs business as strictly a janitorial company with no more

than three workers at a time to clean houses. They called the

workers Ðindependent c ontractorsÑ who were issued 1099 forms

instead of W - 2 forms. Neither Mr. Rosales nor Ms. Reyes offered

specifics about the way the business was run before October 2013,

or the terms on which workers agreed to work. They produced a

single contract signed by one worker in March 2013. The contract

is a form agreement to retain a Ðsubcontractor.Ñ However, the

blanks provided on the form for the terms of the agreement -- what

duties were to be performed, when and how the worker was supposed

to work, and what t he agreed compensation was -- were left blank.

8. In contrast to the characterization of Mex GroupÓs

business as strictly janitorial, Mr. Rosales described the work

performed by Mex Group in its first year this way:

There were contractors that would pick u p --

that would bring out carpets and rugs and I

would pick them up and take them to the place

[county dump]. . . . I would do my rounds and

if I saw any construction jobs or a

construction site, I would stop in and talk

to the contractors. And if they ha d the job

to pick up trash, I would do it. . . .

Carpets, many times toilet bowls, sinks. And

it was just remodeling jobs, you know, it was

not new construction . . . and many times I

also disposed of AC units and I would also

pick those up . . . and boil ers. (Pet. Exh.

63, pp. 14 - 16).

Mr. Rosales acknowledged that he used Mex Group workers to assist

him with these debris removal jobs. Mr. RosalesÓs description of

Mex GroupÓs construction site debris removal work is credited. 5/

Mex Group was engaged in the construction industry in its first

year of operations.

9. Beginning in October 2013, RespondentÓs business shifted

to exclusively construction - related work, under the same name,

Mex Group Cleaning Service, with some of the same employees (for

example , Alberto Rodriguez, who signed the mostly - blank

subcontractor agreement on March 1, 2013).

10. On October 1, 2013, Respondent applied for a workersÓ

compensation insurance policy through the Florida United

Businesses Association (FUBA). RespondentÓs app lication sought

coverage for four employees who would be engaged in Ðmasonry

stuccoÑ work, identified as class code 5022. 6/ The estimated

payroll was $53,000.00 for the one - year policy period. By

subsequent endorsement on October 8, 2013, the payroll est imate

was increased by $20,000.00 for ÐwallboardÑ work (class code

5445), for a total estimated annual payroll of $73,000.00.

11. As explained by FUBAÓs general counsel, Karen Phillips,

FUBA offered employers three different options for reporting

payroll and paying for workersÓ compensation insurance coverage.

First, an employerÓs annual premium could be set at the time of

policy issuance based on the employerÓs estimated payroll and

paid up front, subject to adjustment based on a payroll audit

after the end of the policy period. Second, the annual premium

could be set based on estimated payroll, but then divided into

monthly installments and paid monthly, again, subject to

adjustment based on a payroll audit after the end of the policy

period. Third, a n employer could elect to use a payroll company,

and have the payroll company provide FUBA with monthly reports of

the employerÓs actual payroll. Under this third option, although

at the outset an employer estimates its payroll in the

application for work ersÓ compensation insurance, the premiums are

not based on estimated payroll; they are calculated after the end

of each month based on that monthÓs actual payroll as reported by

the payroll company. As reasonably suggested by Ms. Phillips,

option three re presents a trade - off, whereby the insurer accepts

a delay in premium payments in exchange for the certainty that

the premiums are based on an employerÓs actual payroll.

12. Mex Group elected the third option, to use a payroll

company to report Mex GroupÓ s actual monthly payroll, so that Mex

Group was to pay its workersÓ compensation insurance monthly

premium after the end of each month, based on its actual payroll

for each month. The premium changed from month to month, because

it was calculated on the b asis of the actual payroll report.

13. The payroll company used by Mex Group -- JEMA Accounting,

Payroll, Taxes and More (JEMA) -- is a related company to Mex

Group, operating from the same address as is sometimes used for

Mex Group, and run by Ms. Reyes. No evidence was offered

regarding JEMAÓs actual ownership or organizational structure,

but the business was referred to as ÐJesseÓs company,Ñ and named

for Ms. Reyes and Mr. Rosales (JE for Jessina and MA for Marco).

14. For the seven - month period from Octo ber 1, 2013,

through April 30, 2014, the JEMA monthly reports of RespondentÓs

actual payroll added up to just under $120,000 in total payroll.

In October 2013, Mr. Rosales and Ms. Reyes were reported in the

category of Ðofficer/non - exempt,Ñ but with zero salary. An

additional 42 paid ÐhelpersÑ were listed. In November and

December 2013, Mr. Rosales and Ms. Reyes were each shown as

Ðofficer/exempt,Ñ with zero salary. Beginning in January 2014,

Mr. Rosales was the only person reported in the Ðofficer/exem ptÑ

category, with zero salary. Ms. Reyes was not shown on the

report at all, consistent with her removal as an officer on Mex

GroupÓs annual report. The February 2014 JEMA report showed 66

non - exempt paid Ðhelpers;Ñ the April 2014 report showed 79 such

helpers. Virtually all of the listed paid individuals in these

reports were categorized in class code 5445 (wallboard/drywall

installation); to a much lesser extent, workers were occasionally

classified under class code 5022, for masonry / stucco work.

15. In late September or early October 2013, Respondent

hired Pedro Salmeron as a construction supervisor to line up new

job opportunities for Mex Group and the necessary workers to

perform the required work, and to supervise the jobs.

Particularly for projec ts on FloridaÓs east coast that

Mr. Salmeron lined up for Mex Group, the contractors retaining

Mex Group often dealt exclusively or primarily with Mr. Salmeron.

16. For example, on November 12, 2013, Mr. Rosales signed a

contract for Mex Group to provide masonry/stucco labor for

projects with Ron Kendall Masonry/K&T Stoneworks. Mex GroupÓs

insurance agent issued a certificate of liability insurance to

Ron Kendall Masonry/K&T Stoneworks confirming that Mex Group had

general liability and workersÓ compensa tion insurance coverage,

for the following operations: plastering or stucco work;

masonry; and drywall or wallboard installation.

17. Mr. Rosales then turned the responsibility for this

contract over to Mr. Salmeron. Mr. Rosales signed an

authorization for Mr. Salmeron to act as Mex GroupÓs

representative for purposes of submitting bills, picking up

checks, and signing releases Ðwith regard to all work between my

company and Ron Kendall Masonry/K&T Stoneworks.Ñ Pursuant to

this authorization, Mr. Salmer on lined up crews to perform

masonry labor for a Walmart addition in Delray Beach and for a

separate project (called Walmart at Fontainebleau) for the

construction of a new store in Miami. Mr. Salmeron submitted the

Mex Group invoices to the contractor fo r these projects. Checks

were issued to Mex Group in payment of the invoices, and the

checks were deposited to Mex GroupÓs bank account.

18. Mr. Salmeron made frequent trips to the Mex Group

office in Lehigh Acres, where he gave Mr. Rosales lists of the

workers retained for the Mex Group jobs. Mr. Rosales had Mex

Group checks prepared to pay a portion of the compensation owed

to the workers. In addition, Mr. Rosales gave large cash amounts

to Mr. Salmeron for Mr. SalmeronÓs compensation for his work for

Mex Group and for Mr. Salmeron to use the remaining cash to pay

the rest of the compensation owed to the Mex Group workers. As

Mr. Salmeron explained, the workers he lined up for Mex Group

jobs were to be paid $12.00 per hour, and they usually worked 40

to 45 hours per week. In such cases, the Mex Group checks that

Mr. Rosales had prepared would only cover 20 to 25 hours per week

at $8.00 per hour, with the difference paid in cash provided by

Mr. Rosales to Mr. Salmeron for that purpose. Mr. Salmeron

te stified credibly that Mr. Rosales told him that the reason for

paying the workers partially with checks and partially in cash

was to keep Mex GroupÓs insurance costs down.

19. The DepartmentÓs workersÓ compensation compliance

investigators conduct random inspections of work sites to verify

compliance with workersÓ compensation insurance requirements.

Similar inspections are conducted by county officials to verify

compliance with local licensing requirements. These state and

local inspectors encountered M ex Group workers at several

different job sites. On October 30, 2013, for example, a

Department compliance investigator observed workers performing

masonry work at two job sites in Fort Myers, and upon inquiry,

they said they worked for Mex Group. She re corded the workersÓ

names and her findings, including her confirmation that Mex Group

had workersÓ compensation insurance coverage. One workerÓs name

matches a Mex Group paid ÐhelperÑ listed in JEMAÓs October 2013

payroll report, although the report class ifies the worker under

the drywall class code instead of the masonry code.

20. On January 16, 2014, a Collier County licensing officer

observed Mex Group workers at a job site performing masonry work.

He issued a citation to Mex Group for unlicensed cont racting

because the company was not licensed to perform masonry work. A

Mex Group check was issued to the county to pay the citation.

21. WorkersÓ compensation compliance investigator Jack

Gumph observed Mex Group workers on different jobs sites in

Decem ber 2013 and January 2014, performing metal framework and

masonry work. Mr. Gumph was able to confirm workersÓ

compensation coverage for Mex Group workers on these occasions.

Again, at least some, but not all, of the workersÓ names

identified by Mr. Gump h match the names of Mex Group workers on

the JEMA actual payroll reports.

22. On February 18, 2014, Mr. Gumph conducted a compliance

investigation at a construction site in Naples, referred to as

ÐTreviso Bay.Ñ He observed a number of workers engaged in

masonry work -- erecting concrete slab and block walls for a multi -

family, multi - story structure. Mr. Gumph memorialized the scene

in photos, which are in evidence. (Pet. Exh. 11). Mr. Gumph

spoke first with Esteban Cortes, identified as the foreman.

Mr. Cortes told Mr. Gumph that he worked for Pedro. Mr. Gumph

recorded the names of the 12 workers on the site. Mr. Gumph then

called ÐPedroÑ at the number provided by Mr. Corte s , and spoke

with Pedro Salmeron. Mr. Salmeron reported that he and the

workers performing masonry work at the Treviso Bay job site

worked for Mex Group.

23. Mr. Gumph contacted Mex Group to inquire about

Mr. Salmeron and the workers at the Treviso Bay job site.

Mr. Rosales or Ms. Reyes informed Mr. Gumph that Mr. Salmeron and

the c rew at Treviso Bay did not work for Mex Group.

24. Mr. Gumph then contacted the contractor responsible for

the masonry work at Treviso Bay, Elite Structural Services

(Elite), and asked for information about the masons working on

that job site. Elite iden tified Mex Group as the subcontractor

hired to provide the masonry labor, and gave Mr. SalmeronÓs name

as the contact person for Mex Group. EliteÓs owner informed

Mr. Gumph that Mr. Salmeron contacted him in November 2013,

seeking work for Mex Group. Whe n Elite retained Mex Group for

masonry work, Mex GroupÓs insurance agent issued a certificate of

insurance to Elite, confirming Mex GroupÓs general liability and

workersÓ compensation insurance. Thereafter, Elite received Mex

Group invoices billing for th e masonry work, which Elite paid by

check to Mex Group. Either Mr. Salmeron would pick up the checks

or Elite would tape the check to the outside of their office door

and someone -- they did not know who -- would pick the checks up. 7/

25. Mr. Gumph contact ed Mex Group a second time to ask

again about Mr. SalmeronÓs connection with Mex Group.

Mr. Rosales and Ms. Reyes told Mr. Gumph that they had met

Mr. Salmeron in November 2013, when he came to the Mex Group

office looking for work, but that they had no w ork for him. They

said he walked out and they never saw or heard from him again.

26. Mr. Gumph arranged a meeting the next day at the

Collier County contractor licensing office with Mr. Rosales and

Ms. Reyes, and separately, with Mr. Salmeron.

27. Mr. G umph met first with Mr. Salmeron. Mr. Salmeron

showed Mr. Gumph a series of text messages on his phone between

Mr. Salmeron and a phone number that Mr. Gumph confirmed was the

phone number on Mr. RosalesÓs business card. The messages

clearly demonstrated their ongoing business relationship:

Mr. Rosales would ask for the address of a job site to go pick up

a check that Mr. Salmeron confirmed would be taped to the door;

Mr. Rosales would ask Mr. Salmeron to give him the list of

workers; Mr. Salmeron would send Mr. Rosales the contact

information for a contractorÓs office manager for Mr. Rosales to

send the paperwork; Mr. Salmeron would tell Mr. Rosales to

deposit money in Mr. SalmeronÓs account, and Mr. Rosales would

confirm having done so; and Mr. Rosales would send the Mex Group

bank account and routing numbers for Mr. Salmeron to make a

deposit to Mex GroupÓs account. These and similar exchanges took

place regularly from early January through February 18, 2014.

28. Mr. Gumph then met with Mr. Rosales a nd Ms. Reyes, and

asked again about Mex GroupÓs relationship with Mr. Salmeron.

This time, the story changed. 8/ Mr. Rosales now said that Mex

Group had hired Mr. Salmeron in November 2013, but fired him on

December 4, 2013, when he claimed that a licensin g problem forced

Mex Group to cease all business operations. However, Mr. Gumph

had already seen contradictory text messages, which made clear

that Mex Group had neither ceased business operations nor severed

its business relationship with Mr. Salmeron in early December

2013. For example, on January 31, 2014, Mr. Rosales asked

Mr. Salmeron to give worker names for checks, and Mr. SalmeronÓs

response conveyed three names; those three names appear on JEMAÓs

list of Mex Group workers on the January actua l payroll report.

Mr. Gumph also obtained information from Elite showing that it

had received invoices for Mex Group work done in late January and

early February 2014, which were paid by checks issued to Mex

Group and deposited in Mex GroupÓs account.

29. To look further into these discrepancies, Mr. Gumph

served a business records request on Mex Group on February 19,

2014, for the production of certain business records, including

the records Mex Group was required to maintain for its payroll,

bank accoun ts, and business disbursements, for the period from

December 18, 2013, through February 18, 2014.

30. On February 26 and 27, 2014, Mex Group sent records to

Mr. Gumph. Mr. Gumph found documentation in Mex GroupÓs records

that the workers performing mason ry work at the Treviso Bay job

site had received checks from Mex Group, with the last checks

being issued to them on January 31, 2014. The Mex Group records

also included weekly pay sheets, mostly handwritten, documenting

cash payments to Mr. Salmeron thr oughout the time period for

which records were produced, with the last payment covering the

week from February 8, 2014, to February 15, 2014.

31. The handwritten pay sheets alone recorded a total of

$114,195 in cash payments to Mr. Salmeron. In addition, Mex

GroupÓs bank records included copies of paychecks to employees

totaling over $63,000. Mr. Gumph found that Mex GroupÓs records

documented total remuneration paid to employees of nearly

$180,000 in two months. 9/

32. Mr. Gumph obtained Mex GroupÓs wor kersÓ compensation

insurance documents from FUBA. He reviewed Mex GroupÓs

application, signed by Mr. Rosales on October 1, 2013, estimating

that Mex Group would have four employees for masonry - stucco work,

with annual payroll of $53,000.00. He also noted the policy

endorsement later that same month, to add $20,000 of estimated

payroll for drywall work.

33. Mr. Gumph also found that the Mex Group bank account

from December 18, 2013, through February 18, 2014, showed

approximately half a million dollars de posited, and over a

quarter of a million dollars of cash ATM withdrawals. The cash

payments to Mr. Salmeron would have accounted for roughly half of

the cash withdrawals; however, there was no documentation showing

the purposes for the remaining cash with drawals, either in a

disbursement journal or otherwise (such as receipts) in Mex

GroupÓs business records.

34. Mr. Gumph reasonably considered these discrepancies to

be significant and concerning. As a result, the SWO was issued

and Mr. Gumph hand delive red it to Mr. Rosales on May 1, 2014.

Along with the SWO, Mr. Gumph served a second request for

production of business records covering the time period of

October 10, 2012, through May 1, 2014, for purposes of

calculating the penalty called for by section 440.107(7).

35. Continuing with his investigation after the SWO was

issued, Mr. Gumph obtained from FUBA the monthly reports of Mex

GroupÓs payroll submitted by JEMA. He found that the reported

payroll for the seven - month period from October 2013 throu gh

April 2014 added up to approximately $120,000, much less than the

$180,000 in documented compensation to Mex Group employees that

he had identified from Mex GroupÓs records for just two months

within that seven - month period.

36. Mr. Gumph also found th at the JEMA monthly payroll

reports did not disclose five employees whose names he had

recorded from inspections of Mex Group job sites in December 2013

and January 2014, and whose status as Mex Group employees had

been confirmed by Mr. Rosales.

37. As an other step in his investigation, Mr. Gumph

contacted Mex GroupÓs insurance agent to determine how many

certificates of insurance he had filled out at Mex GroupÓs

request to submit to contractors. Certificates of insurance are

issued to contractors that ha ve hired a subcontractor, to confirm

to the contractors that the subcontractor they h ired has its own

workersÓ compensation insurance. Mr. Gumph determined from this

investigation that certificates of insurance were issued by Mex

GroupÓs insurance agent t o 79 contractors at Mex GroupÓs request.

38. Mr. Gumph then issued requests for production of

business records to those 79 contractors to obtain records

regarding their business with Mex Group. He received records

pursuant to those requests from 41 of th e 79 contractors.

39. At hearing, the Department established that between

October 1, 2013, and May 1, 2014, Mex Group received payments

from various contractors totaling more than $2.3 million for

providing masonry, metal framing, and drywall labor. 10/

40 . While one would reasonably expect that some business

expenses, other than payroll, w ere incurred by Mex Group to

generate that amount of income, the records produced by Mex Group

are alarmingly inadequate to prove the type or amount of business

expenses incurred during the time that income was generated.

41. For example, the Mex Group bank records that were

produced show regular payments of many thousands per month to

ÐAmerican Express.Ñ However, no records were produced of an

American Express credit c ard held by Mex Group, nor were there

records of business expenses incurred on a personal credit card

so as to justify payment from Mex Group funds.

42. Mr. Rosales sought to explain the large ATM cash

withdrawals by testifying that he and Ms. Reyes both had ATM

cards and they withdrew cash as their salary. When Mr. Rosales

was asked what Ms. ReyesÓs salary was, his response was ,

ÐWhatever she needed.Ñ (Pet. Exh. 63, p. 57) . However,

Ms. Reyes was not a corporate officer as of January 1, 2014;

thus, if she was working for Mex Group and compensated, her

salary was required to be included as payroll.

43. As for 2013, while Ms. Reyes elected to be exempt from

workersÓ compensation coverage, any salary she earned would have

had to be reported to the Interna l Revenue Service (IRS), but no

W - 2 form or 1099 form was produced. Mr. Rosales also elected to

be exempt in 2013; a W - 2 form issued for Mr. RosalesÓs earnings

in 2013 reported that he drew a total of $6,000 in wages from Mex

Group. The claim of unlimite d salaries for Mr. Rosales and

Ms. Reyes as an explanation for the large ATM cash withdrawals is

contrary to the evidence. Instead, the more credible explanation

was provided by Mr. Salmeron -- that Mex Group was paying its

employees partially by check and partially in cash.

44. Frederick Carroll, III, CPA, offered his expert opinion

for the Department that Mex GroupÓs records were wholly

insufficient to determine Mex GroupÓs payroll in 2013 or in the

partial year 2014. For 2013, he pointed specifically to the

absence of a corporate tax return, which would have allowed a

comparison of 1099s and W - 2s with the salary and contractor

expense claimed on the corporate return. He noted that Mex

GroupÓs 2012 tax return, filed mid - September 2013, reflected a

tax ye ar ending December 31, 2012. Thus, the 2013 tax return

would have been due on March 15, 2014. With an extension, it

could have been filed as late as September 15, 2014, but the 2013

tax return should have been filed by then. However, no 2013

corporate t ax return was offered in evidence by Mex Group.

45. Mr. Carroll opined that the large amount of unexplained

cash disbursements caused concern in the absence of a full

general ledger, with subsidiary journals, such as a disbursements

ledger that would show the recipient of each cash disbursement

and the purpose. Indeed, the Department requires employers to

maintain precisely these kinds of records. If Mex Group

maintains them, it did not produce them.

46. Mr. Carroll also observed inconsistencies from th e

documentation that was provided. For example, he offered the

opinion that it appeared from some of the records that were

produced that there may have been another corporate bank account

besides those accounts disclosed in the records produced by Mex

Gro up. Mr. CarrollÓs opinion was right on target, as revealed on

the last day of hearing, when Mex Group attempted to offer

records of an additional ÐoverlookedÑ bank account that had not

been disclosed previously. Mex Group was not permitted to

present new records after Petitioner had rested its case. The

belated offer was too late, far beyond the many past deadlines

calling for disclosure of these records.

47. The Department proved, clearly and convincingly, that

beginning on October 1, 2013, Mex Group f ailed to secure payment

of workersÓ compensation because Mex Group materially understated

or concealed payroll. The JEMA monthly payroll reports provided

to FUBA for Mex Group were materially understated when compared

to the payroll that can be ascertaine d from what records Mex

Group did produce to the Department. Compensation shown on the

JEMA reports for listed employees was materially understated; and

individual employees were omitted entirely from the reports.

48. When FUBA learned of the SWO, it can celled Mex GroupÓs

policy and attempted a payroll audit. Mex Group was

uncooperative. While some sort of audit was conducted, FUBA

reasonably lacks confidence that the results uncovered the extent

to which Mex Group understated or concealed payroll. 11/

4 9. Mex Group contends that FUBAÓs audit must be accepted

as a conclusive determination of the amount by which Mex GroupÓs

payroll was understated. However, the FUBA audit (in which FUBA

lacks confidence) was not based on an evidentiary record created

in a four - day hearing. The findings here are based -- as they must

be -- exclusively on the record evidence.

Penalty Calculation

50. Based on the findings above, the penalty calculation is

properly based on the time period from October 10, 2012, through

May 1, 2014, which was the period of non - compliance.

51. The penalty calculation is carried out in accordance

with a formula set forth on the DepartmentÓs penalty calculation

worksheet, which is adopted as a rule. See Fla. Admin. Code R.

69L - 6.027. Therefore, application of the formula is not subject

to debate, so long as the proper values are plugged into the

formula. The variables are: employee names; the period(s) of

non - compliance; the gross payroll for such period(s); whether the

payroll is actual or imp uted; the class code; and the approved

manual rate applicable to the class code for the time period(s).

52. The DepartmentÓs first quantification of the penalty

assessment in the Amended Order of Penalty Assessment imputed

payroll for the entire time peri od, due to insufficient records

to determine Mex GroupÓs payroll.

53. Based on business records ultimately produced by Mex

Group, the Department reasonably determined that the records were

sufficient to determine Mex GroupÓs payroll from October 10,

2012, through December 31, 2012. Included in the documents

produced for this short period were bank records, the 1099s

issued to five workers, and Mex GroupÓs 2012 corporate tax

return, as filed with the IRS, all of which tied together. In

other words, the ba nk deposits matched the gross income shown on

the tax return, and the withdrawals tied to the business expenses

on the tax return, including compensation paid by Mex Group to

the five workers, as shown on the 1099s.

54. The 2012 records were far from suff icient, however, for

purposes of identifying the terms on which the five workers were

hired to work for Mex Group, what their duties were, or the terms

for their compensation. There was no evidence offered to show

whether workers were required to provide their own supplies and

equipment, or whether those were provided by Mex Group. There

was no documentation showing the sources of Mex GroupÓs 2012

revenue; there were only bank records and the tax return showing

the amount of revenue.

55. Mr. RosalesÓs te stimony describing Mex GroupÓs

construction site debris removal jobs that he solicited from

contractors and performed with hired helpers was credited. In

the absence of records establishing the extent to which Mex

GroupÓs five workers in 2012 performed co nstruction site debris

removal, the Department reasonably classified those five workers

in class code 5610 (Cleaner - Debris Removal Î Construction).

56. The Department proved that the approved manual rate for

code 5610 was applied to each workerÓs actual pay according to

the 1099s to calculate the premium that should have been paid for

workersÓ compensation coverage. That premium amount was then

multiplied by 1.5 to obtain the statutory penalty.

57. For the remaining non - compliance period, January 1,

2013, through May 1, 2014, the Department proved, clearly and

convincingly, that Mex GroupÓs records were insufficient to

determine actual payroll. Mr. CarrollÓs opinion is credited in

this regard. The contrary opinion offered by Mex GroupÓs expert

is not cred ited; she could not even establish as a predicate that

she reviewed the records produced by Mex Group to the Department

in response to its two business records requests.

58. The Department reasonably included 87 Mex Group

employees for the entire time per iod for which payroll was

imputed. The 87 employees either were identified as Mex Group

employees by Mr. Gumph when conducting his compliance

investigations at job sites, or identified in records as Mex

Group employees at some point during the imputation period.

While Respondent attempted to establish that not all 87 employees

were working for Mex Group the entire time, the DepartmentÓs

approach is reasonable, consistent with Department rules and

precedent, and in keeping the strong public policy underlyi ng the

workersÓ compensation laws. Employers are required to keep

employee records that show Ð[e]ach day, month, and year or pay

period when the employer engaged the person in employment.Ñ Fla.

Admin. Code R. 69L - 6.015(3)(a)3. In the absence of such rec ords,

the Department properly included all employees who worked for Mex

Group at any time during the period in which payroll was imputed.

59. Class code 5022, for Masonry NOC (meaning Ðnot

otherwise classifiedÑ), was reasonably assigned to the 87 Mex

Grou p employees for penalty calculation purposes. Code 5022

Ðincludes masonry work in connection with the construction of

residential, commercial, or industrial structures utilizing

brick, brick veneer or cement, concrete, stone, marble or glass

blocks. . . . Code 5022 is additionally applied to plastering or

stucco work on building exteriors.Ñ Mex Group records confirm

that masonry, plastering, and stucco work accounted for a

significant part of Mex GroupÓs labor business; indeed, class

code 5022 was the onl y class code identified in Mex GroupÓs

workersÓ compensation application as of October 1, 2013.

Compliance investigators also confirm their multiple encounters

with Mex Group employees at construction sites performing masonry

and stucco work. Code 5022 wa s shown to be the highest job class

code applicable to the 87 employees, based on a combination of

records and the physical observations of the investigator.

60. The Department proved that the approved manual rates in

effect for Masonry NOC were applied in its penalty calculations.

The DepartmentÓs calculation properly applied the approved manual

rate in effect for the period of January 1, 2013, through

June 30, 2013. When the approved rate was reduced on July 1,

2013, the Department applied the reduced rate to calculate the

imputed penalty for July 1, 2013, through September 30, 2013.

61. From October 1, 2013, through May 1, 2014, the

DepartmentÓs penalty calculation reasonably used FUBAÓs approved

rates applicable to the class code Masonry NOC for the workersÓ

compensation insurance policy issued to Mex Group. The

calculation for this period properly seeks to quantify the

premiums that would have been paid but for the violations.

Accordingly, the premium that would have been charged for the

imputed p ayroll was the appropriate starting place. The

Department then subtracted (credited) the premiums actually paid

by Mex Group.

62. The Department proved that it reasonably imputed salary

to Mr. Rosales and Ms. Reyes for January 1, 2013, through

March 4, 2 013, because they did not receive their certificates of

exemption as corporate officers until March 5, 2013. For this

time period, the Department reasonably applied code 5610 to

Mr. Rosales, as the highest class code supported by the evidence,

based on h is testimony describing the construction debris removal

jobs he solicited from contractors and performed with Mex Group

workers. For Ms. Reyes, the records show that her work for Mex

Group was in an administrative or clerical capacity. She

dispatched wor kers to jobs, and translated business documents for

Mr. Rosales. Accordingly, the Department reasonably used class

code 8810 (clerical NOC) to impute Ms. ReyesÓ s salary.

63. The methodology for imputing payroll is set forth in

section 440.107(7)(e) and F lorida Administrative Code Rule 69L -

6.021. The starting place is the statewide average weekly wage,

as defined in section 440.12(2), Florida Statutes. Rule 69L -

6.021 directs the Department to use the statewide average weekly

wage that was in effect when the SWO was served on the employer.

The Department proved that the statewide average weekly wage in

effect on May 1, 2014, was $827.08. This amount represents the

statewide weekly wage averaged over the four quarters ending

June 30, 2013, as reported by t he Department of Economic

Opportunity on November 18, 2013.

64. The Department properly applied the statewide average

weekly wage, multiplied by 1.5 (as provided in § 440.107(7)(e),

and the DepartmentÓs penalty calculation worksheet), to calculate

the gro ss payroll per person used in the penalty calculation for

the first two imputed payroll time periods, January 1, 2013,

through June 30, 2013, and July 1, 2013, through September 30,

2013. The differences in these two time periods are the

inclusion of impu ted payroll for Mr. Rosales and Ms. Reyes for

part of the first time period, and application of the different

approved manual rates in effect for the two time periods, as

found above.

65. For the final time period, October 1, 2013, through

May 1, 2014, th e Department properly applied the statewide

average weekly wage, multiplied by 1.5, multiplied by 87

employees, to determine the total imputed gross payroll.

66. The Department proved that it used appropriate values

to calculate the penalty required for M ex GroupÓs violations, and

that the penalty calculation set forth in the Third Amended Order

of Penalty Assessment is correct. The penalty that the

Department is required to assess for Mex GroupÓs violations found

herein is $1,213,357.30.

CONCLUSIONS OF L AW

67 . DOAH has jurisdiction over the subject matter and

parties pursuant to sections 120.569 and 120.57(1), Fl orida

Statutes (2014).

68. The Department is responsible for enforcing the

requirement that employers subject to chapter 440, Florida

Statutes, secure the payment of workersÓ compensation by

obtaining workersÓ compensation coverage for their employees

Ðthat meets the requirements of [chapter 440] and the Florida

Insurance Code.Ñ £ 440.107(2), Fla. Stat. Even when an employer

obtains workersÓ co mpensation insurance coverage, if the employer

materially understates or conceals payroll, the employer is

Ðdeemed to have failed to secure payment of workersÓ

compensation[.]Ñ Id.

69. The failure of an employer to comply with the workersÓ

compensation c overage requirements in chapter 440 Ðposes an

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

§ 440.107(1), Fla. Stat. Accordingly, section 440.107 gives the

Department broad investigative authority, including the power to

compel production of business records to ensure employer

compliance; broad enforcement authority, including the power to

issue SWOs and assess penalties when the Department determines

there are violations; and corresponding rulemaking authority, to

promulgate rules to administ er section 440.107, which the

Department has done in Florida Administrative Code Chapter 69L - 6.

70. In this case, the Department issued its SWO and penalty

assessment orders, charging that Mex Group failed to secure

workersÓ compensation as required by ch apter 440 for the period

of October 10, 2012, through May 1, 2014, for which the

Department contends that the penalty it calculated (as reduced by

amended orders of penalty assessment) should be imposed.

71. Because administrative fines are penal in natur e, the

Department is required to prove its charges and the propriety of

its penalty calculation by clear and convincing evidence. DepÓt

of Banking & Fin. v . Osborne Stern & Co. , 670 So. 2d 932, 935

(Fla. 1995).

72. As stated by the Florida Supreme Court:

Clear and convincing evidence requires that

the evidence must be found to be credible; the

facts to which the witnesses testify must be

distinctly remembered; the testimony must be

precise and explicit and the witnesses must be

lacking in confusion as to the facts in issue.

The evidence must be of such weight that it

produces in the mind of the trier of fact a

firm belief or conviction, without hesitancy,

as to the truth of the allegations sought to

be established.

In re Henson , 913 So. 2d 579, 590 (Fla. 2005) (quoting Slomowitz

v. Walker , 492 So. 2d 797, 800 (Fla. 4th DCA 1983) ) . Ac cord

Westinghouse Electric Corp. v. Shuler Bros. , 590 So. 2d 986, 988

(Fla. 1st DCA 1991) ("Although this standard of proof may be met

where the evidence is in conflict, . . . it seems to preclude

evidence that is ambiguous . ").

73. However, on issues for which Respondent is asserting

the affirmative, Respondent bears the burden of proof. In

particular, to the extent that Respondent claims that prior to

October 1, 2013, its w orkers were independent contractors,

Respondent bears the burden of proving the statutory criteria for

independent contractor status. See DepÓt of Fin. Servs., Div. of

Wrkrs.Ó Comp. v. Blue Diamond Deco Stone, Inc. , Case No. 06 - 4198

(Fla. DOAH Feb. 21, 20 07), modified on other grounds (Fla. DFS

May 22, 2007) (recognizing that after a statutory amendment

effective January 1, 2004, the party claiming that workers are

independent contractors, so as to be excluded from the definition

of a non - construction ind ustry employee, has the burden of

proving independent contractor status); se e generally Balino v.

DepÓt of Health & Rehab. Servs. , 348 So. 2d 349 (Fla. 1st DCA

1977) (burden of proof is generally on the party asserting the

affirmative of an issue).

74. M ex Group is charged with failing to secure the payment

of workersÓ compensation, in violation of sections 440.10(1),

440.38(1), and 440.107(2). Section 440.107(2) provides in

pertinent part:

For purposes of this section, Ðsecuring the

payment of workersÓ compensationÑ means

obtaining coverage that meets the

requirements of this chapter and the Florida

Insurance Code. However, if at any time an

employer materially understates or conceals

payroll . . . such employer shall be deemed

to have failed to secure payment of workersÓ

compensation and shall be subject to the

sanctions set forth in this section.

75. Chapter 440 broadly defines ÐemployerÑ as Ðevery person

carrying on any employment.Ñ £ 440.02(16)(a), Fla. Stat.

76. ÐEmploymentÑ means Ðany service p erformed by an

employee for the person employing him or her . . . [and includes]

[a]ll 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.Ñ

§ 440.02(17)(a) & (b)2 . , Fla. Stat.

77. All persons receiving remuneration for services while

engaged in employment are considered employees. § 440.02(15)(a),

Fla. Stat.

78. The term ÐemployeeÑ inc ludes Ð[a]n independent

contractor working or performing services in the construction

industry[.] Ñ § 440.02(15)(c), Fla. Stat. Thus, in the

construction industry, the ÐemployeeÑ definition Ðeliminates any

legal significance in the distinction between an employee and an

independent contractor under the WorkersÓ Compensation Law.Ñ

Bend v. Shamrock Servs. , 59 So. 3d 153, 155 (Fla. 1st DCA 2011).

79. In addition, sole proprietors, partners, and

subcontractors performing services for remuneration in the

cons truction industry are included in the statutory definition of

Ðemployee.Ñ £ 440.02(15)(c)2 . , Fla. Stat. Certain corporate

officers can become exempt from the coverage requirements of

chapter 440, but must affirmatively make that election.

§§ 440.02(15) (b) and 440.05, Fla. Stat.

80. Section 440.02(8), Florida Statutes, defines

Ðconstruction industryÑ as Ðfor - profit activities involving any

building, clearing, filling, excavation, or a substantial

improvement in the size or use of any structure or the ap pearance

of any land.Ñ The Department is given authority to, Ðby rule,

establish standard industrial classification codes and

definitions thereof which meet the criteria of the terms

Òconstruction industryÓ as set forth in this section.Ñ The

Department h as done so, in rule 69L - 6.021.

8 1 . As found above, the Department proved that Mex Group

was engaged in the construction industry. As provided in rule

69L - 6.021(2), Ð For purposes of this rule, an employer is engaged

in the construction industry when any p ortion of the employerÓs

business operations is described in the construction industry

classification codes that are adopted in this rule. Ñ

8 2 . From October 10, 2012, through September 30, 2013, Mex

GroupÓs business included debris removal work; Mr. Rosal es

solicited these jobs from contractors at construction sites. 12/

Mex GroupÓs construction site debris removal work is properly

classified under construction industry classification code 5610,

adopted by rule 69L - 6.021(2)(ww). From October 1, 2013, throu gh

May 1, 2014, Mex GroupÓs business consisted of masonry,

plastering, and stucco work, all properly classified as code

5022, and wallboard/drywall installation, class code 5445. These

are both construction industry class codes, adopted by rule 69L -

6.021( 2)(j) and (ff), respectively.

8 3 . It was undisputed that Mex Group had no workersÓ

compensation insurance coverage until October 1, 2013.

Accordingly, the Department proved that Mex Group failed to

secure workersÓ compensation as required by chapter 440, from

October 10, 2012, through September 30, 2013.

8 4 . Based on the Findings of Fact above, the Department

proved, clearly and convincingly, that Mex Group materially

understated or concealed payroll from October 1, 2013, through

May 1, 2014. The magnit ude by which payroll was understated or

concealed was shown to be more than just material; it was vast.

The means by which Mex Group understated or concealed payroll was

proven to be through a combination of omitting employees from its

actual payroll repo rts and understating the amount of

compensation paid to those employees who were disclosed in its

actual payroll reports. The Department proved that Mex Group

engaged in a practice of issuing checks that covered only a

fraction of employeesÓ compensation, while directing cash

payments to the workers for the rest of their compensation for

the work they performed for Mex Group. Mex GroupÓs own records

disclose some of these cash payments, but the unexplained large

cash withdrawals streaming from Mex GroupÓs bank accounts suggest

the likelihood of much larger undisclosed supplemental cash

payments to employees.

85 . Mex GroupÓs material understatement and concealment of

payroll from October 1, 2013, through May 1, 2014, is deemed the

failure to secure workers Ó compensation. £ 440.107(2), Fla.

Stat.

86 . Accordingly, the Department proved that Mex Group

committed the charged violations, giving rise to the imposition

of the penalties described in section 440.107(7)(d) and/or (e),

and implementing rules.

8 7 . Se ction 440.107(7) addresses the penalty determination,

providing in pertinent part:

(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

r equired 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 employerÓs payroll during

periods for which it failed to secure the

payment of workersÓ compensation required by

this chapter within the preceding 3 - year

period or $1,000, whichever is greater.

* * *

(e) When an employer fails to provide

business records sufficient to enable the

department to determine the employerÓs

payroll for the period requested for th e

calculation of the penalty provided in

paragraph (d), for penalty calculation

purposes, the imputed weekly payroll for each

employee, corporate officer, sole proprietor,

or partner shall be the statewide average

weekly wage as defined in s. 440.12 (2)

mul tiplied by 1.5.

88 . As found above, the Department properly calculated the

penalty pursuant to section 440.107(7)(d) for the period of

October 10, 2012, through December 31, 2012, based on Mex GroupÓs

actual payroll.

89 . For the remaining non - compliance period, January 1,

2013, through May 1, 2014, the Department properly calculated the

penalty pursuant to section 440.107(7)(e), by imputing Mex

GroupÓs payroll, based on its reasonable determination that Mex

GroupÓs business records were insufficient to d etermine payroll.

9 0 . The glaring shortcomings in Mex GroupÓs business

records produced to the Department are evident from a review of

what the DepartmentÓs rule requires employers to maintain and

produce upon demand. In its current form since 2005, Flor ida

Administrative Code Rule 69L - 6.015 specifies the business - record

requirements, including the following:

( 3) Employment records. Every employer

shall maintain employment records pertaining

to every person to whom the employer paid or

owes remuneration for the performance of any

work or service in connection with any

employment under any appointment or contract

for hire or apprenticeship.

(a) The employment records required by this

subsection shall indicate with regard to

every such person:

1. Name of the person.

2. Social Security Number, Federal Employer

Identification Number, or IRS Tax

Identification Number of the person.

3. Each day, month, and year or pay period

when the employer engaged the person in

employment.

4. Amount of remuneration paid or owed by

the employer for work or service performed by

the person. Where remuneration is paid or

owed on an hourly basis, the record shall

indicate the day, month, and year of work or

service and the number of hours worked by the

person during eac h pay period. Where

remuneration is paid or owed on any basis

other than hourly, the record shall specify

the basis, such as competitive bid, piece

rate, or task, and indicate the day, month,

and year, when remuneration was earned.

( b) In addition, ever y employer shall

maintain the following records for each such

person:

1. All checks or other records provided to

the person for salary, wage, or earned

income.

2. All Form 1099 Miscellaneous Income and

Form W - 2 Wage and Tax Statements issued to

the pe rson.

3. All written contracts or agreements

between the employer and the person that

describe the terms of employment.

4. All employment and unemployment reports

filed pursuant to Florida law.

(4) Tax records. Every employer shall

maintain all form s, together with supporting

records and schedules, filed with the

Internal Revenue Service.

(5) Account records. Every employer shall

maintain monthly, quarterly, or annual

statements for all open or closed business

accounts established by the employer or on

its behalf with any credit card company or

any financial institution, such as bank,

savings bank, savings and loan association,

credit union, or trust company.

(6) Disbursements. Every employer shall

maintain a journal of its check and cash

disbur sements as well as a copy of each

cashierÓs check, bank check, and money order,

indicating chronologically the disbursement

date, to whom the money was paid, the payment

amount, and the purpose .

* * *

(10) Contracts. Each employer shall

maintain:

(a) All complete executed written contracts

between it and a general contractor,

subcontractor, independent contractor, or

employee leasing company licensed under

Chapter 468, F.S., that specify the terms of

reimbursement and performance of any work or

se rvice while engaged in any employment under

any appointment or contract for hire or

apprenticeship.

(b) Any records that establish the statutory

elements of independent contractor prescribed

in Section 440.02(15)(d), F.S., for each

worker who claims to b e or who the employer

claims to be an independent contractor and

not an employee under the workersÓ

compensation law.

(11) Records retention. An employer under

the workersÓ compensation law shall maintain

the records specified in this rule for the

curre nt calendar year to date and for the

preceding three calendar years, in original

form, whether paper, film, machine readable

electronic material, or other media. A

legible copy of the original record is an

acceptable substitute for the original.

91 . Amo ng other shortcomings, some of the more notable

record deficiencies as measured by the rule requirements, and

that caused the Department to reasonably deem the records

insufficient to determine payroll, were as follows: Mex Group

produced no records that showed, for each employee, each day,

month, and year or pay period when Mex Group engaged the person

in employment; Mex Group produced no records that showed the day,

month, and year of work, and the number of hours worked, for each

employee paid by the ho ur; Mex Group failed to produce all of its

tax records (or explain why expected filings were not made); Mex

Group failed to produce records of all of its business accounts;

and Mex Group failed to produce a journal of its check and cash

disbursements Ðindi cating chronologically the disbursements date,

to whom the money was paid, the payment amount, and the purpose .Ñ

92 . If an employer fails in its statutory and rule duty to

maintain and produce the required business records, imputation

follows as a matter of law. Twi n City Roofing Constr.

Specialists, Inc. v. DepÓt of Fin. Servs. , 969 So. 2d 563, 566

(Fla. 1st DCA 2007); Jesus Sosa d/b/a Jesus Sosa Corp., a

dissolved Florida corporation v. DepÓt of Fin. Servs. , Case No.

08 - 3078 (Fla. DOAH 08 - 3078), revers ed in pertinent part (Fla. DFS

Feb. 23, 2009) ( Sosa Final Order) (clarifying that imputation is

required whether an employer refuses to produce any records, or

an employer produces records, but the records are insufficient);

affÓd, per curiam , Case No. 1D0 9 - 1409 (Fla. 1st DCA Dec. 3,

2009). The Department followed its rule methodology to impute

payroll, necessitated by RespondentÓs failure to maintain and

produce sufficient records to determine payroll. Rule 69L -

6.028(3) provides:

When an employer fails t o provide business

records sufficient to enable the department

to determine the employerÓs payroll for the

time period requested in the business records

request for purposes of calculating the

penalty provided for in Section

440.107(7)(d), F.S., the impute d weekly

payroll for each employee, corporate officer,

sole proprietor or partner shall be

calculated as follows:

(a) For each employee, other than corporate

officers, identified by the department as an

employee of such employer at any time during

the pe riod of the employerÓs non - compliance,

the imputed weekly payroll for each week of

the employerÓs 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. Employees include sole

proprietors and partners in a partnership.

(b) If the employer is a corporation, for

each corporate officer of such employer

identified as such on the records of the

Divi sion of Corporations at the time of

issuance of the stop - work order, the imputed

weekly payroll for each week of the

employerÓs non - compliance for each such

corporate officer 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.

(c) If a portion of the period of non -

compliance includes a partial week of non -

compliance, the imputed weekly payroll for

such partial week of non - complian ce shall be

prorated from the imputed weekly payroll for

a full week.

(d) The imputed weekly payroll for each

employee, corporate officer, sole proprietor,

or partner shall be assigned to the highest

rated workersÓ compensation classification

code for an employee based upon records or

the investigatorÓs physical observation of

that employeeÓs activities.

93 . In applying the imputation rule, the Department

properly included all Mex Group employees identified Ðat any time

during the employerÓs non - complia nceÑ for which record

deficiencies required imputation. Department precedent

establishes that where the records are deficient, it is improper

to attempt to pick partial information out of the deficient

records in an attempt to patch together employee rost ers.

Instead, when an employer fails to produce all of the records

required by rule 69L - 6.015 to show the actual duration of each

individualÓs employment, imputation of the employment duration is

required. To do otherwise would Ðundoubtedly encourage

uns crupulous employers to manipulate the Division by producing

only those records that would illegally minimize the penalty

prescribed by the governing statutes.Ñ Sosa Final Order at 3.

As noted in the Sosa Final Order, this result was required even

if the employer was merely negligent in failing to maintain all

of the required records: ÐWhile imputation may work a hardship

on an employer who is merely negligent and not ill - motivated,

that employer can avoid that hardship by not indulging in that

negligence .Ñ Id. at 3. The Department emphasized the public

policy considerations that dictate Ðstrict enforcement of

legislation specifically designed to substantially punish non -

compliant employers so as to increase employer compliance and

ensure workersÓ compen sation coverage for their employees.Ñ Id.

94 . The Department properly selected classification codes,

in accordance with the imputed payroll rule, based on Ð the

highest rated workersÓ compensation classification code for an

employee based upon records or the investigatorÓs physical

observation of that employeeÓs activities .Ñ Fla. Admin. Code R.

69L - 6.028(3)(d); Sosa Final Order at 2 (noting that the ALJ

Ðcorrectly determined that the dearth of information supplied by

SosaÓs business records required imput ation of

classifications.Ñ).

95 . The Department also followed the statutory directive to

impute payroll using the Ðstatewide average weekly wage,Ñ defined

in section 440.12(2), multiplied by 1.5. § 440.107(7)(e), Fla.

Stat. Section 440.12(2) provides:

[ T] he Ðstatewide average weekly wageÑ means

the average weekly wage paid by employers

subject to the Florida Reemployment

Assistance Program Law as reported to the

Department of Economic Opportunity for the

four calendar quarters ending each June 30,

which average weekly wage shall be determined

by the Department of Economic Opportunity on

or before November 30 of each year and shall

be used in determining the maximum weekly

compensation rate with respect to injuries

occurring in the calendar year immediatel y

following. The statewide average weekly wage

determined by the Department of Economic

Opportunity shall be reported annually to the

Legislature.

96 . Rule 69L - 6.028(3)(b) specifies that in imputing

payroll, the Department is to use the statewide averag e weekly

wage that is in effect at the time the stop - work order was issued

to the employer . The Department did so; Respondent does not

contend otherwise.

97 . Respondent contends in its PRO that it was allowed to

materially understate its payroll througho ut the policy year,

because the policy was an Ðopen policyÑ whereby payroll was

subject to adjustment throughout the policy term and a truing - up

through an audit at the end of the policy term . That argument is

contrary to the evidence .

98 . While it is tr ue that the FUBA policy was an Ðopen

policyÑ and that RespondentÓs payroll could change throughout the

policy term, with resulting adjustments to the coverage and

premiums, it is not true that RespondentÓs particular policy

terms permitted any material und erstatement of RespondentÓs

payroll. Instead, as found above, the option chosen by

Respondent required it to self - report its actual payroll each

month and pay monthly premiums after the end of each month,

calculated on the basis of the monthly actual payr oll report . As

found above, each monthly ÐactualÑ payroll report submitted to

FUBA materially understated and/or concealed payroll.

99 . In this regard, this case is very different from

Department of Financial Services, Division of WorkersÓ

Compensation v . Bicon , Case No. 05 - 2966 (Fla. DOAH Mar. 16,

2006), modified on other grounds (Fla. DFS June 14, 2006). In

Bicon , the employer paid estimated premiums that were set on the

basis of estimated payroll at the outset of the policy term. The

ALJ found that t he only evidence offered to prove the employer

materially understated payroll was the fact that the audit after

the end of the policy term showed actual payroll that was much

higher than the estimate. The ALJ found the evidence of

underestimated payroll i nsufficient to prove understated payroll.

In short, an underestimate does not equate to an understatement.

10 0 . Unlike the employer in Bicon , Respondent did not elect

the premium option for its FUBA policy to pay premiums on the

basis of estimated payr oll. While RespondentÓs PRO attempts to

paraphrase the Bicon determinations as if they were applicable to

this case, they simply do not fit. Here , there was compelling

evidence of RespondentÓs material understatements, on a monthly

basis, of its ÐactualÑ payroll .

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 determining that Respondent, Mex Group

Maintenance and Repair, Inc., failed to secure t he payment of

workersÓ compensation for its employees in violation of sections

440.10(1)(a) and 440.38, Florida Statutes, and assessing a

penalty against Respondent in the amount of $1,213,357.30.

DONE AND ENTERED this 13th day of February , 2015 , in

Talla hassee, Leon County, Florida.

S

ELIZABETH W. MCARTHUR

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675

Fax Filing (850 ) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 13th day of February , 2015 .

ENDNOTE S

1/ Unless otherwise indicated, references herein to Florida

Statutes are to the 2013 codification, as the law in effect at

the time of RespondentÓs alleged violations at issue. While some

of the allegations address RespondentÓs actions in late 2012 and

early 2013, the 2012 codification of chapter 440 was not

materially different; a single 2013 bill amending chapter 440 did

not materially alter any provisions germane to addressing

RespondentÓs actions that predated that amendment. See Ch. 2013 -

141, § 4, Laws of Fla. (2013).

2/ The D epartment offered the Third Amended Order of Penalty

Assessment during hearing to ac count for a calculation error

discovered while preparing for hearing. The sole change between

the second and third proposed penalties was the correction of a

single math error described on the record. The correction was in

RespondentÓs favor. Accordingl y, the Third Amended Order of

Penalty Assessment was allowed, again, over RespondentÓs

objection , despite the fact that the correction reduced the

proposed penalty and had no effect on RespondentÓs ability to

prepare its defense against the D epartment Ós pe nalty calculation.

3/ Both partiesÓ exhibits are replete with private identifying

information, including social security numbers, driverÓs license

numbers, bank account numbers, and similar information that

should have been redacted. Upon discovering th e first few such

entries at hearing, the undersigned initially agreed to take care

of obliterating the numbers. However, it quickly became apparent

that the failure to redact these sensitive entries was widespread

throughout the voluminous exhibits. Upon closure of DOAHÓs case

file, the exhibits will be part of the record transmitted to the

Department. Counsel for the Department assumed responsibility

for ensuring redaction of this private identifying information

before the exhibits leave the DepartmentÓ s custody, such as in

response to a public records request. In the future, parties are

reminded that they are responsible for ensuring that confidential

or sensitive private information that has no bearing on the

issues in a proceeding is redacted. If th ere is any question

about whether redaction is appropriate (such as if the sensitive

information is relevant to the litigation, which is not the case

here), an alternative would be to move for a protective order.

4/ The 17 Ðsupplementary exhibitsÑ we re not produced to the

D epartment in response to either of its two business records

requests served on February 19, 2014, and May 1, 2014, nor were

they produced in response to the DepartmentÓs formal discovery in

this proceeding, nor were they disclosed a s proposed exhibits by

the deadline imposed by Order of Pre - Hearing Instructions (15

days before the final hearing). In its Notices of Filing the

supplementary exhibits, Respondent asserted that the new proposed

exhibits were Ðin response toÑ the Departme ntÓs Third Amended

Order of Penalty Assessment offered during the final hearing to

correct a single math error. At hearing, Respondent retreated

from the claim that the new exhibits responded in any way to the

math error. Instead, the proposed new exhibi ts were described as

additional records that had been overlooked, such as records of

an additional bank account that had been omitted from the records

produced to the Department. In addition, Mr. Rosales described

one of the proposed supplementary exhibit s as a document he

prepared to summarize the other previously undisclosed records.

Mr. Rosales admitted to having prepared this new summary at

counselÓs request during the days between October 8, 2014, when

the hearing was scheduled to conclude, and the a dditional

scheduled hearing day of October 17, 2014. Respondent sought to

justify its 17 proposed new exhibits on the grounds that this is

a de novo hearing. However, no concept of Ðde novoÑ could

possibly justify waiting until after Petitioner rests its case

and taking advantage of the fortuitous need for an additional

hearing day to offer records that Respondent was obligated to

provide long ago, and to prepare new proposed exhibits. The

suggestion was, quite frankly, astonishing.

5/ Mr. Rosales descr ibed Mex Group Cleaning ServiceÓs

construction debris removal work in his deposition. (Pet. Exh.

63). At the final hearing, both Mr. Rosales and Ms. Reyes

attempted to retreat from Mr. RosalesÓ s deposition testimony, by

suggesting that what Mr. Rosales me ant to say in his deposition

was that it was his personal hobby to pick up discarded items and

sell them to scrap companies, which he did alone, after hours,

and not on behalf of Mex Group Cleaning Service. Their attempted

retreat from Mr. RosalesÓ s clear description of the debris

removal jobs he solicited from construction site contractors and

performed with Mex Group Cleaning Service workers was not

credible and is not credited.

6/ References to Ðclass codesÑ are to the construction industry

classifica tion codes and descriptions published in the Florida

exception pages of the National Council of Compensation

Insurance, Inc. (NCCI), Basic Manual, 2001 edition, and

corresponding updates through February 1, 2011, incorporated by

reference in Florida Admini strative Code Rule 69L - 6.021, as

amended effective October 11, 2011.

7/ At hearing, Mr. Rosales continued to deny that the Treviso Bay

block masonry work supervised by Mr. Salmeron was for Mex Group.

However, the testimony by Mr. Salmeron and EliteÓs ow ner

corroborated EliteÓs business records, which included several Mex

Group invoices to Elite for the block masonry work at Treviso

Bay, and Elite checks to Mex Group from November 2013 to

February 11, 2014. A Mex Group Cleaning Service invoice dated

Jan uary 27, 2014, charged $9,215.00 for Ðblock labor onlyÑ and

was marked paid as of February 4, 2014, by check number 1590. A

copy of that check shows that it was issued by Elite on

February 4, 2014, payable to Mex Group Cleaning Service in the

amount of $ 9,215.00. A copy of the back of the check shows that

it was stamped for deposit to the account of Mex Group Cleaning

Service Inc.; the same description applies to a check issued on

January 28, 2014, and another check issued on February 11, 2014.

Mr. Rosal esÓs attempt to renounce any Mex Group connection to the

Treviso Bay project was not credible and was contrary to the

documentation produced by Elite.

8/ Mr. RosalesÓs testimony describing Mex GroupÓs relationship

with Mr. Salmeron also kept changing. I n deposition, Mr. Rosales

testified that Mr. Salmeron came to Mex GroupÓs office around the

end of October 2013, and that he worked for Mex Group on Ðone

jobÑ involving drywall. After that job, Mr. Rosales said that he

asked Mr. Salmeron to stop working f or him. However, just a few

pages later, Mr. Rosales changed his testimony to say that Mex

Group paid Mr. Salmeron for several jobs in November and December

2013, and early January 2014; that the contractors for whom these

jobs were performed paid Mex Gro up; that Mr. Salmeron would

arrange for workers for these jobs and give Mr. Rosales lists

with the names of the workers; and that Mr. Rosales (Mex Group)

gave payment to Mr. Salmeron for his services and for him to pay

the workers hired for these jobs. Bu t Mr. Rosales insisted that

Mr. Salmeron did not work for Mex Group after the middle of

January, because Mr. Salmeron started taking projects for work

that Mex Group did not do. Mr. RosalesÓs own words sent by text

message showed that Mr. RosalesÓs testim ony was not truthful

about when Mr. Salmeron stopped working for Mex Group. The

impression given was that Mr. Rosales was attempting to cast the

blame on Mr. Salmeron, as a scapegoat, for Mex GroupÓs

unauthorized masonry work for which it was cited in Col lier

County. However, the record is clear that masonry work was a

significant part of Mex GroupÓs business.

9/ Mr. GumphÓs findings were based on the documents produced by

Mex Group in February 2014, in evidence as PetitionerÓs Exhibit

19. The cash pay ments to Mr. Salmeron identified by Mr. Gumph

were taken from Mex GroupÓs handwritten records at pages 173

through 182. However, additional cash payments, totaling

$23,368.00, were recorded on pages 171 and 172. Therefore, Mex

GroupÓs records show total cash payments to Mr. Salmeron from

December 18, 2013, through February 18, 2014, of $137,563.00,

which would bring the total documented payroll to over $200,000

for this two - month period. It is also noteworthy that page 171

documents that workers were pai d with a combination of checks and

cash, a practice corroborated by Mr. Salmeron.

10/ The $2.3 million of contractor payments to Mex Group for

labor is culled only from the contractor records authenticated

through deposition or hearing testimony of recor ds custodians or

other qualified witnesses who laid sufficient predicates for

admission of the records under the Ðbusiness recordsÑ hearsay

exception. § 90.803(6), Fla. Stat. Respondent made blanket

objections to any hearsay within those records, but Res pondent

was invited to point out specific instances of objectionable

hearsay in its PRO, and did not. The undersigned finds that the

business records generally had two categories of information:

either regularly recorded entries by contractor personnel i n the

ordinary conduct of their business (such as marking invoices

ÐpaidÑ and issuing checks); or statements by agents or employees

of Mex Group concerning matters within the scope of their agency

or employment (such as the Mex Group invoices themselves

de scribing the work billed, or certificates of insurance issued

by Mex GroupÓs insurance agent), and thus, qualifying as

admissions offered against a party. § 90.803(18)(d), Fla. Stat.

11/ A workersÓ compensation claim was filed with FUBA by a Mex

Group employee who was not disclosed as an employee in Mex

GroupÓs audited records. This one known omission (known only

because the employee filed a claim for an on - the - job injury)

reasonably causes FUBA concern that it still does not know the

full extent of Re spondentÓs payroll. In response, Mr. Rosales

testified that the injured employee was not disclosed because he

was only employed for one day, when he was injured on the job.

According to Mr. Rosales, t he employee was expected to come in to

pick up his pay check, but when the employee failed to pick up his

paycheck (perhaps because he was in the hospital) , the paycheck

was voided. Mr. Rosales claims that it did not occur to him to

mail the check to the injured employee, but said that he would

probably do so now . Mr. RosalesÓs explanation for the omission

of the injured employee from RespondentÓs payroll records is

rejected as unreasonable . The employee admittedly worked for Mex

Group for pay; even if the agreed compensation was not yet

actually paid, it sh ould have been reported as owed. See Fla.

Admin. Code R. 69L - 6.015(3)(a)4. (employerÓs records must

identify amount of remuneration paid or owed by the employer for

work performed by each employee) . Mr. RosalesÓs rationale for

not reporting the one emplo yee known by FUBA to have been omitted

suggests th e possibility of others omitted for similar reasons.

12/ As found above, the contrary testimony, contending that

Respondent provided only residential janitorial services, was

rejected as not credible. Accordingly, Respondent was subject to

the workersÓ compensation requirements, as an employer engaged in

the construction industry with at least one employee (defined to

include an independent contractor). Moreover, even if the

Department had failed to pr ove that Respondent was engaged in the

construction industry in its first year, the evidence established

that Respondent had four or more employees. Respondent had five

employees in its first two and one half months of business, and

increased the number o f workers in 2013. RespondentÓs own

exhibits establish that it added approximately ten workers in

January 2013. Thus, Respondent would have been subject to the

workersÓ compensation requirements even if it had not been in the

construction industry, absen t evidence proving that RespondentÓs

workers were independent contractors. Although Respondent argued

that was the case, Respondent failed to meet its burden of

proving its contention that its workers were independent

contractors. Section 440.02(15)(d) c ontains detailed criteria

which must be met to satisfy the definition of independent

contractor, and there is insufficient evidence that any of the

statutory criteria were met by Mex GroupÓs workers between

October 10, 2012, and September 30, 2013.

COPIE S FURNISHED:

Kristian Eiler Dunn, Esquire

Dunn and Miller, P.A.

1606 Redwood Drive

Tallahassee, Florida 32301

(eServed)

Bennett M. Miller, Esquire

Dunn and Miller, P.A.

1606 Redwood Drive

Tallahassee, Florida 32301

(eServed)

Elizabeth A. Miller, Esqui re

Department of Financial Services

Division of Legal Services

200 East Gaines Street

Tallahassee, Florida 32399

(eServed)

Alexander Brick, Esquire

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399 - 4229

(eServed)

Julie Jones, CP, FRP, Agency Clerk

Division of Legal Services

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399 - 0390

(eServed)

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions with in

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.