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HR MATTERS E-TIPS
THIS WEEK'S E-TIP: COBRA Denial of Benefits and Misconduct Q&A
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THIS WEEK'S E-TIP: COBRA Denial of Benefits and Misconduct Q&A
It's true – you do not have to offer COBRA continuation coverage when
you terminate an employee for "gross misconduct." But, be careful.
Courts require a high degree of misconduct before you may deny
COBRA continuation coverage. |
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THIS WEEK'S E-TIP: COBRA Denial of Benefits and Misconduct Q&A
Q: We recently terminated an employee for misconduct — he
violated
our company's confidentiality policy. Do we have to offer him
COBRA
continuation coverage, or can we exclude him because of "gross
misconduct"?
A: Many behaviors that are considered a violation of
corporate policy or
workplace conduct rules will not meet the "gross misconduct"
exception
in the Consolidated Omnibus Budget Reconciliation Act of 1986
(COBRA). Under COBRA, employers that provide "group health plans"
must offer continuation coverage to "qualified beneficiaries" who
have
lost health coverage as a result of certain qualifying events. In
particular,
termination of employment is a qualifying event, except when gross
misconduct is involved. In other words, you do not have to offer
COBRA
coverage to an employee terminated for engaging in gross misconduct.
The term "gross misconduct," however, is not defined either in
COBRA
or in the law's implementing regulations. Courts generally have
interpreted this term to require a high degree of misconduct before
you
may deny continuation coverage. Here are a few court cases that
illustrate when that level was reached:
-- Nakisa v. Continental Airlines, 2001 U.S. Dist. LEXIS 8952 (S.D.
Tex. 2001), an airline employee who threw an apple and uttered an
audible racial epithet at another employee in front of boarding
passengers demonstrated a substantial and deliberate indifference to
her
employer's clear interests. Her actions, therefore, constituted
gross
misconduct.
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-- Burke v. American Stores Employee Benefit Plan, 818 F. Supp.
1131 (N.D. Ill. 1993), a former grocery store employee's
participation in a
scheme to steal turkeys was an act of criminal theft and constituted
gross misconduct.
-- Avina v. Texas Pig Stands, Inc., 1991 U.S. Dist. LEXIS 13957
(W.D. Tex. 1991), an employee's termination for "cash handling
irregularities, invoice irregularities, and the failure to improve
the
performance of one of the defendant's stores" constituted gross
misconduct.
However, an employee's misconduct typically must involve more than
negligence or incompetence. For example, in Lloynd v. Hanover Foods
Corp., 72 F. Supp. 2d 469 (D. Del. 1999), the court determined that
the
employee's omission of onion powder while mixing ravioli was
accidental
and not intentional, as the employer alleged. The court noted that
ordinary negligence or incompetence alone will not suffice to meet
the
gross misconduct standard under COBRA.
And, in Paris v. F. Korbel & Brothers, Inc., 751 F. Supp. 834 (N.D.
Cal.
1990), the court determined that a breach of company confidence was
not gross misconduct.
In addition, courts typically have found that you must have evidence
of
the gross misconduct before denying COBRA benefits, not just a good
faith belief that an employee engaged in gross misconduct. So, in
Kariotis v. Navistar Internat'l Transp. Corp., 131 F.3d 672 (7th
Cir. 1997)
the court required the employer to demonstrate that the employee
actually did engage in gross misconduct. The employer's good faith
belief that the employee engaged in gross misconduct was
insufficient to
deny COBRA benefits.
Because the term "gross misconduct" is not clearly defined and court
decisions hinge on case-specific facts, most legal experts advise
against
denying COBRA coverage on that basis, except in the most extreme
cases. So, you may want to check carefully before denying COBRA
benefits to an employee for breaching your confidentiality policy.
If you still want to invoke the "gross misconduct" exception, be
sure to
consult with an attorney. Remember, there are substantial penalties
for
COBRA violations (including fines of up to $110 a day per violation,
actual damages such as medical costs, and attorneys' fees), and, if
you
are the plan administrator, you as an individual could be personally
liable
as well. |
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