18-001300 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. John Mccary General Contractor, Inc. Status: Closed Recommended Order on Tuesday, July 17, 2018.

Summary: DFS proved contractor owed penalty of $269,317.06 for uncovered employees, uncovered subcontractors, and undocumented cash expenditures.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL

SERVICES, DIVISION OF WORKERS'

COMPENSATION,

Petitioner,

vs. Case No. 18 - 1300

JOHN MCCARY GENERAL CONTRACTOR,

INC.,

Respondent.

_______________________________/

RECOMMENDED ORDER

On May 31, 2018, Administrative Law Judge John D . C.

Newton, II, of the Division of Administrative Hearings conducted

the final hearing in this case by video teleconference at

locations in Tallahassee and Tampa, Florida.

APPEAR ANCES

For Petitioner: Jonathan Anthony Martin, Esquire

Florida Department of Financial Services

Legal Services Division

200 East Gaines Street

Tallahassee, Florida 32399

For Respondent: John McCary

John McCary General Contractors, Inc.

9808 North Armenia Avenue

Tampa, Florida 33612

STATEMENT OF THE ISSUE S

A. Did Respondent, John McCary General Contractor, Inc .

(McCary), fail to secu re workersÓ compensation insuranc e for

employees as required by c hapter 440, Florida Statutes (2016)? 1/

B. If so, what is the appropriate penalty?

PRELIMINARY STATEMENT

The Third Amended Order of Penalty Assessment of Petitioner,

Department of Financial S ervices, Division of WorkersÓ

Compensation (Division), asserts that between May 1, 2016, and

November 18, 2016, McCary paid a gross payroll of $1,280,648.01

for employees for whom McCary had not provided workersÓ

compensation insurance coverage. 2/ The Div ision determined that

the premium for providing the uninsured employees coverage would

be $134,658.53. It further determined that McCary should pay a

penalty of $269,317.06 for failing to provide the required

coverage.

Kent Howe, compliance investigator , and Lynne Murcia,

penalty auditor, testified on behalf of the Division. Division

Exhibits 1 through 15 were admitted into evidence. McCary

presented brief testimony from its owner, John McCary. McCaryÓs

Exhibit 1 was admitted.

At the hearingÓs conclu sion, John McCary, McCaryÓs principal

and representative in this proceeding , stated: ÐSo, I donÓt

object to any of it [the DivisionÓs assertions and evidence].

I agree with what you have found here. What IÓm asking for is

some form of partnering; weÓll call it leniency in the penalty

assessment .Ñ

The parties timely filed proposed recommended orders.

McCaryÓs P roposed R ecommended O rder stated that it could not

afford to pay the penalty. McCary's P roposed R ecommended O rder

proposed only that the penalty be halved and that McCary be

permitted to make monthly payments of $1,402.70. The proposed

recommended orders have been considered in the preparation of

this Recommended Order.

FINDING S OF FACT

1. The Division is the state agency responsible for

enforci ng the statutory requirement that employers secure

workersÓ compensation insurance for the benefit of their

employees. § 440.107(3), Fla. Stat.

2. McCary is a roofing contractor owned and operated by

John McCary. It is in the construction industry.

3. On November 18, 2016, M r. Howe, a compliance

investigator for the Division, visited a house where McCary was

tearing off the roof. Mr. Howe recorded the names of each

employee. He conducted an investigation that included speaking

to Mr. McCary, re - inte rviewing the employees, checking with the

employee leasing company that McCary used, and checking the

Davison database of insured individuals. Mr. Howe could not find

a record of workersÓ compensation coverage for at least one

employee. This triggered fu rther investigation that resulted in

Mr. Howe issuing a Stop - Work Order to McCary on November 18,

2016, for failure to secure workersÓ compensation insurance in

violation of sections 440.10(1), 440.38(1) and 440.107(2 ) .

4. After that, the Division follow ed its usual practice of

requesting documents, reviewing its databases , soliciting

information and explanations from the employer, and analyzing the

information and documents obtained.

5. Division Exhibit 9 shows that the Division asked McCary

for busin ess records on November 21, 2016 , and that McCary did

not provide them until December 12, 2016.

6. The DivisionÓs investigation and analysis resulted in

the evidence admitted in this proceeding. The evidence proved

the allegations of the DivisionÓs Thir d Amended Order of Penalty

Assessment, including its attached Penalty Calculation Worksheet.

7. McCary did not comply with workersÓ compensation

insurance coverage requirements for the period May 1 through

November 18, 2016.

8. During that period, McCa ry employed Arcenio Rosado,

Domingo Esteves, Javier Restrepo, Jose Alfredo Fuentes, Carlos

Toledo, Edwin Valle, Kelly Alvarez, Kyle Shiro, Claudia Florez,

and Nelson Geovany Melgar Rodenzo and that the y performed work

for it. McCary would have paid $4,744 .06 in insurance premiums

to provide workers Ó compensation coverage for these employees

during that period.

9. During that period, McCary also used the services of two

subcontractors, Star Debris Removal and E C Roofing , LLC. These

subcontractors did not have workersÓ compensation insurance for

their employees during the May 1 through November 18, 201 6 ,

period . Premiums to provide coverage to the employees of the two

subcontractors who worked on McCaryÓs projects would have totaled

$100,771.09.

10. From May 1 to November 18, 2016, McCary made cash

payments of $195,856.02 that its documents could not confirm to

be for a valid business expense. Florida Administrative Code

Rule 69L - 6.035(1)(k) requires that 80 percent of that amount be

deemed wages or sala ries paid employees when calculating the

premiums used to determine the ultimate penalty. Eighty percent

of McCaryÓs unaccounted - for cash payments is $156,684.82. That

amount is legally deemed to be a payroll expense. McCary would

have paid $29,143.38 t o provide coverage for the employees

represented by the cash payments.

11. Altogether, McCary would have pai d $134,658.53 to

provide worker s Ó compensation coverage to the uncovered employees

represented by the actual and deemed payroll during the May 1 to

November 18, 2016, period.

CONCLUSIONS OF LAW

12. The Division of Administrative Hearings has

jurisdiction over the subject matter of and parties to this

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

13. The Division must prove its allegations by clear and

convincing evidence. Dep Ó t of Banking and Fin . v. Osborne Stern

and Co . , Inc. , 670 So. 2d 932 (Fla. 1996).

14. Employers in Florida must secure workers Ó compensation

insurance coverage for their employees. §§ 440.10(1)(a) and

440.38(1), Fla. Stat.

15. McCary was an employer in the construction industry

during the relevant period. §§ 440.02(8), 440.02(16)(a), and

440.02(23), Fla. Stat.

16. McCary wa s an employer in the construction industry

with employees working between May 1 and Novembe r 18, 2016 .

McCary was required to secure workersÓ compensation coverage for

its employees during that period. § 440.10(1)(a), Fla. Stat.

17. If a contractor sublets any part of its work, all

employees of the subcontractor are deemed employees of the

co ntractor. The contractor is responsible for providing payment

of workers Ó compensation coverage for all employees except the

employees for whom the subcontractor has provided coverage.

§§ 440.10(1)(b) and 440.10(1)(c), Fla. Stat. The Division

properly applied this provision to McCaryÓs engagement of Star

Debris Removal and E C Roofing, LLC, which did not have workersÓ

compensation insurance coverage for their employees.

18. An employerÓs failure to secure required workersÓ

compensation coverage justifi es the Division imposing a S top - W ork

O rder requiring the employer to cease all business operations.

§ 440.107(7)(a), Fla. Stat. The Division properly imposed a

S top - W ork O rder on McCary.

19. The Division must also assess Ða penalty equal to 2

times the amount the employer would have paid in premium s when

applying approved manual rates to the employer's payroll during

periods for which it failed to secure the payment of workers'

compensation required by this chapter within the preceding 2 - year

period or $1,000, whichever is greater.Ñ £ 440.107(7)(d)1 . , Fla.

Stat.

20. The Division used the correct approved manual rates

when calculating the proposed penalty. It then properly

calculated the evaded premium and multiplied it by two as

section 440.107(7)( d)1 . requires.

21. ÐPayrollÑ includes 80 percent of all cash transactions

found in an employerÓs business records, unless the employerÓs

business records and receipts demonstrate any of those cash

transactions to be a valid business expense. Fla. Admin. Code.

R. 69L - 6.035(1)(k). The penalty worksheet is required to

represent this figure as Ðuninsured labor.Ñ The Division

correctly applied this provision to McCaryÓs business records in

calculating the proposed penalty.

22. The Division proved by clear and convincing evidence

that it properly issued the S top - Work O rder to McCary.

23. The Division also proved by clear and convincing

evidence that it correctly calculated and issued the $269,317.06

penalty.

24. The DivisionÓs proposal acknowledges that M cCary is

entitled to a $1,000 credit for a payment made after Mr. HoweÓs

initial inquiry. § 440.107(7)(d)1.a . , Fla. Stat.

25. McCary does not qualify for the 25 - percent mitigation

opportunity section 440.107(7)(d)1.b . affords because it did not

provide b usiness records to the department wi thin ten business

days after receipt of the written request to produce business

records.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is RECOMMENDED that the Department of Financial Services,

Division of WorkersÓ Compensation , enter a final order finding

that John McCary General Contractor, Inc., failed to secure

payment of required workersÓ compensation insurance coverage

from May 1 to November 18, 2016, in violation of section 440. 107 ,

Florida Statutes, and imposing a penalty of $269,317.06, reduced

by $1,000.00.

DONE AND ENTERED this 1 7 th day of July, 2018 , in

Tallahassee, Leon County, Florida.

S

JOHN D. C. NEWTON, II

Administrative Law Judge

Di vision 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 1 7 th day of Ju ly, 2018 .

ENDNOTE S

1/ All citations to the Florida Statutes are to the 2016

codification unless otherwise noted.

2/ At the outset of the final hearing, the undersigned granted

the DivisionÓs Agreed Motion to Amend Order of Penalty Assessment

and acce pted the Third Amended Order of Penalty Assessment.

COPIES FURNISHED:

Jonathan Anthony Martin, Esquire

Florida Department of Financial Services

Legal Services Division

200 East Gaines Street

Tallahassee, Florida 32399

(eServed)

John McCary

John McCar y General Contractors, Inc.

9808 North Armenia Avenue

Tampa, Florida 33612

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.