18-005810 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. Native Cuts Property Management, Llc Status: Closed Recommended Order on Friday, May 31, 2019.

Summary: Petitioner proved that Respondent failed to secure workers' compensation coverage for its employees during the Audit Period. Recommend credit for down payment to release Stop-Work Order.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL

SERVICES, DIVISION OF WORKERS'

COMPENSATION,

Petitioner,

vs. Case No. 18 - 5810

NATIVE CUTS PROPERTY MANAGEMENT,

LLC,

Respondent.

_______________________________/

RECOMMENDED ORDER

On March 29, 2019, Administrative Law Judge Yolonda Y.

Green , of the Division of Administrative H earings (ÐDivisionÑ),

conducted a final hea ring in this case in Leesburg , Florida.

APPEARANCES

For Petitioner: Mattie Birster, Es quire

Office of the General Counsel

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399 - 4229

For Respondent: No appearance

STATEMENT OF THE ISSUE

Wh ether Respondent violated cha pter 440, Florida Statutes

(2017 ), by failing to secure payment of workersÓ compensation

coverage, as alleged in the Stop - Work Order (ÐSWOÑ) and Amended

Order of Penalty Assessment (Ð Amended Penalty AssessmentÑ); and,

if so, wh ether Petitioner correctly calculated the proposed

penalty assessment against Respondent.

PRELIMINARY STATEMENT

On July 27, 2017 , Petitioner, Department of Financial

Services, Division of WorkersÓ Compensation ( ÐPetitionerÑ or

ÐDepartmentÑ ) , issued a n SWO, alleging that Respondent, Native

Cuts Property Management, LLC ( ÐRespondentÑ or ÐNative CutsÑ ),

failed to secure workersÓ compensation for its employees in

violation of sections 440.1 0(1), 440.107(2), and 440.38(1) . On

July 31, 2017, the Department issue d an Agreed Order of

Conditional Release from Stop - Work Order. On February 7, 2018 ,

the Department issued an Amended Penalty Assessment that ordered

Responden t to pay a penalty of $69,534.34 , pursuant to section

440.107(7)(d).

Respondent disputed the De partmentÓs Amended Penalty

Assessment and requested a final hearing. On November 2, 2018 ,

Petitioner referred this matter to the Division for assignment

to an administrative law judge, which was assigned to the

undersigned. The undersigned issued a notic e schedul ing the

final hearing for February 4, 2019. On January 23, 2019,

Petitioner filed a Motion to Continue Final Hearing. The

undersigned granted the motion to continue and rescheduled the

final hearing for March 29, 2019.

T he undersigned conducted the final hearing, as scheduled.

At the hearing, the Department presented the testimony of three

witnesses: Chuck Mays , a Department compliance investigator;

Cathy Nunez , a Department regulatory consultant ; and Lynne

Murcia , a Department penalty auditor. The De partmentÓs

Exhibits 1 through 24 were admitted into evidence . Respondent

did not appear at the hearing or provide any e xhibits .

The Department ordered a copy of the hearing transcript.

The one - volume Transcript was filed with the Division on

Apri l 11, 2019 . On April 22, 2019 , Petitioner timely filed a

Proposed Recommended Order, which has been considered in the

preparation of this Recommended Order. Respondent did not file

a post - hearing submittal.

Unless otherwise indicated, all references to statut es are

to Florida Statutes (2017 ), which was the law in effect at the

time of the alleged acts.

FINDING S OF FACT

Based on the oral and documentary evidence admitted at the

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

following F indings of Fact are made:

Background

1. The Department is the state agency responsible for

enforcing the requirement of the Workers' Compensation Law that

requires employers to secure the payment of workers'

compensation coverage for their employees and c orporate

officers. § 440.107, Fla. Stat.

2. The Department is also responsible for conducting

random inspections of jobsites and investigating complaints

concerning potential violations of workersÓ compensation rules.

3 . At all times material to this m atter, Native Cuts was a

for - profit limited liability company engaged in business in the

State of Florida. Native Cuts was organized as a business on

January 19, 2010, and engaged in the business of construction

and landscaping.

4. Earl Lee, Jr. and Virg inia Brown are RespondentÓs

managers. Earl Lee, Jr. is RespondentÓs r egistered a gent, with

a mailing address of 316 North Lake Avenue, Leesburg,

Florida 34748.

Investigation

5. On July 27, 2017, the DepartmentÓs investigator, Chuck

Mays, conducted a ra ndom workersÓ compensation compliance

inspection at 27746 Cypress Glen Court , Yalaha, Florida 34797.

At that time, Mr. Mays observed three men performing work.

Mr. Mays testified that one man was observed operating a Bobcat

utility vehicle (small tractor ) to transport dirt from the front

to the back of the structure, which was under construction. The

two other men were removing debris, e.g., cut tree limbs , from

the jobsite.

6. Mr. Mays approached the man on the Bobcat and

identified himself as an inves tigator. Mr. Mays began

interviewing the Bobcat driver who reported that he and t he

other two workers at the job site were employees of Native Cuts,

which the two men confirmed. Mr. Mays ultimately identified the

three men at the jobsite as Rodolfo Ramire z, Mitchel Pike, and

Dave Herrington.

7. Based on his observations, Mr. Mays determined that the

three men were performing construction - related work.

8. Mr. Mays called RespondentÓs manager, Mr. Lee, who

identified the three men working at the jobsite a s his

employees. Mr. Mays asked Mr. Lee about the rate of pay and the

length of employment for the employees and Mr. Lee referred

Mr. Mays to Virginia Brown to obtain the information. Ms. Brow n

confirmed the three employees, and a fourth employee who was not

present at the jobsite.

9. Following the interviews on July 27, 2017, Mr. Mays

researched the Division of Corporations system and established

that Native Cuts was an active business. He then conducted a

search of the DepartmentÓs Coverage Complian ce Automated System

(ÐCCASÑ) and found Respondent did not have workersÓ compensation

coverage for its employees.

10. Mr. Mays also conducted a further search of CCAS and

discovered that Mr. Lee previously had an exemption, which

expired on October 30, 201 6.

11. Based on his investigation and after consultation with

his supervisor, Mr. Mays issued SWO No. 17 - 2 46 - D4, and posted it

at the job site. On July 28, 2017, Mr. Mays met with Ms. Brown

at her home and personally served the SWO and Request for

Prod uction of Business Records for Penalty Assessment

Calculation (ÐBusiness Records RequestÑ).

12. The Business Records Request directed Respondent to

produce business records for the time period of July 28, 2015,

through July 27, 2017 (ÐAudit PeriodÑ) , with in 10 business days

from the receipt of the Business Records Request.

13. On August 11, 2017, Respondent provided business

records, including bank statements, checks, and receipts. The

records were deemed sufficient to apply a 25 - percent discount to

Re spondent for timely production of records.

Penalty Calculation

14 . Generally, the Department uses business records to

ca lculate the penalty assessment.

15. Lynne Murcia, a Department penalty auditor, was

assigned to review the calculation of the pen alty assessment for

Respondent. To calculate the penalty assessment, the Department

uses a two - year auditing period looking back f rom the date of

the SWO, July 27, 2017 , also known as the look - back period.

Penalties for workers' compen sation insurance vi olations are

based on doubling the amount of insurance premiums that would

have been paid during the look - back period . § 440.107(7)(d),

Fla. Stat.

16. Ms. Murcia testified as to the process of penalty

calculation. Ms. Murcia reviewed the business recor ds submitted

by Respondent , as well as notes, worksheets, and summaries from

the original auditor. 1 /

17. Based on her review of the records, Ms. Murcia

identified the individuals who received payments from Respondent

as employees during the Audit Period. Ms. Murcia deemed

payments to each of the individuals as gross payroll for

purposes of calculating the penalty.

18. In the penalty assessment calculation, the Department

consulted the classification codes and definitions set forth in

the SCOPES of Ba sic Manual Clas sifications (ÐScopes ManualÑ)

published by the National Council on Compensation Insurance

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

Florida Administrative Code R ule 69L - 6.021. Classification

codes are assigned to occupat ions by the NCCI to assist in the

calculation of workers' compensation insurance premiums.

19. 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 classif ication code for an

employee based upon records or the investigator's physical

observation of that employee's activities."

20. Based on Mr. MaysÓ observations at the jobsite, the

Department assigned either NCC I classification (ÐclassÑ)

code 0 042, entitl ed ÐLandscaping, Gardening, & DriversÑ or class

code 9102, entitled ÐLawn Maintenance - Commercial or Domestic &

Drivers.Ñ

21. The class code 0 0 42 Ðapplies to work involving new

landscaping installations whereas class code 9102 applies to

work involving maintenance of existing landscaping and/or lawn

maintenance.Ñ Mr. Mays testified that class code 0042 is

considered construction work , whereas class code 9102 is

considered nonconstruction work for workersÓ compensation

purposes.

22. Generally, if a b usiness provides proper payroll

records to support a division, the appropriate code and

correlating rate would apply based on the work performed. If

the payroll records are not maintained to support the division

of the work performed between class code 0 0 42 and class code

9102, the highest rate of the two classifications is applied to

the employee.

23. Ms. Murcia testified that class code 0 042 and class

code 9102 were applied to Native Cuts employees due to the mixed

work performed (Landscaping and La wn Maintenance ) by Respondent.

However, class code 9102 was applied to most of the employees.

24. Utilizing the statutory formula for penalty

calculation specified in section 440.10 7(7)(d)1. and rule 69L -

6.027, t he total penalty was calculated based on periods of non -

compliance for employees based on the dates they received

payments from Respondent and were not covered for workersÓ

compensation.

25. Since Mr. LeeÓs exemption expired on October 30, 2016 ,

the calculation for his work performed was limit ed to the period

after the expiration of his exemption, November 1, 2016, through

July 27, 2017.

26. Regarding records designated as cash payments, t he

Department determined that the Native CutsÓ records and receipts

did not validate the payroll and exp enses 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.

Penalty Calculation for Imputed Payroll

27. The Department determi ned the calculated penalty for

Rudolfo Ramirez, David Harrington, and Mitchel Pike, the workers

who were identified at the jobsite as employees on July 27,

2017. Mr. Lee was also included in the calculation of penalty

for the imputed payroll.

28. The Department maintains that the business records

submitted by Respondent were insufficient to determine

RespondentÓs payroll for these employees during the

investigation period , thus, the Department used the statutory

formula to impute payroll to these emplo yees .

29 . The Department correctly assigned a class code of 0 042

and calculated a penalty of $ 149.20 against Respondent for

failure to secure payment of workersÓ compensation insurance for

each of these employees.

30. The Department also calculated the penalty for

Ms. Brown, who was not at the jobsite but pa rticipated in the

investigation on July 27, 2017.

31. The Department applied a classification code 9102 to

Ms. Brown. However, the evidence presented at hearing

demonstrated Ms. Brown maint ained records for the business and

was the person identified as maintaining the wage rate

information for employees. The evidence of record does not

support a finding that Ms. Brown provided any landscaping or

construction services to Respondent. Ms. Bro wnÓs work, at best,

could be described as clerical work.

32. The Department introduced no evidence of an

appropriate NCCI class code for Ms. Brown. Thus, the Department

did not prove by clear and convincing evidence that the imputed

payroll related t o Ms. Brown should be included for purposes of

calculating the penalty. The Department did not prove by clear

and convincing evidence that the penalty in the amount of $19.60

attributed to Ms. Brown should be in cluded in the penalty

assessment.

Penalty Ca lculation for Uninsured Labor

33. Ms. Murcia testified that the class code 0 042 was

applied to the general c ategory of uninsured labor, as the work

performed could not be determined from the payroll records .

Thus, the highest rate , class code 0042, of t he two

classifications for work performe d by Native Cuts, is applied to

these individuals.

34. The Department correctly calculated a penalty of

$17,015.10 for these employees.

Penalty Calculation for Remaining Employees

35 . In addition to the penalt y calculated for the im puted

payroll (excluding Ms. Brown) and uninsured labor , the

Department a pplied the appropriate class code for the work

performed and correctly calculated the penalty for Native Cut

employees 2/ in the amount of $52,350.10 .

Total Pe nalty Calculation

36 . Ms. Murcia calculated a total penalty of $69,534.34

against Respondent for failure to secure payment of workersÓ

compen sation insurance for each of its employees during the

audit period. The amount of the penalty should be reduced by

the amount attributed to Ms. Brown in the amount of $19.60.

T hus , the total penalty amount that should be assessed against

Native Cuts is $69,514.40.

37 . Mr. Lee paid a $1,000.00 down payment for the penalty

assessed.

CONCLUSIONS OF LAW

38 . The Di vision of Administrative Hearings has

jurisdiction of the subject matter of and the parties to this

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

39 . Employers are required to secure payment of workersÓ

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

and 440.38(1), Fla. Stat.

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

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

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

the person employing him or her" and in cludes "with respect to

the construction 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.

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

receives remunerat ion 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." § 440.02(15)(a), Fla. Stat.

Remuneration includes not only monetary payment, but any

Ðvaluable consideration . . . 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 cor poration within

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

42 . ÐEmploymentÑ means Ðany service performed by an

employee for the person employing him or her.Ñ § 440.02(17)(a),

Fla. Stat.

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

and must sh ow 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. Tur lington , 510 So. 2d 292 (Fla. 1987).

44 . 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 evidence req uires

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 m ust

be of such weight that it produces in the

mind of the trier of fact the firm belief or

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).

4 5 . The Department proved by clear and convincing evidence

that Respondent is an employer subject to the WorkersÓ

Compensation statute.

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

"for - profit activities involving any building, clearing,

filling, ex cavation, or substantial improvement in the size or

use of any structure or the appearance 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." Native

CutsÓ activities in cluded performing landscaping installation.

47 . The Department established by clear and convincing

evidence that Native Cuts was an "employer" in the construction

industry for workersÓ compensation purposes during the audit

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

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

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

Whenever the dep artment 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 b e 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, r equiring the cessation of all

business operations. If the department

makes such a determinatio n, the department

shall issue a stop - work order within 72

hours.

49 . Thus, the DepartmentÓs SWO was mandated by statute.

50 . The Department proved by clear and convincing evidence

that the employees listed in the Amended Penalty Assessment were

Resp ondentÓs employees required to be covered by, or to obtain

an exemption from, workersÓ com pensation insurance during the

Audit P eriod, and that such coverage was not secur ed for

specified periods of non compliance.

51 . 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 chap ter 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 withi n the

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

is greater.

52 . Regarding Ms. Brown, the evidence presented at hearing

did not demonstrate by clear and convincing evidence the correct

penalty calculation for Ms. Brown. Thus, the total penalty

shoul d be reduced by the penalty attributed to Ms. Brown,

$19.60.

53 . Regarding the remaining employees, the Department

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 Native Cuts as a result of its

failure to comply with the coverage requirements of chapter 440.

54 . The Department has proven by clear and convincing

evidence that it calculated and issued the penalty of $ 69,514.74

in the secon d Amended Order of Penalty Assessment.

55 . Subtracting $ 1,000.00 for the amount Respondent

previously paid results in a penalty balance of $ 68,514.74.

56 . Accordingly, it is concluded that the appropriate

penalty total is $68,514.74 for RespondentÓs failure to se cure

workers' compensation coverage for its employees during the

audit period.

57 . Mr. Lee asserted in his request for a final hearing

that he could not maintain workersÓ compensation insurance , as

it would cause a financial hardship. The undersigned h as no

basis to doubt Mr. LeeÓs assertion regarding hardship. However,

the Legislature has not provided a Ðhardship exemptionÑ under

chapter 440, and the undersigned lacks the authority to create

an exception.

RECOMMENDATION

Based on the foregoing Findin gs of Fact and Conclusions of

Law, it is RECOMMENDED that a final order be entered by the

Department of Financial Services, Division of Workers'

Compensation, assessing a penalty of $ 68,514.74 against Native

Cuts Property Management, LLC.

DONE AND ENTERED this 31st day of May , 2019 , in

Tallahassee, Leon County, Florida.

S

YOLONDA Y. GREEN

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 31st day of May , 2019 .

ENDNOTE S

1/ The original auditor was no longer employed with the

Department at the time of the f inal hearing.

2/ The remaining employees included on the penalty calculation

worksheet include Adam (no last name provided) , Barbara Lee,

Bobbie Zimmerman, Gustavo Hernandez, James Horville, James Wynn,

Jennifer Fisher, Jeremy Gordon, John Porter, Justin Sampson,

Kenneth Evans, Kenneth Hall, Konata Carolla, Matthew Beach, Paul

Gaskins, Perry Clark, Scott Branlay, Scott Foreman, Shawn Wynn,

Steven Shahan, Tim Watson, Ubaldo Lazos, William McNeil, Alberto

Lazano Perez, Armando Hernandez, Barry Stegall, Belt on Blake,

Bill Bryan, Brand Fulforo, Brian Lott, Brian Peterman, Chino

Reyna, Christopher Anderson, Christopher Tucker, Clifford

Robinson, Derek Rudolph, Edward George, Hans Powesie, Henoc

Gonzalez, James McCravy, Jeff Beaver, James Wynn, Jeffrey Ray,

Jez Stewart, Joe Toolie, Jontavius Hall, Justin Simpson, Justin

Wilse, Kyle Bullard, Kyle Tucker, Leslie Head, Malek Evans, Mark

McDonald, Marlin James, Vincent Trudo, Mike Stokes, Nathan Toth,

Norberto Valez, Onris Anderson, Patrick Donovan, Pearl

Higginbotto m, Perry Jackson, Randall Lucas, Raymond Frazier,

Richard Fair, Robert Connor, Robert Hart, Robert Kisner, Shuran

Faniel, Sonnonaka Tousey, Wali Smith, Zerald Henderson, Austin

Caldwell, Breon Samuels, Darick Hinerman, Dave Teachout, John

Stucky, Johnny Go odfella, Julian Williams, Leighton Templin,

Mike Ditanzo, Mitchel Pike, Phillip Baker, Tristan Jones, Xavier

Danteler, and David Ocua.

COPIES FURNISHED:

Earl J. Lee

Native Cuts Property Management, LLC

316 North Lake Avenue

Leesburg, Florida 34748

Ma ttie Birster, Esquire

Off ice of the General Counsel

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399

(eServed)

Dustin William Metz, Esquire

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32 399 - 4222

(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 su bmit 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.