Is an employee terminated for theft still covered under COBRA to receive continuing healthcare coverage?
Quick Answer
Employees who are terminated for “gross misconduct” are not entitled to continuing healthcare coverage under the COBRA statute.
Some courts have held that theft and embezzlement meet this standard, but it is always best to consult with legal counsel before concluding that any particular misconduct is serious enough to warrant denial of continuing healthcare coverage under the COBRA statute.
Legal Perspective
Epstein Becker & Green
Newark, New Jersey
COBRA provides extended health coverage to employees fired for any reason other than “gross misconduct,” says employee benefits law attorney Tzvia Feiertag of the firm Epstein Becker & Green, P.C.
Theft would generally fall under “gross misconduct,” meaning this person (and covered dependents) wouldn’t qualify for COBRA. Denying COBRA coverage on account of gross misconduct should typically be avoided and an employer should seek legal advice before denying COBRA coverage for employee misconduct. Keep in mind, though, most other terminated employees would qualify for COBRA.
Other qualifying events include hour reductions resulting in loss of coverage which could possibly even include furloughs, death of a covered employee, and divorce.
Relevant Case Law
Mlsna v. Unitel Communications, Inc.
Conery v. Bath Associates
Burke v. American Stores Employee Benefit Plan
HR Insight
CertiK
New York, New York
It is up to the company or what is in their contract, but they legally do not have to offer COBRA for any type of termination for gross misconduct, says HR Leader Erin ImHof.
Termination for performance or similar reasons will likely make the person eligible for COBRA, but being terminated for endangerment, or another serious issue may make them ineligible. It will just depend on the facts of the case and what precedents there are.
YMCA of Central Ohio
Columbus, Ohio
In my experience, an employee terminated for something that falls under the category of “gross misconduct” would not be eligible for COBRA, says HR Generalist Abby Gruber.
Intentional theft is usually considered gross misconduct. However, in such specific circumstances, I believe it is always best to check with legal counsel before determining a final course of action.
The Cost of Noncompliance
Employer agrees to pay $13M to resolve COBRA case
Who was involved: Macon County Greyhound Park, which provided gaming facilities and offered racing and track operations in Alabama, and several park employees.
What happened: The employees alleged that the park did not provide them with proper COBRA information upon termination from employment. They also said it provided notices only to employees who requested them and that it did not notify them of their COBRA rights.
Result: To end the case, the park agreed to pay $13 million.
Info: COBRA Settlement for Lack of Proper Notice, 5/30/13.
No COBRA notices? Company pays $750K
Who was involved: Costco Wholesale Club, a membership warehouse club headquartered in Washington state, and approximately 40,000 current and former employees.
What happened: The employees alleged that Costco sent COBRA notices that did not adequately inform them how to exercise their right to elect coverage under the statute.
Result: To settle the suit, Costco agreed to pay $750,000.
Info: Costco COBRA $750K Class Action Settlement, 8/9/22.
COBRA notices allegedly contained ‘misleading’ statements: Fiat pays $600K
Who was involved: Fiat Chrysler, a multinational auto manufacturer, and participants and beneficiaries in the company’s health plan.
What happened: The plaintiffs alleged that the employer sent COBRA notices that included inaccurate and misleading statements. They further alleged that the notices threatened criminal penalties and fines.
Result: The employer agreed to pay $600,000 to end the suit.
Info: Fiat Chrysler COBRA Notice $600K Class Action Settlement, 6/24/22.
Key Takeaways
- An employee who is terminated for gross misconduct is not entitled to COBRA continuation benefits.
- Neither the COBRA statute nor its implementing regulations specifically define the term “gross misconduct.”
- The courts have held that to be disqualifying, employee misconduct must be outrageous, extreme or unconscionable.
- Some courts have held that theft or embezzlement are gross misconduct that disqualifies a terminated employee from receiving COBRA benefits.
- Employers should generally consult with legal counsel before concluding that an employee has engaged in misconduct that is sufficient to warrant disqualification for COBRA benefits.
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