Understanding Employee Benefits and key developments in the employee benefits field and items of interest to our clients. MORE

Terminating employees who lose coverage under an employer’s group health plan are frequently entitled to continue that coverage under the federal law commonly known as COBRA. Employers are required to provide a former employee with a notice at the time of termination of employment describing the employee’s rights to continue coverage and the cost of doing so. A court can impose on an employer a penalty of up to $110 a day for failure to provide that COBRA notice. In a recent decision of the U.S. Court of Appeals for the Second Circuit, the court affirmed the dismissal of a former employee’s claim for penalties against an employer who failed to provide the COBRA notice.

The former employee’s claims were largely employment discrimination claims. The COBRA violation was one small piece of the lawsuit. The employer claimed that it had notified its COBRA administrator of the employee’s termination of employment and that the COBRA notice was sent. The former employee denied receiving the notice. About a year after termination, the former employee’s attorney raised the issue of a violation of the COBRA notice requirements and the administrator finally sent the notice showing a monthly premium of $1,942. A few months later, the administrator sent information about a less expensive health plan. The former employee claimed that she tried to learn the differences between the two plans but did not receive any information and so remained without health insurance for approximately 19 months until she started a new job. She claimed that during that time period she and her husband had accumulated hundreds of dollars in unpaid medical bills and had postponed expensive medical treatments.

The court found that neither the employer nor the COBRA administrator had any malicious intent in failing to provide the information. The court also noted that the former employee could not prove substantial damages as a result of the notice failure. According to the court, although the former employee and her husband had incurred unreimbursed medical expenses, the cost of those expenses was substantially less than the cost of the premiums that the former employee would have had to pay for coverage. The court also said that the former employee had provided no evidence of the health care that she would have sought had she had health insurance. Therefore, because there was no bad intent on the part of the employer and no real damage to the former employee, the appeals court determined that the district court had not abused its discretion in failing to award any COBRA notice penalties.

Not all courts would be as generous to the employer as was the district court in this case. Courts will sometimes impose penalties, although frequently much less than $110 a day, in order to send a message to employers that the COBRA notice requirements should not be ignored. Therefore, although in this case no statutory penalties were imposed, an employer should not be complacent about sending notices. Employers should make certain that they have good processes in place to show that proper COBRA notices are sent.

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