- COBRA: Gross Misconduct...Says Who?
- August 25, 2014 | Author: Brooke C. Rosen
- Law Firm: Gentry Locke, LLP - Roanoke Office
With all of the buzz surrounding health insurance coverage requirements under the Affordable Care Act (ACA), it is easy to forget best practices under existing health insurance laws with which we have struggled for some time, such as COBRA (Consolidated Omnibus Budget Reconciliation Act).
COBRA is a federal law that requires employers with more than 20 employees offer a continuation of a health insurance coverage upon a "qualifying event." An employer, however, does not have to offer COBRA continuation coverage when a termination involves "gross misconduct." Unfortunately for employers, there is no definition of gross misconduct in either the COBRA statute or the applicable regulations, and courts have significantly differed on the subject. This means that denial of COBRA coverage due to gross misconduct carries a higher than usual risk of litigation for an employer.
Recently, we came across a case out of the US District Court for the District of Idaho in which the court concluded gross misconduct existed when a terminated employee failed to dispute that her termination was the result of dishonesty and theft. This case is particularly interesting because the theft involved the taking of a cake from the employer-bakery's "stale cart" for employee consumption. The court concluded that theft and dishonesty, regardless of the value of the item stolen, is gross misconduct.
While the Idaho cake case is not necessarily determinative for companies with employees in Virginia, it does prompt us to revisit the applicable Virginia standard. The Fourth Circuit has stopped short of formulating a precise definition, but there is guidance that it views gross misconduct as something more than mere negligence, carelessness, or obstinacy. Presumably, an employer in Virginia would need evidence of the employee's intentional and substantial disregard of the employer's interests.
Employers should be careful in using gross misconduct for denying COBRA coverage. If an employer wants to proceed on grounds of gross misconduct, here are a few practice tips:
- Make sure a gross misconduct exclusion is included in your COBRA policy.
- Notify the terminated employee and qualified beneficiaries that a qualifying event has not occurred because of the gross misconduct. Deliver a "Notice of Unavailability for Continuation Coverage," which should include an appeal right, within 14 days of the termination of employment or no later than 14 days from the date the employee asks for COBRA continuation coverage.
- Make the determination of gross misconduct at the time of termination and certainly prior to allowing the terminated employee to participate in COBRA coverage. Gross misconduct discovered subsequent to a termination (including a resignation) is not grounds for denying or terminating COBRA coverage.
- Only consider the most flagrant conduct that clearly constitutes a substantial and willful disregard of the employer's interests.
- Compare the current "gross misconduct" situation to prior termination facts to ensure consistency.
- Weigh the risks of denying coverage against the costs associated with providing COBRA continuation coverage. If the group coverage is provided by an insurance company, consult the insurance company before denying coverage.