Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), employees who are terminated for any reason other than gross misconduct are entitled to continue their employer-provided health insurance. COBRA doesn't define gross misconduct in the termination of employment so the courts have stepped in to decide what type of conduct would constitute gross misconduct under the Act. The employer that denies an employee COBRA coverage after termination has the burden of proving that the employee was fired for gross misconduct.
TL;DR (Too Long; Didn't Read)
The federal legislation known as COBRA does not define gross negligence, but the courts define it to include acts that are intentional, wilful, wanton, deliberate, reckless and/or in deliberate disregard of the employer's interests.
What Is COBRA?
COBRA is the abbreviation for the Consolidated Omnibus Budget Reconciliation Act, federal legislation that gives workers and who lose their employer's health benefits (and their covered dependents) the right to continue to use the group health benefit plan. The right to this continued insurance is only possible for limited periods of time and under certain circumstances.
COBRA benefits kick in after a worker loses their job, whether voluntary or involuntary, and also following a reduction in the hours worked. COBRA rights are also available when a worker is transitioning between jobs, during a divorce and similar major life events. Those eligible for COBRA coverage can be asked to pay a higher premium for coverage.
Purpose of the COBRA Statute
It's hard to lose a job and even harder when an employee's and their family's health care insurance is dependent on that employment. Before 1986, a worker who lost their job had no rights at all under their former employer's group health plan. The Consolidated Omnibus Budget Reconciliation Act was enacted in 1985-1986 in order to provide a health insurance coverage bridge when an employee is terminated or has their hours reduced to the point where they lose their employee benefits and health insurance. COBRA coverage lasts for up to 36 months. Other qualifying events can include a divorce or death.
Both the former employee and their family members who had coverage are eligible for COBRA continuation coverage.
Gross Misconduct Exception to Eligibility
While COBRA provisions allow a terminated employee to continue their group health care coverage for a limited amount of time regardless of whether they were fired from their job or quit, there are exceptions. If an employee is fired for gross misconduct, they are not entitled to COBRA benefits. In fact, if an employee is fired for gross misconduct, their spouse and dependents also lose all COBRA rights.
Given that gross misconduct is the primary exception to COBRA benefits for those who otherwise qualify, one might expect the federal legislation to define this term. However, this isn't the case. There is no definition in COBRA of the acts that would constitute gross negligence for purposes of the law. That has left the task of defining what is and what is not gross misconduct up to the courts.
Courts generally refer to several questions when deciding if conduct constitutes gross misconduct:
- Was the conduct intentional, willful, deliberate or reckless?
- Was it performed with a conscious or reckless disregard for the consequences of one’s acts?
- Was it performed with knowledge that the act would or could cause harm to the employer?
- Was it an action the employee had been warned about previously?
Simple Negligence vs. Gross Misconduct
As the courts tackled this issue, they were often called upon to contrast simple negligence and gross misconduct. If an employee is fired for simple negligence, the employer should not exclude them from COBRA benefits. Rather, the courts have ruled that gross misconduct must constitute an intentional, outrageous or extreme act. While courts have not provided an exhaustive list of actions that could be included under the term gross misconduct, it is clear that something more than a slip-up is required.
Generally, illegal activity done intentionally by an employee can constitute gross misconduct. That is, if someone is fired for fraud, assault, theft, vandalism, misrepresentation, harassment, working under the influence of alcohol or drugs, or dealing in illegal substances on the job, the courts are likely to rule that such conduct is gross misconduct that disqualifies them from COBRA benefits.
Other Types of Gross Misconduct
Less serious actions can also constitute gross misconduct if an employee is a repeat offender. That is, it can be considered gross misconduct if an employee is fired for intentionally repeating a simple negligent action despite warnings from their employer.
This was made clear in the 2007 case of Boudreaux v. Rice Palace Incorporated. The federal District Court for the Western District of Louisiana provided a definition of gross misconduct in the COBRA context. The case dealt with the question of whether it was gross misconduct under COBRA for an employee to repeatedly overmedicate at work despite the warnings of their employer not to do so. The court ruled that it was gross misconduct, and that the employee knowingly put themselves and other workers in danger due to their deliberate actions.
Employer Burden of Proof
Despite the court rulings, employers are left without a hard and fast definition of what constitutes gross negligence for COBRA purposes and face real risks if they deny benefits improperly. They cannot wait until the court rules to decide if an action is gross misconduct. Rather, any employer who intends to deny COBRA coverage must notify the employee of that decision in writing. The employee then has an opportunity to appeal the matter.
The burden of proof is on the employer to prove that the actions of the employee constituted gross misconduct, and that the gross misconduct was the sole reason for which they were fired. If the firing was due to a variety of actions – some gross misconduct, but others discriminatory – the employer cannot deny the employee continued health coverage.
Risk From Denial of Coverage
Employers may be hesitant to deny a fired employee COBRA coverage. If the court ultimately finds that the denial was incorrect, the employer can face penalties. In addition, an employee who is wrongfully denied COBRA rights along with their dependents may be eligible for coverage retroactive to the initial termination of coverage.
Experts suggest that if a terminated employee has large medical claims or expects such claims in the immediate future, they have a huge incentive to fight for coverage. That makes it more likely that they will file suit challenging the COBRA coverage denial and also include other claims challenging the employment termination decision. Given these risks, some employers have a policy of never denying fired employees COBRA benefits.
- DOL: Continuation of Health Coverage (COBRA)
- Cobra Insurance: What Is Gross Misconduct?
- East Coast Risk Management: What Constitutes Gross Misconduct When It Comes to COBRA?
- ERISA Benefit Law: Be Careful Before Denying COBRA to Employee Terminated for Gross Misconduct
- Graydon Law: What Rises to the Level of Gross Misconduct Under COBRA?
Teo Spengler earned a JD from U.C. Berkeley Law School. As an Assistant Attorney General in Juneau, she practiced before the Alaska Supreme Court and the U.S. Supreme Court before opening a plaintiff's personal injury practice in San Francisco. She holds both an MA and an MFA in English/writing and enjoys writing legal blogs and articles. Her work has appeared in numerous online publications including USA Today, Legal Zoom, eHow Business, Livestrong, SF Gate, Go Banking Rates, Arizona Central, Houston Chronicle, Navy Federal Credit Union, Pearson, Quicken.com, TurboTax.com, and numerous attorney websites. Spengler splits her time between the French Basque Country and Northern California.