15-000441 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. Klenk Roofing, Inc. Status: Closed Recommended Order on Tuesday, April 28, 2015.

Summary: Department demonstrated by clear and convincing evidence that Respondent, a company engaged in the construction industry, failed to obtain workers' compensation coverage for its employees during the penalty period.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL

SERVICES, DIVISION OF WORKERS'

COMPENSATION,

Petitioner,

vs. Case No. 15 - 0441

KLENK ROOFING, INC.,

Respondent.

_______________________________/

RECOMMENDE D ORDER

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

before Lawrence P. Stevenson, a duly - designated Administrative

Law Judge, via video teleconference at sites in Daytona Beach

and Tallahassee , Florida, on March 13, 2015.

APPEARANCES

For Petitioner: Rebecca C. Arends, Qualified

Representative

Trevor Suter, Esquire

Department of Financial Services

Division of Workers' Compensation

200 East Gaines Street

Tallahassee, Florida 32399 - 4229

For Respondent: Ronald Klenk , pro se

Klenk Roofing, Inc.

829 Pinewood Street

Daytona Beach , Florida 3 2117

STATEMENT OF THE ISSUES

At issue in this proceeding is whether the Respondent ,

Klenk Roofing, Inc. (" Klenk Roofing ") , failed to abide by the

coverage requirements of the Workers' Compensation Law,

c ha pter 440, Florida Statutes , by not obtaining workers'

compensation insurance for its employees and, if so, whether the

Petitioner properly assessed a penalty against the Respondent

pur suant to s ection 440.107 .

PRELIMINARY STATEMENT

Pursuant to the Workers' Compensation Law, c hapter 440, the

Department of Financial Services, Divisio n of Workers'

Compensation ( "Department"), seeks to enforce the statutory

requirement that employers secure the payment of workers'

compensation for their employees.

On July 23, 2014 , the Depa rtment issued a "Stop - Work Order"

alleging that Klenk Roofing failed to abide by the coverage

requirements of the workers' compensation law on that date. The

order dire cted Klenk Roofing to cease business operations and

pay a penalty equal to two times the amount Klenk Roofing would

have paid in premium to secure workers' compensation during

periods within the preceding t wo years when it failed to do so ,

or $1,000, which ever is greater, pursuant to s ection

440.107(7)(d) . The Department also requested business records

from Klenk Roofing in order to determine the exact amount of the

penalty.

On July 25, 2014, the Department issued an ÐAgreed Order of

Conditional Release fr om Stop - Work Order,Ñ which stated that

Klenk Roofing had come into compliance with the coverage

requirements of chapter 440, that Klenk Roofing had paid $1,000

as a down payment on its penalty, and that Klenk Roofing was

conditionally released from the Sto p - Work Order pending the

payment of the remainder of the penalty or compliance with an

agreement to make periodic payments on the penalty.

Klenk Roofing provided some business records to the

Department. On September 17, 2014, the Department issued an

ÐAme nded Order of Penalty AssessmentÑ that ordered Klenk Roofing

to pay a penalty of $214,335.58, pursuant to section

440.107(7)(d). Klenk Roofing then provided additional business

records to the Department. On December 16, 2014, the Department

issued a Ð Sec ond Amended Order of Penalty AssessmentÑ that

lowered the assessed penalty to $87,159.20.

In a letter dated January 5, 2015, Ron ald Klenk, the

president of Klenk Roofing , disputed the DepartmentÓs penalty

calculation and requested an administrative hearing . On

January 26, 2015, the Department forwarded Klenk Roofing 's

request to the Division of Administrative Hearings ( Ð DOAH Ñ ).

The hearing was scheduled for March 13, 2015, on which date it

was convened and completed .

At the outset of the hearing, the Depa rtment made a motion

to file a Ð Third Amended Order of Penalty AssessmentÑ based upon

a further review of Klenk Roofing 's business records . The Third

Amended Order of Penalty Assessment reduced the penalty

assessment to $19,918.04. Without objection, the undersigned

granted the motion and the hearing went forward based on the

Third Amended Order of Penalty Assessment.

At the hearing, the Department presented the testimony of

its investigator, Kent Howe, and of penalty audit manager , Anita

Proano . The Dep artment's Exhibits 2, 4, 5, 7, 8, 10 through 14,

16, 18, and 20 were admitted into evidence. Klenk Roofing

presented the testimony of its president, Ronald Klenk . Klenk

Roofing offered no exhibits into evidence.

By written motion filed on March 10, 2015, the Department

renewed a motion first made orally at the hearing , requesting

leave to file the deposition transcript of Ronald Klenk as an

exhibit. By order dated April 8, 2015, the undersigned denied

the motion on the ground that Mr. Klenk testified at the

hearing, which rendered the transcript of his discovery

deposition redundant. The order gave leave to the Department to

request the admission of specific portions of the transcript for

impeachment purposes, but the Department made no further request

r egarding the deposition.

The one - volume Transcript of the final hearing was filed at

the DOAH on March 31, 2015 . Ronald Klenk had filed a

handwritten letter summarizing the position of Klenk Roofing on

March 26, 2015. The Department timely filed a Propos ed

Recommended O rder on April 9, 2015 .

Unless otherwise stated, all stat utory references are to

the 2014 edition of the Florida Statutes.

FINDINGS OF FACT

Based on the oral and documentary evidence adduced at the

final hearing, and the entire record in th is proceeding, the

following findings of fact are made:

1. The Department is the state agency responsible for

enforcing the requirement of the workers' compensation law that

employers secure the payment of workers' compensation coverage

for their employee s and corporate officers . § 440.107, Fla.

Stat.

2. Klenk Roofing is a corporation based in Daytona Beach .

The Division of CorporationsÓ ÐSunbizÑ website indicates that

Klenk Roofing was first incorporated on February 23, 2005 , and

remained an active cor poration up to the date of the hearing .

Klenk RoofingÓs principal office is at 829 Pinewood S tree t in

Daytona Beach.

3. As the name indicates, Klenk Roofing Ós primary business

is the installation of new roofs and the repair of existing

roofs. Klenk Roof ing was actively engaged in roofing operations

during the two - year audit period from J uly 24, 2012 , through

July 23, 2014.

4. Kent Howe is a Department compliance investigator

assigned to Volusia County. Mr. Howe testified that his job

includes driving a round the county conducting random compliance

investigations of any construction sites he happens to see. On

July 23, 2014, Mr. Howe was driving through a residential

neighborhood when he saw a house under construction at

2027 Peninsula Drive in Daytona B each. He saw a dumpster in the

driveway with the name ÐKlenk RoofingÑ written on its side.

Mr. Howe also saw a gray van with the name ÐKlenk RoofingÑ on

the door.

5. Mr. Howe saw three men working on the house. He spoke

first with Vincent Ashton, who w as collecting debris and placing

it in the dumpster. Mr. Howe later spoke with Jonny Wheeler and

Craig Saimes, both of whom were laying down adhesive tarpaper on

the roof when Mr. Howe approached the site.

6. All three men told Mr. Howe that they worked for Klenk

Roofing and that the owner was Ronald Klenk. Mr. Ashton and

Mr. Wheeler told Mr. Howe that they were each being paid $10 per

hour. Mr. Saimes would not say how much he was being paid.

7. After speaking with the three Klenk Roofing employees,

M r. Howe returned to his vehicle to perform computer research on

Klenk Roofing. He first consulted the Sunbiz website for

information about the company and its officers. His search

confirmed that Klenk Roofing was an active Florida corporation

and that Ro nald Klenk was its registered agent . Ronald Klenk

was listed as the president of the corporation and Kyle Klenk was

listed as the vice president .

8. Mr. Howe next checked the Department's Coverage and

Compliance Automated System ("CCAS") database to dete rmine

whether Klenk Roofing had secured the payment of workers'

compensation insurance coverage or had obtained an exemption

from the requirements of chapter 440 . CCAS is a databas e that

Department investigator s routinely cons ult during their

investigatio ns to check for compliance, exemptions, and other

workers' compensation related items. CCAS revealed that Klenk

Roofing had no active workers' compensation insurance coverage

for its employees and that Ronald and Kyle Klenk had elected

exemptions as offic ers of the corporation pursuant to section

440.05 and Florida Administrative Code R ule 69L - 6.012.

9. Mr. HoweÓs next step was to telephone Ronald Klenk to

verify the employment of the three workers at the jobsite and to

inquire as to the status of Klenk R oofing's workers'

compensation insurance coverage. Mr. Klenk verified that Klenk

R oofing employed Mr. Wheeler, Mr. Ashton, and Mr . Saimes .

Mr. Klenk also informed Mr . Howe tha t Klenk Roofing did not have

workers' compensation insurance coverage for the t hree

employees .

10. Based on his jobsite interviews with the employees, his

interview with Mr. Klenk, and his Sunbiz and CCAS computer

searches, Mr. Howe concluded that as of July 23, 2014, Klenk

Roofing had three employees working in the construction in dustry

and that the company had failed to procure workersÓ compensation

coverage for these employees in violation of chapter 440.

Mr. Howe consequently issued a Stop - Work Order that he personally

served on Mr. Klenk on July 23, 2014.

11. Also on July 23, 2014, Mr. Howe served Klenk Roofing

with a Request for Production of Business Records for Penalty

Assessment Calculation , asking for documents pertaining to the

identification of the employer, the employer's payroll, business

accounts, disbursements, work ers' compensation insurance

coverage records, professional employer organization records,

temporary labor service records, documentation of exemptions,

documents relating to subcontractors, documents of

subcontractors' workers compensation insurance covera ge, and

other business records to enable the Department to determine the

appropriate penalty owed by Klenk Roofing.

12. Anita Proano, penalty audit supervisor for the

Department, was assigned to calculate the appropriate penalty to

be assessed on Klenk R o ofing. Penalties for workers'

compensation insurance violations are based on doubling the

amount of evaded insurance premiums over the two - year period

preceding the Stop - Work Order , which , in this case was the

period from July 24, 2012 , through July 23, 2 014 .

§ 440.107(7)(d) , Fla. Stat. At the tim e Ms. Proano was

assigned , Klenk Roofing had not provided the Department with

sufficient business records to enable Ms. Proano to determine

the companyÓs actual gross payroll .

13. Section 440.107(7)(e) provides that where an employer

fails to provide business records sufficient to enable the

Department to determine the employerÓs actual payroll for the

penalty period, the Department will impute the weekly payroll at

the statewide average weekly wage as defined i n section

440.12(2), multiplied by two. 1 /

14. In the penalty assessment calculation, the Department

consulted the classification code s and definitions set forth in

th e SCOPES of Basic Manual Classifications (ÐScopes ManualÑ)

published by the National Coun cil on Compensation Insurance

(ÐNCCIÑ). The Scopes Manual has been adopted by reference in

Florida Administrative Code R ule 69L - 6.021. C lassification

codes are four - digit codes assigned to occupations by the NCCI

to assist in the calculation of workers' compensation insurance

premiums. Rule 69L - 6.028(3)(d) provides that Ð [t]he imputed

weekly payroll for each employee . . . shall be assigned to the

highest rated workers Ó compensation classification code for an

employee based upon records or the investigat or Ó s physical

observation of that employee Ó s activities. Ñ

15. Ms. Proano applied NCCI Class Code 5551 , titled

ÐRoofing Ï All Kinds and Drivers,Ñ which Ðapplies to the

installation of new roofs and the repair of existing roofs.Ñ

The corresponding rule pro vision is rule 69L - 6.021(2)(uu).

Ms. Proano used the approved manual rates corresponding to

Class Code 5551 for the periods of non - compliance to calculate

the penalty.

16. On September 17, 2014, the Department issued an

Amended Order of Penalty Assessme nt in the amount of

$214,335.58, based upon an imputation of wages for the employees

known to the Department at that time. After Klenk Roofing

provided further business records, the Department on

December 16, 2014, was able to issue a Second Amended Order of

Penalty Assessment in the amount of $87,159.20, based on a

mixture of actual payroll information and imputation.

17. The Department eventually received records sufficient

to determine Klenk Roofing's payroll for the time period of

July 24, 2012 , throu gh July 23, 2014. The additional records

enabled Ms. Proano to calculate a Third Amended Order of

Penalty Assessment in the amount of $19.818.04.

18. The evidence produced at the hearing established that

Ms. Proano utilized the correct class codes, avera ge weekly

wages, and manual rates in her calculation of the Third Amended

Order of Penalty Assessment.

19. The Department has demonstrated by clear and

convincing evidence that Klenk Roofing was in violatio n of the

workers' compensation coverage requireme nts of chapter 440 .

Jonny Wheeler, Vincent Ashton, and Craig Saimes were employees

of Klenk Roofing performing services in the construction

industry without valid workers' compensation insurance

coverage. The Department has also demonstrated by clear an d

convincing evidence that the penalty was correctly calculated by

Ms. Proano, through the use of the approved manual rates,

business records provided by Klenk Roofing, and the penalty

calculation worksheet adopted by the Department in Florida

Administrati ve Code R ule 69L - 6.027 .

20 . Klenk Roofing could point to no exemption, insurance

policy, or employee leasing arrangement that would operate to

lessen or extinguish the assessed penalty. At the hearing,

Ronald Klenk testified he was unable to obtain worke rsÓ

compensation coverage during the penalty period because it was

prohibitively expensive to carry coverage for fewer than four

employees. He stated that the insurers demanded a minimum of

$1,500 per week in premiums, which wiped out his profits when

the payroll was low. Mr. Klenk presented a sympathetic picture

of a small business squeezed by high premiums, but such

equitable considerations have no effect on the operation of

c hapter 440 or the imposition of the penalty assessed pursuant

thereto .

CONCL USIONS OF LAW

21 . The Division of Administrative Hearings has

jurisdiction of the subject matter of and th e parties to this

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

22 . Employers are required to secure payment of

comp ensation for their employee s. § § 440.10(1)(a) and

440.38(1), Fla. Stat.

23 . Ð Employer Ñ is defined, in part, as Ð every person

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

Ð Employment . . . means any service performed by an employee for

the person employing him or her Ñ an d includes Ð 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) and (b)(2), Fla. Stat.

24 . Ð Employee Ñ is defined, in part, as Ð any person who

receives remun eration from an employer for the performance of

any work or service while engaged in any employment under any

appointment or contract for hire or apprenticeship, express or

implied, oral or written. Ñ § 440.02(15)(a), Fla. Stat.

Ð Employee Ñ also includes Ð any person who is an officer of a

corporation and who performs services for remuneration for such

corporation within this state. Ñ § 440.02(15)(b), Fla. Stat.

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

and must show by clear and convincing ev idence that the employer

violated the Workers' Compensation Law and that the penalty

assessments were correct under the law . See Dep Ó t of Banking

and Fin . , Div . of Sec . and Investor Prot . v. Osborne Stern and

Co. , 670 So. 2d 932 (Fla. 1996); and Ferris v. Turlington , 510

So. 2d 292 (Fla. 1987).

26 . In Evans Packing Co. v. Department of Agriculture and

Consumer Services , 550 So. 2d 112, 116, n. 5 (Fla. 1st DCA 1989),

the Court defined clear and convincing evidence as follows:

[C]lear and convincing evide nce requires

that the evidence must be found to be

credible; the facts to which the witnesses

testify must be distinctly remembered; the

evidence must be precise and explicit and

the witnesses must be lacking in confusion

as to the facts in issue. The evi dence must

be of such weight that it produces in the

mind of the trier of fact the firm belief of

conviction, without hesitancy, as to the

truth of the allegations sought to be

established. Slomowitz v. Walker , 429

So. 2d 797, 800 (Fla. 4th DCA 1983).

27 . Judge Sharp, in her dissenting opinion in Walker v.

Florida Department of Business and Professional Regulation , 705

So. 2d 652, 655 (Fla. 5th DCA 1998)(Sharp, J., dissenting),

reviewed recent pronouncements on clear and convincing evidence:

Clear and convincing evidence requires

more proof than preponderance of evidence,

but less than beyond a reasonable doubt. In

re Inquiry Concerning a Judge re Graziano ,

696 So. 2d 744 (Fla. 1997). It is an

intermediate level of proof that entails

both qualitative and quantative [sic]

elements. In re Adoption of Baby E.A.W. ,

658 So. 2d 961, 967 (Fla. 1995), cert.

denied , 516 U.S. 1051, 116 S. Ct. 719, 133

L. Ed. 2d 672 (1996). The sum total of

evidence must be sufficient to convince the

trier of fact without any h esitancy. Id.

It must produce in the mind of the trier of

fact a firm belief or conviction as to the

truth of the allegations sought to be

established. Inquiry Concerning Davey , 645

So. 2d 398, 404 (Fla. 1994).

28. Section 44 0.02(8) defines Ð construct ion industry Ñ as

Ð for - profit activities involving any building, clea ring, filling,

excavation, or substantial improvement in the size or use of any

structure or the appearance of any land. Ñ Section 44 0.02(8)

further provides Ð [t]he division may, by rule, establish

standard industrial classification codes and definitions thereof

which meet the criteria of the term Ò construction industry Ó as

set forth in this section. Ñ Klenk Roofing's activities in

installing a roof at the residential worksite for payment

c onstituted construction under the DepartmentÓs statutorily

authorized rules . Fla. Admin. Code R. 69L - 6.021(2)(dd) .

2 9 . The Department established by clear and convincing

evidence that Klenk Roofing was an Ð employer Ñ for workers Ó

compensation purposes bec ause it was engaged in the construction

industry during the period of July 24, 2012 , through July 23,

2014 , and employed one or more employees during that period .

§§ 440.02(16)(a) and (17)(b)2., Fla. Stat.

30 . Section 440.107(7)(a) provides in relevant part:

Whenever the department determines that an

employer who is required to secure the

payment to his or her employees of the

compensation provided for by this chapter

has failed to secure the payment of workers Ó

compensation required by this chapter . . .

such failure shall be deemed an immediate

serious danger to public health, safety, or

welfare sufficient to justify service by the

department of a stop - work order on the

employer, requiring the cessation of all

business operations. If the department

ma kes such a determination, the department

shall issue a stop - work order within 72

hours.

Thus, the Department's SWO was mandated by statute.

31. As to the computation and assessment of penalties,

section 440.107(7) provides, in relevant part:

(d)1. In add ition to any penalty, stop - work

order, or injunction, the department shall

assess against any employer who has failed

to secure the payment of compensation as

required by this chapter a penalty equal to

2 times the amount the employer would have

paid in pr emium 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 2 - year period or $1,000, whichever

is greater.

32. Ms. Pro ano properly utilized the penalty worksheet

mandated by rule 69L - 6.027 and the procedure set forth in

section 440.107(7)(d)1. , to calculate the penalty owed by Klenk

Roofing as a result of its failure to comply with the coverage

requirements of chapter 440 .

33. The Department has proven by clear and convincing

evidence that it correctly calculated and issued the penalty of

$19,818.04 in the Third Amended Order of Penalty Assessment.

34. Mr. Klenk was a credible and sympathetic witness. The

undersigned did not question his testimony as to the difficulty

that his small business had in procuring affordable workersÓ

compensation coverage. However, the Legislature has not seen

fit to provide an Ðaffordability exemptionÑ to the requirements

of chapter 440 an d the undersigned lacks the authority to create

an equitable exception. See DepÓt of Ins. & Treasurer v.

Bankers Ins. Co. , 694 So. 2d 70, 71 (Fla. 1st DCA

1997)(Ð[A]gencies are creatures of statute. Their legitimate

regulatory realm is no more and no les s than what the

Legislature prescribes by law.Ñ)

RECOMMENDATION

Having considered the foregoing Findings of Fact,

Conclusions of Law, the evidence of record, the candor and

demeanor of the witnesses, and the pleadings and arguments of

the parties, it is, therefore,

RECOMMENDED that a final order be entered by the Department

of Financial Services, Division of Workers' Compensation,

assessing a penalty of $ 19,818.04 against Klenk Roofing , Inc.

DONE AND ENTERED this 2 8 th day of April, 2015 , in

Tallahassee, Leon County, Florida.

S

LAWRENCE P. STEVENSON

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675 SUNCOM 278 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 2 8 th day of April , 20 15 .

ENDNOTE

1 / Section 440.12(2) defines Ðstatewide average weekly wageÑ as

Ð 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 immediately following.Ñ

COPIES FURNISHED :

Alexander Brick, Esquire

Department of Fina ncial Services

200 East Gaines Street

Tallahassee, Florida 32399 - 6502

(eServed)

Ron Klenk

Klenk Roofing, Inc.

829 Pinewood St

Daytona Beach, Florida 32117

Rebecca C. Arends

Department of Financial Services

Division of Legal Services

200 East Gaines S treet

Tallahassee, Florida 32399

(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 parti es 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.