17-006979 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. Vinyl Siding Contractor Service, Llc Status: Closed Recommended Order on Friday, March 16, 2018.

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

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL

SERVICES, DIVISION OF WORKERS'

COMPENSATION,

Petitioner,

vs. Case No. 17 - 6979

VINYL SIDING CONTRACTOR SERVICE,

LLC,

Respondent.

_______________________________/

RECOMMENDED ORDER

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

on February 20, 2018, before Lawrence P. Stevenson, a duly -

designated Administrative Law Judge, via video teleconference at

sites in Pensacola and Tallahassee, Florida.

APPEARANCES

For Petitioner: Michael Joseph Gordon, Esquire

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399 - 4229

For Respondent: Thomas Melvin, pro se

Vinyl Siding Contractor Service, LLC

50 Stanford Road

Pensacola, Florida 32506

STATEMENT OF THE ISSUE S

At issue in this proceeding is whether the Respondent,

Vinyl Siding Contractor Service, LLC ("Vinyl Siding"), failed to

abide by the coverag e requirements of the Workers' Compensation

Law, chapter 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 pursuant to section 44 0.107, Florida Statutes.

PRELIMINARY STATEMENT

Pursuant to the Workers' Compensation Law, chapter 440, the

Department of Financial Services, Division of Workers'

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

requirement that employers secure the payment of workers'

compensation for their employees.

On January 4, 2017, the Department issued a "Stop - Work

Order" alleging that Vinyl Siding failed to abide by the

coverage requirements of the Workers' Compensation Law on that

date. The order dire cted Vinyl Siding to cease business

operations and pay a penalty equal to two times the amount Vinyl

Siding would have paid in premium to secure workers'

compensation during periods within the preceding two years when

it failed to do so, or $1,000, whichev er is greater, pursuant to

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

records from Vinyl Siding in order to determine the exact amount

of the penalty.

Vinyl Siding provided business records to the Department

and the Department issued an ÐAmended Order of Penalty

Assessment.Ñ 1/ Vinyl Siding provided additional business records

and, on May 1, 2017, the Department issued a Ð2nd Amended Order

of Penalty AssessmentÑ that ordered Vinyl Siding to pay a

penalty of $13,357.20, pursuant to sectio n 440.107(7)(d).

Thomas Melvin, the manager and sole proprietor of Vinyl

Siding, disputed the DepartmentÓs penalty calculation and

requested an administrative hearing. On June 26, 2017, Vinyl

Siding filed a letter with the Department requesting a hearin g.

On December 28, 2017, the Department forwarded Vinyl Siding's

request to the Division of Administrative Hearings (ÐDOAHÑ).

The hearing was scheduled for February 20, 2018, on which date

it was convened and completed.

At the hearing, the Department pre sented the testimony of

its investigator, Jesse Holman; its lead auditor, Lawrence

Pickle; and its operations and management consultant, Kevin

Sterling. The Department's Exhibits A through H were admitted

into evidence. The undersigned also read and cons idered the

deposition testimony of Mr. Melvin and of Vinyl Siding employee

Curtis Braswell. At the hearing, Vinyl Siding presented the

testimony of Mr. BraswellÓs wife, Julie Braswell. Vinyl Siding

offered no exhibits.

The one - volume Transcript of the fi nal hearing was filed at

DOAH on February 28, 2018. The Department timely filed a

P roposed R ecommended O rder on March 8, 2018. Vinyl Siding made

no post - hearing written submission.

Unless otherwise stated, all statutory references are to

the 2017 editi on of the Florida Statutes.

FINDING S OF FACT

Based on the oral and documentary evidence adduced at the

final hearing, and the entire record in this proceeding, the

following F indings of F act 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 employees and corporate officers. § 440.107,

Fla. Stat.

2. Vinyl Siding is a Florida corporation. The Division of

C orporationsÓ ÐSunbizÑ website indicates that Vinyl Siding was

first incorporated on December 30, 2003, and remained active as

of the date of the hearing. Vinyl SidingÓs principal office is

at 50 Stanford Road, Pensacola, Florida 32506.

3. Vinyl Siding is solely owned and operated by Thomas

Melvin. Mr. Melvin is the manager and sole officer of the

corporation. Vinyl Siding was actively engaged in performing

carpentry during the audit period from June 4, 2016, through

January 4, 2017.

4. Jesse Holman is a compensation compliance investigator

for the Department. During the period relevant to this

proceeding, Mr. Holman was assigned to an area that included

Santa Rosa and Okaloosa Counties. Mr. HolmanÓs job entailed

conducting random compliance investigat ions and investigating

referrals made to his office by members of the public.

Mr. Holman testified that as an investigator, he would enter

worksites and observe the workers and the types of work they

were doing.

5. Mr. Holman testified that he first cam e into contact

with Vinyl Siding in early June 2016, in the Milton area.

Mr. Holman checked on Mr. Melvin and his only employee, Curtis

Braswell, and found they both had active exemptions from

workersÓ compensation coverage requirements. Mr. Holman

testi fied that he noticed Mr. BraswellÓs exemption was due to

expire the next day and cautioned him on the need to renew it.

6. On January 4, 2017, Mr. Holman visited a worksite at

2350 Genevieve Way in Crestview. A new house was under

construction and Vinyl Siding was at work on it. Mr. Holman

remembered Mr. Melvin and Mr. Braswell and asked them about

their exemptions. Each man replied that his exemption was

current.

7. Mr. Holman returned to his vehicle to perform computer

research on Vinyl Siding. He consulted the Sunbiz website for

information about the company and its officers. His search

confirmed that Vinyl Siding was an active Florida corporation

and that Thomas Melvin was listed as its registered agent and as

manager of the corporation. No oth er corporate officers were

listed.

8. Mr. Holman also checked the Department's Coverage and

Compliance Automated System ("CCAS") database to determine

whether Vinyl Siding had secured the payment of workers'

compensation insurance coverage or had obtained an exemption

from the requirements of chapter 440. CCAS is a database that

Department investigators routinely consult during their

investigations to check for compliance, exemptions, and other

workers' compensation related items. CCAS revealed that Viny l

Siding had no active workers' compensation insurance coverage

for its employees and that no insurance had ever been reported

to the state for Vinyl Siding. There was no evidence that Vinyl

Siding used an employee leasing service. Mr. Melvin had an

acti ve exemption as an officer of the corporation pursuant to

section 440.05 and Florida Administrative Code Rule 69L - 6.012,

effective July 24, 2016, through July 24, 2018. Mr. BraswellÓs

exemption had expired on June 3, 2016.

9. Based on his Sunbiz and CCAS compute r searches,

Mr. Holman concluded that as of January 4, 2017, Vinyl Siding

had an exemption for Mr. Melvin but had failed to procure

workersÓ compensation coverage or an exemption for Mr. Braswell,

in violation of chapter 440. Mr. Holman consequent ly issued a

Stop - Work Order that he personally served on Mr. Melvin at the

job site on January 4, 2017.

10. Also on January 4, 2017, Mr. Holman served Vinyl Siding

with a Request for Production of Business Records for Penalty

Assessment Calculation, askin g for documents pertaining to the

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

accounts, disbursements, workers' compensation insurance coverage

records, professional employer organization records, temporary

labor service records, docum entation of exemptions, documents

relating to subcontractors, documents of subcontractors' workersÓ

compensation insurance coverage, and other business records, to

enable the Department to determine the appropriate penalty owed

by Vinyl Siding.

11. Mr. Ho lman testified t hat he later met twice with

Mr. Melvin. After Mr. Melvin turned in some business records,

Mr. Holman met with Mr. Melvin and served him with the Amended

Order of Penalty Assessment. Mr. Melvin subsequently submitted

additional business re cords, which led Mr. Holman to recalculate

the penalty and issue the 2nd Amended Order of Penalty

Assessment, which Mr. Holman personally served on Mr. Melvin on

May 1, 2017.

12. Mr. Braswell testified that he had been aware that his

exemption was about t o expire and was going to drive to the

DepartmentÓs offices to renew it. His wife, Julie Braswell,

told him that she would save him the gas money by renewing his

exemption online. Ms. Braswell timely submitted the renewal

application on May 26, 2016, but the Department returned it as

ÐincompleteÑ because under the heading Ðscope of employment,Ñ

Ms. Braswell checked ÐcontractorÑ rather than Mr. BraswellÓs

actual scope of employment, Ðcarpenter.Ñ

13. Operations and management consultant Kevin Sterling is

p art of the DepartmentÓs team that oversees the daily activities

of the exemption unit. He oversees the Ðdenial teamÑ that

undertakes a second review of any application that is initially

deemed incomplete or ineligible. Mr. Sterling testified that

Mr. Bra swellÓs application was deemed incomplete because the

scope of employment, Ðcontractor,Ñ requires a license from the

Department of Business and Professional Regulation. No evidence

was submitted that Mr. Braswell had such a license.

14. Mr. Sterling test ified that in filling out the online

form, an applicant first selects the category Ðnon - constructionÑ

or Ðconstruction.Ñ If the applicant selects Ðconstruction,Ñ a

drop - down box appears and the applicant selects the correct

category. Ms. Braswell inadver tently checked the wrong box on

the form.

15. Ms. Braswell testified that she received a written

notice in the mail about two weeks after she submitted the

application. The notice informed her that the application was

incomplete but gave her no informat ion as to why the application

was incomplete. She resubmitted the application, but failed to

correct the category error. The DepartmentÓs website informed

her that the application was complete. She and her husband

believed they had taken care of the exe mption renewal.

16. Both Curtis and Julie Braswell testified that they

received no further written correspondence from the Department.

Ms. Braswell did not include an email address on the

application, so no email was sent to inform her that the

applicati on had not been corrected and the exemption had not

been renewed.

17. Ms. Braswell testified that she had given the

Department her email address when she applied for Mr. BraswellÓs

previous exemption and that she had received email confirmation

from the Department as to payment of the application fee when

she sent in the first renewa l application in May 2016.

Mr. Sterling testified that the application software looks first

to the email address provided in the application itself. If

there is no email ad dress provided, then a hard copy of the

relevant document is generated and mailed to the applicant. The

BraswellsÓ failure to receive the hard copy of the second notice

of incompleteness was not explained at the hearing.

18. Mr. Sterling testified that t he Depar tmentÓs

23 examiners process around 16,000 applications per month.

Businesses constantly change addresses. Employees move from

company to company. Because of the mass of applications and the

mobility of the regulated population, the Department e xclusively

uses the data on the most recent application. Mr. Sterling

stated that there is simply no time to look up and attempt to

reach an old email address if the applicant fails to include one

on the current application.

19. Lead auditor Lawrence Pi ckle performed the calculation

of the assessed penalty. Mr. Pickle testified as to the process

of penalty calculation. Penalties for workers' compensation

insurance violations are generally based on doubling the amount

of evaded insurance premiums over t he two - year period preceding

the Stop - Work Order. § 440.107(7)(d), Fla. Stat. In this case,

the period was shorter than two years because Mr. BraswellÓs

exemption did not expire until June 3, 2016. Therefore, the

penalty was calculated from June 4, 2016 , through January 4,

2017, the date of the Stop - Work Order.

20. In the penalty assessment calculation, the Department

consulted the classification codes and definitions set forth in

the SCOPES of Basic Manual Classifications (ÐScopes ManualÑ)

published by the National Council on Compensation Insurance

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

rule 69L - 6.021. Classification codes are four - digit codes

assigned to occupations by the NCCI to assist in the calculation

of workers' compensati on insurance premiums. Rule 69L -

6.028(3)(d) provides that "[t]he imputed weekly payroll for each

employee . . . shall be assigned to the highest rated workers'

compensation classification code for an employee based upon

records or the investigator's physi cal observation of that

employee's activities."

21. Mr. Pickle applied NCCI Class Code 5645, titled

ÐCarpentry -- Construction of Detached One or Two Family

Dwellings.Ñ The corresponding rule provision is rule 69L -

6.021(2)(yy). Mr. Pickle used the approve d manual rates

corresponding to Class Code 5645 for the periods of non -

compliance to initially calculate the penalty.

22. Vinyl Siding timely provided the Department with

business records that listed the companyÓs payroll, cash

receipts, and cash withdra wals. The Department determined that

the companyÓs business records and receipts did not validate the

payroll and expenses that corresponded with the companyÓs cash

withdrawals. Pursuant to rule 69L - 6.035(1) (k), the Department

included 80 percent of cash withdrawals as wages or salaries to

employees.

23. On May 1, 2017, the Department served the 2nd Amended

Order of Penalty Assessment on Vinyl Siding , assessing a penalty

of $13,257.20.

24. The evidence produced at the hearing established that

Mr. P ickle utilized the correct class codes, wage information,

and manual rates in his calculation of the 2nd Amended Order of

Penalty Assessment.

25. The Department has demonstrated by clear and

convincing evidence that Vinyl Siding was in violation of the

wo rkers' compensation coverage requirements of chapter 440.

Mr. Braswell was an employee of Vinyl Siding on January 4, 2017,

performing services in the construction industry without valid

workers' compensation insurance coverage or an exemption. The

Depart ment has also demonstrated by clear and convincing

evidence that the penalty was correctly calculated through the

use of the approved manual rates and the penalty calculation

worksheet adopted by the Department in rule 69L - 6.027.

26. Vinyl Siding could point to no exemption, insurance

policy, or employee leasing arrangement that would operate to

lessen or extinguish the assessed penalty. Through an

unfortunate sequence of events, Mr. Braswell allowed his

exemption to lapse on June 3, 2016, though he bec ame aware of

that lapse only when Mr. Holman informed him at the job site on

January 4, 2017.

27. Mr. Melvin testified that he does not use a computer.

Mr. Braswell stated that he does n o t know how to turn on a

computer. Ms. Braswell made an unfortuna te slip of the finger

in selecting a scope of employment for her husband.

28. Vinyl Siding appears to be a victim of progress, i.e.,

the DepartmentÓs online - only exemption application process. The

company is not wealthy and its principals made a good - f aith

attempt to comply with the requirements of chapter 440. Vinyl

Siding presents a singularly sympathetic example of why the

workersÓ compensation insurance enforcement process should

include some element of agency discretion to reduce or eliminate

the financial penalty under defined circumstances. However, as

matters stand, equitable considerations have no effect on the

operation of chapter 440 or the imposition of the penalty

assessed pursuant thereto.

CONCLUSIONS OF LAW

29. The Division of Administ rative Hearings has

jurisdiction of the subject matter of and the parties to this

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

30. Employers are required to secure payment of

compensation for their employees. §§ 440.10(1)(a) and

440.38(1), Fla. Sta t.

31. "Employer" is defined, in part, as "every person

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

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

the person employing him or her" and includes "with respect to

the constructio n industry, all private employment in which one

or more employees are employed by the same employer."

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

32. "Employee" is defined, in part, as "any person who

receives remuneration from an employer for the performanc e 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." § 440.02(15)(a), Fla. Stat.

Remuneration includes not only monetary payment, but any

Ð valuable co nsideration . . . intended by both employer and

employee.Ñ § 440.02(15)(d)6., Fla. Stat. "Employee" also

includes "any person who is an officer of a corporation and who

performs services for remuneration for such corporation within

this state." § 440.02 (15)(b), Fla. Stat.

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

and must show by clear and convincing evidence that the employer

violated the Workers' Compensation Law and that the penalty

assessments were correct under the law. See DepÓt of Banking

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

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

34. In Evans Packing Co. v. Dep ar t ment of Agric ulture and

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

the Co urt defined clear and convincing evidence as follows:

[C]lear 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

evidence 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 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).

35. 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., dissenti ng),

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 74 4 (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 hesitancy. 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 D avey , 645

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

36. Section 440.02(8) defines "construction industry" as

"for - profit activities involving any building, clearing, filling,

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

structure or the appearan ce of any land." Section 440.02(8)

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

industrial classification codes and definitions thereof which

meet the criteria of the term 'construction industry' as set

forth in this section." Vinyl Siding's activities in performing

carpentry work on a residential dwelling constituted construction

under the DepartmentÓs statutorily authorized rules. Fla. Admin.

Code R. 69L - 6.021(2)(yy).

37. The Department established by clear and convincing

evidence that Vinyl Siding was an "employer" for workers'

compensation purposes because it was engaged in the construction

industry during the period of June 4, 2016, through January 4,

2017, and employed one or more employees during that period.

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

38. 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'

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

employe r, requiring the cessation of all

business operations. If the department

makes such a determination, the department

shall issue a stop - work order within

72 hours.

Thus, the Department's Stop - Work Order was mandated by statute.

39. As to the computation and assessment of penalties,

section 440.107(7) provides, in relevant 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

required by this chapter a penalty equal to

2 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 2 - year period or $1,000, whichever

is greater.

40. Mr. Pickle 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 Vinyl

Si ding as a result of its failure to comply with the coverage

requirements of chapter 440.

41. The Department has proven by clear and convincing

evidence that it correctly calculated and issued the penalty of

$ 1 3, 357 . 20 in the 2nd Amended Order of Penalty Assessment.

42. Mr. Melvin and the Braswells were credible and

sympathetic witnesses. The undersigned did not doubt their

testimony as to the circumstances surrounding Mr. BraswellÓs

failure to successfully renew his exemption. However, the

Legislature has not seen fit to provide a Ðhardship exemptionÑ

to the requirements of chapter 440, and 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 less than what the

Legislature prescribes by law.Ñ ) .

RECOMMENDATION

Having considered the foregoing Findings of Fact,

Conclusions of Law, the evidence of record, the c andor 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 $13,357.20 against Vinyl Siding

Contractor Service, LLC.

DONE AND ENTERED this 16th day of March , 2018 , 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

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 16th day of March , 2018 .

ENDNOTE

1/ The Ame nded Order of Penalty Assessment was not made part of

the record.

COPIES FURNISHED:

Michael Joseph Gordon, Esquire

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399

(eServed)

Thomas Melvin

Vinyl Siding Contractor Servi ce, LLC

50 Stanford Road

Pensacola, Florida 32506

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.