Florida Attorneys Acknowledge Long-running 'Gap' in PEO Law

Attorneys on both sides of the debate over workers' compensation in Florida said Monday that a decision by the First District Court of Appeal in the case of an injured Miami roofer highlighted long-running questions over the relationship between professional employer organizations (PEOs) and their clients.

But they differ over whether last Thursday's ruling in Crum Services and Frank Winston Crum Insurance v. Ruben Alberto Soto Lopez, No. 07-410, closes a gap that has left thousands of workers – mostly in the construction industry - without valid coverage.

The decision came with a warning from Appeals Judge William A. Van Nortwick Jr., who voted in favor of the unanimous ruling, that the case exposes a "gap" in the system for workers put on the job by employer/clients of the PEOs but whose paperwork gets processed late or not at all.

"I write to express my concern that the instant case does demonstrate that, under the employee leasing arrangement common in Florida, workers' compensation coverage 'gaps' exist which allow claims such as (Lopez's) to 'fall through' the system," Nortwick said.

Mark Zientz, chairman of the Workers' Compensation Section of the Florida Bar, said Nortwick's warnings underscore complaints that workers' lawyers have been making to state lawmakers for years.

"It's a legalized way of going uninsured," Zientz said. "We've been arguing that the gap problem should be fixed for awhile, and the Legislature has sort of ignored it."

Juliana L. Curtis, who represented Crum Services, a subsidiary of Tampa-based FrankCrum, one of the nation's largest PEOs, said the ruling clarified the role of PEOs in providing workers' compensation coverage and declares they must be told which of the employer/client's workers they are covering.

"I think this ruling sent shock waves through the whole industry, and it wasn't a high-dollar case," she said.

The appeals court overruled Miami Judge of Compensation Claims Gerardo Castiello's decision that Crum Services and its sister carrier, Rank Winston Crum Insurance, were responsible for the broken ankle Lopez sustained on May 26, 2005 -- three days after he was hired and put to work by South Florida contractor Porto & Garcia Roofing (P&G).

The contract between Crum and South Florida contractor Porto & Garcia Roofing (P&G) required that Lopez fill out an employment application, a W-4 withholding form and immigration Form 1-9 and that the PEO received the documents before Lopez became a leased employee.

For employees not documented by the employer, the Crum Services contract declares that P&G "assumes full responsibility for workers' compensation claims of other parties hired by or working for you, whether as an employee, independent contractor or in any other status."

The appeals court declared that P&G was responsible for providing workers' compensation insurance and sent the Lopez case back to Castiello for further action.

But Nortwick said Lopez is without workers' compensation coverage for his injury and warned it is "unrealistic" to expect that a civil suit is a viable remedy.

"The record reflects that P&G has failed to appear in this proceeding and, like many small subcontractors, P&G is very likely 'judgment proof,'" Van Nortwick said.

Zientz blamed part of the problem on Florida's failure to establish a guaranty association to compensate workers of uninsured employers.

Some of those most at risk are those injured before the paperwork reaches the PEO – if it ever does, Zientz said.

Curtis said the PEO industry has been waiting for years to get a ruling on who's responsible for the coverage gap.

"More and more, we would get claims and we don't know who the person is," she said. "I think this puts the nail all the way in. We've got the question answered. We had tens of thousands of people we'd never heard of, and we were being told we insured them."

The filing deadline for 2008 legislation expired a week prior to the Lopez decision. But Zientz said changes could be made to Senate Bill 2548, which was filed on the last day for new legislation, Feb. 29.

The controversial bill would repeal several key provisions of the Florida Legislature's workers' compensation reform package, credited with lowering rates by more than 50% since it took effect Oct. 2, 2003.

But it also beefs up requirements for what PEOs report to regulators and what notifications they must make directly to workers. SB 2548 bars a PEO from cancelling workers' compensation coverage until 30 days after notice has been sent directly to workers.

But Curtis said no legislative change will address employer/clients trying to evade the law.

"FrankCrum is trying to offer a complete product and there is a real desire to clean up this part of it," Curtis said. "The part you're never going to clean up is that there are employers out there who are doing this fraudulently and purposely."

--By Michael Whiteley, WorkCompCentral Eastern Bureau Chief
mike@workcompcentral.com.