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After ARRA, how to handle gross misconduct and COBRA coverage

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in Employee Benefits Program,Employment Law,Firing,HR Management,Human Resources

In light of the enactment of the American Recovery and Reinvestment Act (ARRA) of 2009, employers have begun re-examining the cases of some employees who were involuntarily discharged for misconduct. The purpose? To determine whether the employees are eligible to receive a 65% subsidy for continuation of health insurance benefits under the Consolidated Omnibus Budget Reconciliation Act (COBRA).

The ARRA, commonly known as the Obama administration’s economic stimulus package, provides that such “terminated employees” may be eligible for a COBRA premium assistance subsidy to initially be paid by employers. Under COBRA, however, an employee isn’t eligible to continued coverage if the employee’s discharge was for “gross misconduct.”

But what constitutes “gross misconduct” under COBRA? The statute and associated regulations, as well as IRS regulations, do not define the term, and few court decisions provide any precise definition.

Courts that have addressed the question have generally resorted to other sources to synthesize a standard. They have tried to discern the meaning from the statutory language, existing federal and state laws and, in some cases, the terms of an employer’s health care plan or code of conduct and disciplinary policies.

What is gross misconduct?

While a single, reported Florida federal court case determined that gross misconduct did not disqualify an employee from COBRA coverage, the court did not define the term. Instead, it ruled that an employee’s behavior did not rise to the level of “gross misconduct.” The employee had supposedly falsified mileage records, failed to attend two mandatory meetings and had engaged in misconduct when she refused an offer of continuing her employment under probation. This case doesn’t provide much help.

Some federal courts have relied solely on reviewing state laws, especially unemployment compensation laws that use “discharge for gross misconduct” as the standard for denying benefits. Other courts have simply used state standards as guidance from which the court formulated a definition.

How Florida defines it

Under Florida’s unemployment compensation law, an employee is disqualified from receiving benefits if competent, substantial evidence proves that the employee is guilty of committing either of the following: 

  • Conduct demonstrating willful or wanton disregard of an employer’s interests and found to be a deliberate violation or disregard of expected standards.
  •  Carelessness or negligence to a degree or recurrence that manifests culpability, wrongful intent, or evil design or shows intentional and substantial disregard of the employer’s interests or the employee’s duties and obligations.

This Florida standard is consistent with other federal courts’ conclusions as to the level of misconduct required to be deemed “gross misconduct” under COBRA. It includes behavior that isn’t necessarily “criminal.” It must be actual wrongdoing, not merely conduct an employer suspects or believes is wrongdoing.

Using this or a very similar standard basis, the courts have found gross misconduct disqualifying employees for COBRA when the employee:

  • Severely beat a fellow employee
  • Drove a company car while drunk
  • Committed a criminal theft
  • Embezzled company funds
  • Deserted a security post and intentionally falsified a time log
  • Engaged in insubordination affecting safety after repeated warnings.

Putting it into practice

Employers contemplating denying any employees COBRA continuation coverage should follow these steps:

1. Document, investigate, compile, and closely scrutinize
the specific circumstances that gave rise to the discharge and how those events adversely impacted the business or interests of the employer and how they amounted to gross misconduct.

2. Create a clear and convincing record
of how the decision to discharge was made. Establish that you made the discharge decision because of gross misconduct.

3. Strictly adhere to all company policies and procedures
in conducting investigations and deciding and processing the discharge.

4. Ensure strict compliance with all COBRA requirements, in particular providing a “Notice of Unavailability of COBRA Coverage.” That notice should advise that coverage is being denied because of a discharge for gross misconduct, and that there is a right to appeal this determination.

Be sure to consult with your employment attorney before denying the COBRA subsidy or COBRA coverage to a terminated employee.

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