Court Finds No COBRA Obligations Toward Employee Terminated for Gross Misconduct

A former employee sued her employer for failing to provide an initial COBRA notice when she first became covered under the employer’s group health plan and an election notice when she was terminated from employment. The employer argued that no notices were required because the employee—a nurse in an anesthesia practice—was terminated for gross misconduct involving her alleged violation of written protocols and mismanagement of controlled substances. The court acknowledged there were material issues of fact as to the circumstances leading to the termination, but disallowed the employee’s evidence for procedural reasons. Since the employee did not properly contest or deny the employer’s allegations of gross misconduct, the court ruled in the employer’s favor without a trial, concluding that it had no COBRA obligations when termination was due to gross misconduct.

EBIA Comment: When an employee is terminated for gross misconduct, the employee and any covered dependents lose the right to elect COBRA coverage, and the employer is not required to provide an election notice. However, because gross misconduct terminations tend to involve heightened emotions and disputed facts, there is an increased risk of a costly court challenge. The employer in this case prevailed on its gross misconduct claim, albeit for procedural reasons, and this court declined to assess penalties—even for an admitted failure to provide an initial notice years before the misconduct. But an employer that is wrong about gross misconduct can face not only an award of retroactive COBRA coverage but also the imposition of penalties of up to $110 per day for failure to provide required notices. Given this uncertainty, we generally caution employers against denying COBRA coverage because of gross misconduct except in situations involving flagrant conduct that clearly constitutes a substantial and willful disregard of the employer’s interests. Even then, legal counsel and any insurer should be involved in the decision. For more information, see EBIA’s COBRA manual at Sections VII.B.5 (“Gross Misconduct Exception”) and XXV (“Consequences of Failing to Comply With COBRA”). You may also be interested in our upcoming webinar “Learning the Ropes: An Introduction to COBRA Continuation Coverage” (live on 7/31/19).

Contributing Editors: EBIA Staff.