Employer claims gross misconduct exception after being sued for failure to send proper COBRA notices

As an attorney representing employers I am often asked, in conjunction with the discussion of a proposed termination of an individual's employment, whether a 'COBRA notice' needs to be provided.  29 USC § 1163(2) excludes from the definition of 'qualifying event' under COBRA a termination of employment which is "by reason of such employee's gross misconduct.'  So what is 'gross misconduct' that would justify not providing a soon-to-be-fired individual with the right to continue to participate at his or her own cost in the employer's group health insurance plans? There is no definition of or guidance on what constitutes "gross misconduct" either in the COBRA statute itself or in the applicable regulations.  The federal judge in Middlebrooks v. Godwin Corporation, No. 1:10-cv-1306 (AJT/JFA) (E.D. Va. February 7, 2012), noted that federal courts have diverged very widely on the question:

"Some courts have provided a standard by which conduct can be judged. See Zickafoose v. UBServs., Inc., 23 F. Supp. 2d 652, 655 (S.D.W. Va. 1998) ('[C]onduct is gross misconduct if it is so outrageous that it shocks the conscience.'); Collins v. Aggreko, Inc., 884 F.Supp. 450,454 (D. Utah 1995) ('Gross misconduct may be intentional, wanton, willful, deliberate, reckless or in deliberate indifference to an employer's interest. It is misconduct beyond mere minor breaches of employee standards, but conduct that would be considered gross in nature.'); Paris v. F. Korbel & Bros., Inc., 751 F. Supp. 834, 838 (N.D. Cal. 1990) (defining gross misconduct as 'conduct evincing such willful or wanton disregard of an employer's interests as is found in deliberate violation or disregard of standards of behavior which the employer has the right to expect of his employee, or in carelessness or negligence of such a degree or recurrence as to manifest equal culpability, wrongful intent, or evil design, or to show an intentional and substantial disregard of the employer's interests or the employee[']s duties and obligations to his employer.')."

Iowa employers will no doubt recognize the definition in Korbel: It is the definition of the term 'misconduct' used by the Iowa Supreme Court and Iowa Workforce Development in determining whether an individual is disqualified from receiving unemployment compensation benefits.  871 IAC 24.32(1)(a).  Many employers are not, however, aware that Iowa's unemployment compensation law also has a disqualification for 'gross misconduct.' The agency has defined that term as 'misconduct involving an indictable offense in connection with the claimant's employment, provided that such claimant is duly convicted thereof or has signed a statement admitting that such claimant has committed such act.' The federal judge in Middlebrooks specifically declined to formulate a 'precise definition of gross misconduct.'  She did, however, conclude that '‘gross misconduct' requires conduct substantially beyond mere negligence, carelessness, or obstinacy.'  This reinforces that an employer's determination of 'gross misconduct' is subject to de novo review by a court. The Middlebrooks case provides an excellent teaching tool on how the question might arise. Lillie Middlebrooks was offered employment by Godwin Corporation around July 29, 2008.  She began working on August 1, 2008.  Godwin Corporation had a contract with the District of Columbia to staff a program known as 'Healthy Start.'  Middlebrooks, a registered nurse, was assigned to the program; her duties included supervision of two assistants.  After working for the company for 30 days, Middlebrooks was enrolled in Godwin's employer-sponsored health plan.   Middlebrooks did not receive the 'COBRA general notice' either when she started work or when she was put on the company's health plan. Middlebrooks had what the court called 'a difficult working relationship with her team members.'  After at least two meetings where Middlebrooks was advised not to engage in certain conduct or the funding of the entire program in which she worked would be jeopardized, Middlebrooks 'insisted on continuing' to do what she had been told not to do.  Middlebrooks'  employment was terminated on October 30, 2008.  Godwin sent Middlebrooks a notice labeled 'Cobra Letter.'  According to the Court – which held a bench trial on Middlebrooks' lawsuit – the 'Cobra Letter' did not provide the following information:

• An explanation of the consequences of failing to elect or waiving continuation coverage. See 29 C.F.R. § 2590.606-4(b)(4)(vi).
• A description of the qualified beneficiaries' grace periods for payment and the consequences of delayed payment and non-payment. See 29 C.F.R. § 2590.606-4(b)(4)(xii).
• An explanation of the importance of keeping the administrator informed of the current addresses of all participants or beneficiaries under the plan who are or may become qualified beneficiaries. See 29 C.F.R. § 2590.606-4(b)(4)(xiii).
• A notice that the employee has 60 days to make an election to enroll in COBRA. See 29 U.S.C. § 1165(a)(1).
• The correct date on which the 18-month maximum coverage period would expire. See 29 U.S.C. § 1162(2)(A)(i); 29 C.F.R. § 2590-606-4(b)(4)(viii).2
• The name of the plan under which continuation coverage is available. See 29 C.F.R. § 2590.606-4(b)(4)(i).

On November 18, 2010 – more than two years following the termination of her employment – Middlebrooks filed a lawsuit against Godwin.  She did not serve the lawsuit until March 15, 2011.  In the lawsuit, Middlebrooks sought the statutory penalty of $110 per day for each violation of the COBRA notice requirements, plus pre-judgment interest, costs, expenses, reasonable attorney fees, and whatever other relief the court deemed just and proper. (There was no claim of any injury from the failure to provide the notice, so no compensatory damages for the injury were sought.) One of the first things that comes to mind is 'no harm, no foul.' Where and how was Middlebrooks injured?  29 U.S.C. §1132(c)(1) by its terms provides that any plan administrator who "fails to meet the [notice] requirements" of 29 U.S.C. §§ 1166(a)(1) – (1) "at the time of commencement of coverage" or (4) after a "qualifying event" – "with respect to a participant or beneficiary ... may in the court's discretion be personally liable to such participant or beneficiary in the amount of $100 a dayfrom the date of such failure ... ."  The amount of the penalty is in the court's discretion, but the purpose is to 'punish non-compliance with ERISA,' not compensate the participants for injuries.  In this case, the court determined a total penalty of $500.00 was appropriate. As anyone who has ever experienced it knows, litigation is not cheap.  Middlebrooks represented herself pro se.  (Some plaintiffs' lawyers somewhere must have exercised some judgment?)  The employer, Godwin, had the expense of an attorney up to and through trial before a federal judge.  And in suburban Washington, D.C., no doubt $500.00 did not come close to the total costs the employer incurred. So Iowa employers take note:  If you decide you are not going to send a COBRA notice under the 'gross misconduct' exception, you may find a court second-guessing your decision – and imposing a penalty even if the plaintiff suffered no actual injuries at all. And as a corollary lesson from  Middlebrooks to Iowa employers – and indeed, employers everywhere – develop a protocol that ensures you can prove both of the required COBRA notices are sent, and sent in a timely manner. Finally, do not attempt to re-invent the wheel.  Use the DOL 'model' general notice (in Spanish) and the DOL 'model' election notice (in Spanish), and take care to complete each accurately and completely to cover the specific situation.

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.