17-003385 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. Doherty Home Repair, Inc. Status: Closed Recommended Order on Wednesday, December 27, 2017.

Summary: The Division proved by clear and convincing evidence that the Respondent failed to carry workers' compensation coverage and the Division properly calculated and assessed a fine totaling $244,964.44.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL

SERVICES, DIVISION OF WORKERS'

COMPENSATION,

Petitioner,

vs. Case No. 17 - 3385

DOHERTY HOME REPAIR, INC.,

Respondent.

_______________________________/

RE COMMENDED ORDER

A final hearing was conducted in this case on November 6,

2017 , before Robert L. Kilbride, an Administrative Law Judge of

the Division of Administrative Hearings ( " DOAH " ), by video

teleconference at sites in West Palm Beach and Tallahassee ,

Florida.

APPEARANCES

For Petitioner: Christina Pumphrey, Esquire

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399

For Respondent: Michael R. Morris, Esquire

Morris & Morris

West Tower, Suite 800

777 South Flagler Drive

West Palm Beach, Florida 33401

STATEMENT OF THE ISSUE S

The issue s in this case are whether Respondent, Doherty Home

Repair , Inc., failed to obtain workersÓ compensation coverage

that meets the requirements of c hapter 440, Florida s tatutes

(2017) ; and , if so, whether the penalty assessed in the 2nd

Amended Order of Penalty Assessment was properly calculated.

PRELIMINARY STATEMENT

On J anuary 21, 2016, Petitioner, Department of Financial

Services, Division of WorkersÓ Compensation ( " Department " or

" Petitioner " ), issued a Stop - Work Order and Order of Penalty

Assessment , alleging that Respondent, Doherty Home Repair , Inc.

( " Respondent " or " Doherty Home Repair " ), failed to secure the

payment of workersÓ compensation in violation of various sections

of c hapter 440.

The Department served its first Amended Order of Penalty

Assessment on Respondent on March 10, 2016.

On June 22, 2016, Respond ent timely filed a request for a

formal administrative hearing.

On July 5, 2016, the Department served a 2nd Amended Order

of Penalty Assessment on Respondent which assessed a penalty of

$244,964.44.

On June 14, 2017, the Department referred this matte r to

DOAH. The final hearing was originally scheduled for August 31,

2017, but was continued until November 6, 2017 , at the request of

Petitioner.

On November 6, 2017, the final hearing was held. At the

hearing, the Department presented the testimony o f Lynne Murcia,

a Division penalty auditor. The DepartmentÓs Exhibits 1

through 12 were admitted. 1 / Respondent presented the testimony of

Ryan Doherty, owner of Doherty Home Repair . Respondent offered

no exhibits.

A Joint Pre - h earing Stipulation was filed by the parties on

October 20, 2017 , and considered by the undersigned at the final

hearing, in deliberations , and in the preparation of this

Recommended Order .

The one - volume Transcript of the final hearing was filed

with DOAH on November 27, 2017. The parties timely filed

p roposed r ecommended o rders, which were given due consideration

in the preparation of this Recommended Order .

References to the Florida Statutes are to the 2017 version,

unless otherwise indicated.

FINDING S OF FACT

Based on the e vidence and stipulated facts, the undersigned

makes the following F indings of F act:

1. Respondent was actively involved in business operations

in the state of Florida during the period of January 22, 2014,

through January 21, 2016, inclusively.

2. Res pondent received the Stop - Work Order and Order of

Penalty Assessment from the Department on January 21, 2016.

3. Respondent received the Request for Production of

Business Records for Penalty Assessment Calculation from the

Department on February 10, 2016 .

4. Respondent was an " employer , " as defined in c hapter 440,

throughout the penalty period.

5. Respondent received the Amended Order of Penalty

Assessment from the Department on March 10, 2016.

6. Respondent received the 2nd Amended Order of Penalty

A ssessment from the Department on July 5, 2016.

7. All of the individuals listed on the penalty worksheet

of the 2nd Amended Order of Penalty Assessment were " employees "

of Respo ndent during the periods of non compliance listed on the

penalty worksheet of the Amended Order of Penalty Assessment.

8. None of the individuals listed on the penalty worksheet

of the 2nd Amended Order of Penalty Assessment had a valid

Florida workersÓ compensation coverage exemption at any time

during the periods of non complianc e listed on the penalty

worksheet of the Amended Order of Penalty Assessment.

9. Respondent did not secure the payment of workersÓ

compensation insurance coverage, nor have others secure d the

payment of workersÓ compensation insurance coverage, for any of

the individuals named on the penalty worksheet of the 2nd Amended

Order of Penalty Assessment during the periods of noncompliance

listed on the penalty worksheet of the 2nd Amended O rder of

Penalty Assessment.

10. None of the individuals listed on the p enalty worksheet

of the 2nd Amended Order of Penalty Assessment were " independent

contractors " hired by Respondent for an y portion of the periods

of non compliance listed on the penalty worksheet.

11. Wages or salaries were paid by Respondent to its

employ ees listed on the penalty worksheet of the 2nd Amended

Order of Penalty Assessment, whether continuously or not, during

the corresponding periods of noncompliance listed on the penalty

worksheet of the 2nd Amended Order of Penalty Assessment.

12. The Requ est for Production of Business Records for

Penalty Assessment Calculation was served on Respondent on

April 2, 2016.

13. Respondent failed to provide all of the required

business records for the period requested in the Request for

Production of Busines s Records for Penalty Assessment

Calculation.

14. The employees on the penalty worksheet of the 2nd

Amended Order of Penalty Assessment are classified under the

correct c lass c odes, as defined by the National Council on

Compensation Insurance, Inc. ( " NCCI " ), " Scopes ® Manual . "

15. The approved manual rates used on the penalty worksheet

of the 2nd Amended Order of Penalty Assessment, as defined by the

NCCI Scopes® Manual, are the correct manual rates for the

corresponding periods of noncompliance listed on the penalty

worksheets.

16. Doherty Home Repair , Inc. , is RespondentÓs correct

legal name.

17. The Department is the state agency charged with the

responsibility to investigate and enforce the worker s Ó

compensation insurance coverage laws in the state under

chapter 440 and to ensure that employers secure workersÓ

compensation coverage for their employees. § 440.107(3), Fla.

Stat.

18. Respondent is a private company providing general

construction and home repair services. It maintained its primary

business records on a computer during the relevant time periods.

19. R yan Doherty testified that his work computers were

stolen during a " break in " at his office. 2 / However, he had

possession of the computers containing most of his business

records, f or one to one and one - half months after the date the

original S top - W ork O rder was issued.

20. Respondent did provide 2014 tax and other business

records to the Department for purposes of (1) investigating

alleged violations of the worker s Ó compensation i nsurance

coverage laws and (2) calculating a penalty.

21. Byron Fichs Activ e Electric 3/ was included in the

records provided by Respondent as an employee, for purposes of a

penalty calculation. The period of noncompliance was January 23,

2014, through December 31, 2014. Pet. Ex. 6, p. 19 .

22. Gross payroll for the audit period for Byron Fichs

Active Electric was determined based upon records provided by

Respondent and totaled $4,342.27. Pet. Ex. 6, p. 19.

23. Information contained in RespondentÓs U. S. Income Tax

Return for 2014 indicated that Respondent paid a total of

$640,100.00 in labor - related expenses for 2014 . Pet. Ex. 10,

p. 62.

24. That amount was broken down into essentially two

categories in 2014 - - Subcontractors and Specific employees.

25. Subcontractors: $535,980.00 of the labor - related

exp enses was for sub - contractors. Pet. Ex. 10, p. 62.

26. Specific Employees: $104,120.00 of the total labor -

e xpenses ($640,100.00) was attri butable to specific employees.

Pet. Ex. 10, p. 66, Over flow Statement .

27. However, only $503,674.36 4/ was included by the

Department as Gross Payroll for subcontractors in 2014 on the

worksheet for purposes of a penalty calculation.

Pet. Ex. 6, p. 19 .

28. Tax records for 2014 indicated payments totaling

$ 104,120 .00 were made to Seth Anthony, Shawn Bronson, Joseph

Horucth, Mark Lucas, John Concepcion, Jordan Beene, James Stift,

and Jerry Brunnell. Pet. Ex. 10, p. 66 .

29. Due to the payments indicated on the tax and business

records, the individuals liste d above were included as employees

for pur poses of penalty calculation. Pet. Ex. 6, p. 19 .

30. The amounts in the 2014 tax records were prorated to

determine gross payroll for each individual for purposes of

penalty calculation. The period of noncomplia nce for each person

was January 23, 201 4, through December 31, 2014. Pet. Ex. 6,

p. 19.

31. Mr. Doherty was listed as an employee for purposes of

penalty calculation. The gross wage attributed to Mr. Doherty in

2014 was based upon the average weekly w age ( " AWW " ), since the

records based on income were more than the AWW . Pet. Ex. 6,

p. 19.

32. Mr. DohertyÓs period of non compliance during the year

2014 was April 19, 20 14, through December 31, 2014. Pet. Ex. 6,

p. 19.

33. Significantly, payroll for the remainder of the penalty

audit period ( January 1, 2015 , through December 31 , 2015 , and

January 1 , 2016 , through January 21 , 2016) was imputed by the

D epartment because it properly determined that Respondent did not

provide adequate business records to determine RespondentÓs

actual payroll. 5/ Pet. Ex. 6, p p . 19 - 20.

34. The four employees that were found working on the job

site on the day the S top - W ork O rder was issued, as well as

Mr. Doherty, a corporate officer, were included by the Departmen t

as employees for purposes of imputing payroll and calculating the

penalty for the remainder of the audit period, January 1, 2 015,

through January 21, 2016. Pet. Ex. 6, p. 19 .

35. The four employees are identified in RespondentÓs

business records as Da ve Mason, Dan, Erick , and Joe. Pet. Ex. 6,

p. 19 .

36. Based upon the records provided for the period of

January 23, 2014, through December 31, 2014, and the imputed

payroll established for the period of January 1, 2015, through

January 21, 2016, a penalt y of $244,964.44 was calculated. Pet.

Ex. 6, p. 19 .

37. As a result, a 2nd Amended Order of Penalty Assessment

was issued assessing a total penalty of $244,964.44. Pet. Ex. 6,

p p . 16 - 17 .

38. After the 2nd Amended Order of Penalty Assessment was

issued , Respondent provided the Departm ent with a " massive "

amount of additional business records . The actual date of

delivery of these additional records to the Department was not

clear.

39. Nonetheless, it was clear that it was on a date after

the 2nd Amend ed Order of Penalty Assessment was issued .

40. These business records, despite being voluminous, were

incomplete , and the DepartmentÓs penalty auditor, if required,

would have been unable to calculate or recalculate a penalty

based on the records deliver ed by Respondent after the 2nd

Amended Order of Penalty Assessment was issued.

41. A larg e amount of time sheets for various workers were

also received after the issuance of the 2nd Amended Order of

Penalty Assessment , but again they were incomplete ; and there

were no wages associated with any of the time sheets, no hourly

rates were stated , and no total amount paid to the employees for

the week was listed . 6/

CONCLUSIONS OF LAW

42. DOAH has jurisdiction over the subject matter and the

parties to this proc eeding, pursuant to sections 120.569 and

120.75(1) , Florida Statutes .

4 3 . The Department is the state agency responsible for

investigating and enforcing the law requiring that employers

secure the payment of workersÓ compensation for the benefit of

their employees and corporate officers.

4 4 . The Florida WorkersÓ Compensation Law requires every

employer to secure the payment of workersÓ compensation coverage

for the benefit of its employees unless exempted or excluded

under c hapter 440.

4 5 . Section 440. 107(2) states that " securing the payment of

workersÓ compensation " means obtaining coverage that meets the

requirements of this chapter and the Florida Insurance Code.

4 6 . An " employee " is defined in pertinent part as, " any

person who receives remuneratio n from an employer for the

performance of any work or service while engaged in any

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

4 7 . An " employee " also includes " any person who is an

officer of a corporation and who performs services for

remuneration for suc h corporation, " and " all persons who are

being paid by a construction contractor as a subcontractor,

unless the subcontractor has validly elected an exemption as

permitted by this chapter, or has otherwise secured the payment

of compensation coverage as a subcontractor, consistent with

s. 440.10, for work performed by or as a subcontractor. "

§§ 440.02(15)(b) and (c)2 . , Fla. Stat.

4 8 . The workers' compensation program was created and is

governed by statute. As such, the statute must be strictly

cons trued. See Summit Claims Mgmt. v. Lawyers Express Trucking,

Inc. , 913 So. 2d 1182 (Fla. 4th DCA 2005); Dep't of Fin. Servs.

v. L & I Consol. Servs., Inc. , Case No. 08 - 5911 (Fl a. DOAH

May 28, 2009; Fla. DFS July 2, 2009).

4 9 . Likewise, in order to ava il itself of the benefits

conferred by the statute, an affected employer must comply with

the rules and conditions stated in c hapter 440. Cont'l Ins. Co.

v. Indus. Fire & Cas. Ins. Co. , 427 So. 2d 792, 793 (Fla. 3d DCA

1983).

50 . To that end, employers m ust maintain and produce

certain records to comply with section 440.107 and to take

advantage of the statuteÓs benefits and protection.

5 1 . Those records are specifically identified and outlined

in Florida Administrative Code Rule 69L - 6.01 5 . In large p art,

Respondent failed to maintain or produce the required records.

This resulted in the Department properly imputing wages to

certain employees for certain periods of time. § 440.107(7)(e),

Fla. Stat.

5 2 . Section 440.10(1)(c) provides that " a contrac tor shall

require a subcontractor to provide evidence of workersÓ

compensation. "

5 3 . Similarly, r ule 69L - 6.015(9)(c) requires each

contractor to maintain evidence of workersÓ compensation

insurance of any of the subcontractors it uses.

5 4 . Contractors are liable for payment of workersÓ

compensation insurance for employees of subcontractors unless the

subcontractor has secured payment. § 440.10(1)(b) , Fla. Stat .

Here, there was not sufficient proof that RespondentÓs

subcontractors maintained workersÓ c ompensation coverage.

55 . Rule 69L - 6.028 elaborates and outlines the procedures

to be used when imputing payroll for penalty calculation purposes

under section 440.107(7)(e). In pertinent part, r ule 69L - 6.028

provides:

(4) If the Department imputes the employerÓs

payroll, the employer will have twenty

business days after service of the first

amended order of penalty assessment to

provide business records sufficient for the

Department to determine the employerÓs

payroll for the period requested in the

bus iness records request for the calculation

of the penalty or for the alternative time

period(s) of non - compliance. The employerÓs

penalty will be recalculated pursuant to

paragraph 440.107(7)(d), F.S., only if the

employer provides all such business record s

within the twenty days after service of the

first amended order of penalty assessment.

Otherwise, the first amended order of penalty

assessment will remain in effect.

56 . In this case , the Department seeks to penalize

Respondent and assess a penalty. Therefore, it has the burden of

proof to show by clear and convincing evidence that Respondent

committed the violations alleged in the Stop - Work Order, and that

the proper penalty was calculated and assessed. See DepÓt of

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

1996) ; and Ferris v. Turlington , 510 So. 2d 292 (Fla. 1987).

57 . The clear and convincing evidence standard of proof has

been described by the Florida Supreme Court as follows:

Clear and convincing evidence requires tha t

the evidence must be found to be credible;

the facts to which 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 su ch 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 Davey , 645 So. 2d 398, 404 (Fla. 1994)(quoting Slomowitz v.

Walker , 429 So. 2d 7 97, 800 (Fla. 4th DCA 1983)).

58 . Section 440.107(7)(a) states , 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 this chapter has

fai led to secure the payment or workerÓs

compensation required by this chapter or to

produce the required business records under

subsection (5) within 10 business days after

receipt of the written request of the

department, such failure shall be deemed an

imm ediate 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 makes such a determination, the

departme nt shall issue a stop - work order

within 72 - hours.

59 . As stipulated, the employer in this case failed to

secure the payment of workersÓ compensation insurance coverage,

or have others secure the payment for workersÓ compensation

insurance coverage for t he individuals listed on the penalty

calculation worksheet of the 2nd Amended Order of Penalty

Assessment. As such, the issuance of the Stop - Work Order and

Order of Penalty Assessment was appropriate pursuant to

section 440.107(7).

60 . The crux of the dispute in this case, as agreed by the

parties, is whether the Department correctly calculated the

penalty in the 2nd Amended Order of Penalty Assessment. The

undersigned concludes that it did.

61 . The Department correctly used the tax and business

reco rds that were provided by Respondent to properly calculate

payroll for the individuals listed on the penalty worksheet for

the portion of the audit period January 23, 2014, through

December 31, 2014.

62 . The Gross Payroll attributed to the " 2014 - Tax Reco rds:

Subcontractors " was properly pro - rated, calculated , and assessed.

6 3 . In this case, Respondent did not provide sufficient or

persuasive business records to establish who its subcontractors

were and whether those subcontractors had secured payment of

workersÓ compensation insurance. £ 440.10(1)(c) , Fla. Stat. , and

Fla. Admin. Code R. 69L - 6.032.

6 4 . Payroll attributed to Mr. Doherty was properly

calculated using the AWW for the time that records were provided

and, by imputation, for the period th at records were not

provided.

6 5 . Payroll for the four employees who were found on the

jobsite on the day the S top - W ork O rder was issued was properly

calculated by imputation since Respondent did not timely provide

adequate business records to permit th e Department to determine

RespondentÓs actual payroll.

6 6 . Even though the employer submitted voluminous and

additional business, payroll , and tax records after the 2nd

Amended Order of Penalty Assessment was issued, the records were

untimely. The Depa rtment had no legal obligation to consider

them or recalculate the penalty.

6 7 . More specifically, there is no provision in the statute

or rule(s) that permits the late submission of business records

after the issuance of a 2nd Amended Order of Penalty Assessment.

6 8 . Specifically, r ule 69L - 6.028 is clear that if the

employer does not provide the requested business records

sufficient to determine the employerÓs payroll within ten days of

receipt of the request, the Department may impute the employerÓs

payroll.

69 . Once the Department imputes the employerÓs payroll , the

employer has 20 days after the issuance of the first amended

order of penalty assessment to provide business records

sufficient to determine the employerÓs actual payroll for the

perio d in the initial business records request. Fla. Admin. Code

R. 69L - 6.028(4).

7 0 . The r ule requires the D epartment to recalculate the

penalty when and if this is done.

7 1 . In this case , the parties stipulated that a first

Amended Order of Penalty Assessm ent was received by Respondent on

March 10, 2016. 7/

7 2 . By stipulation, the 2nd Amended Order of Penalty

Assessment was received by Respondent on July 5, 2016.

73 . As previously noted, there is no provision allowing the

submission of additional business records after the second

a mended order of penalty assessment is issued. The Department was

not required to recalculate the imputed payroll again. Simply

put , t he time limit to submit additional documents expired on

March 30, 2016, well before the issuan ce of the 2nd Amended Order

of Penalty Assessment .

7 4 . Rule 69L - 6.028(4) establishes a " bright line " period

during which submission of additional business records must be

accepted and considered. If that deadline is not met , the

Department is not require d , or even permitted, to recalculate the

penalty.

7 5 . As a result, there is no provision of law which lends

credence to RespondentÓs argument that the documents it submitted

after the 2nd Amended Order of Penalty Assessment should have

been considered an d the penalty recalculated.

7 6 . The Department has proven by clear and convincing

evidence that it correctly issued the Stop - Work Order pursuant to

section 440.17(7)(a) and that the penalty amount of $244,964.44

assessed by the 2nd Amended Order of Penal ty Assessment was

properly calculated.

RECOMMENDATION

Based on the Findings of Fact and Conclusions of Law , it is

RECOMMENDED that Respondent, Department of Financial Services,

Division of Workers' Compensation, enter a final order finding

that Responden t, Doherty Home Repair , Inc., violated the workersÓ

compensation laws by failing to secure and maintain required

workersÓ compensation insurance for its employees, and impose a

penalty of $244,964.44.

DONE AND ENTERED this 2 7 th day of December , 2017 , in

Ta llahassee, Leon County, Florida.

S

ROBERT L. KILBRIDE

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 2 7 th day of December , 2017 .

ENDNOTE S

1 / DepartmentÓs Exhibit 12 was " [ a ] ll exhibits relied on by

Respondent . " However, none were offered by Respondent .

2 / Respondent provided no credible evidence, police reports , or

other documents to support this burglary and theft claim.

3 / The DepartmentÓs penalty auditor properly searched this name

and several reasonable iterations of this name(s), and found tha t

no workersÓ compensation coverage exis ted for that person or

company.

4 / It should be noted that the $503,674.36 was a prorated amount

to e nsure that no payroll expenses were included for any period

of time outside the audit period .

5 / The 2nd Amend ed Order of Penalty Assessment indicated that the

full period of noncompliance was January 23 , 2014 , through

January 21 , 2016 .

6 / Regardless, as explained below, these business records and

time sheets were untimely , and the Department was not required to

recalculate the penalty using these untimely and incomplete

records .

7 / As the evidence developed, RespondentÓs 20 days to provide

additional business records ran from that date and expired on or

about March 30, 2016.

COPIES FURNISHED:

Michael R. Mo rris, Esquire

Morris & Morris

West Tower, Suite 800

777 South Flagler Drive

West Palm Beach, Florida 33401

(eServed)

Christina Pumphrey, Esquire

Department of Financial Services

200 East Gaines Street

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 parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the Final Order in this case.