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If you've ever considered denying benefit coverage under
COBRA based on "gross misconduct," you could be entering uncharted waters. The employer in this case was wrong and ended up paying over $28,000 for its mistake.
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COBRA makes it pretty clear that employers must allow employees to continue their health insurance coverage (at the workers' own expense) whenever they are terminated or quit, except when an employee is terminated for "gross misconduct." Most employers hesitate to use this exception, however, because COBRA does not define gross misconduct and very few courts have rendered an opinion on the issue. The courts that have ruled on it agree that the misconduct must be extreme or outrageous, clearly setting it apart from ordinary negligence or incompetence. In this case, Lloynd v. Hanover Foods Corporation, 1999 WL 1084262 (D. Del. 11/17/99), the court reviewed sharply conflicting testimony before finding that the high standard required for gross misconduct had not been met.
Food Worker Omits Onion Powder, Loses Job
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The employee, who was an ingredient mixer, was assigned to do the mixing for the company's ravioli product. She had never worked with this product before and was not familiar with the ingredients. Even though the ingredient sheet called for onion powder, the control card the employee was using did not. Without asking her supervisor about the discrepancy, the employee decided to follow the control card and omit onion powder from the recipe. When her supervisor noticed onion powder was not checked on the ingredient list, she questioned the employee and was told of the inconsistency between the ingredient list and the control card. According to the employee, her supervisor described the omission of onion powder as a mistake and "suggested" that she speak to a higher level manager.
The company refuted her claims, charging that she intentionally left the onion powder out of the ravioli. It said that the employee knew better than to leave out an item listed on the ingredient sheet and that she sabotaged the ravioli because she was forced to work with another employee she did not like. In support of this allegation, the company pointed to the fact that it had issued a written warning to the two employees regarding their inability to get along. For these reasons, the company terminated the employee and denied continuation of medical coverage under COBRA, calling her actions gross misconduct. The employee sued and alleged she was wrongfully denied
COBRA coverage.
Gross Misconduct Standard Not Met
Taking the facts presented, the court had to determine whether the employee was wrongfully denied COBRA or if the company was justified in refusing coverage because the employee's actions could be considered gross misconduct. The court began its analysis by trying to define what is gross misconduct. It acknowledged that the term is not defined in the COBRA statute and that only a few courts have attempted to address what the standard should be. Generally, courts have agreed that to rise to the level of gross misconduct, an employee's actions at a minimum must be willful and intentional misconduct. According to the court, "ordinary negligence or incompetence alone will not suffice."
In reaching its decision, the court first addressed whether the omission was accidental or intentional. It concluded that the employee's conduct was accidental. It noted that she had never mixed the ravioli product before, was somewhat confused about the process, and seemed genuinely upset when she found that a mistake had been made. The court also rejected the company's contention that the employee deliberately sabotaged her work, pointing out that the employee knew she had upcoming medical expenses and, therefore, would not risk losing her job and health insurance coverage. It also challenged whether the company really believed that the employee's actions were intentional. In a memorandum, the employee's supervisor characterized the act as an accident, and other internal documents describing the incident did not mention willful misconduct. In addition, the company's testimony showed that it had tried to use the COBRA benefits as a bargaining point by telling the employee that, if she agreed to resign, it would offer her COBRA continuation.
In summary, the court decided that the employee's omission of the onion powder was, at worst, an act of ordinary negligence and did not rise to the level of gross misconduct for COBRA purposes. As a result, the court ordered the company to pay the medical expenses that COBRA would have covered ($3000) and imposed statutory penalties in the amount of $25,250 against the company for failing to give the required COBRA notice. The employee was also allowed to recover reasonable attorneys' fees.
Denying COBRA Can Be Very Costly
As this decision demonstrates, COBRA allows substantial penalties to be levied against employers who fail to comply with the COBRA rules. In fact, courts have the authority to impose fines of up to $110 a day per violation, in addition to awarding actual damages, such as medical costs, and attorneys' fees. Therefore, if you want to deny COBRA based on gross misconduct, you first should consider carefully the reasons for termination. Although this court did not shed a lot of light on what constitutes gross misconduct, it did make it clear that conduct must be "willful and intentional" and that ordinary negligence will not qualify. This standard is difficult to meet. The few instances where courts have allowed the denial of COBRA for gross misconduct involved employers that had evidence of criminal activity and cash-handling irregularities. Therefore, if there is any doubt as to how an employee's conduct should be characterized, it is usually more prudent to offer
COBRA than to risk paying penalties that, if awarded, accrue on a daily basis. If you do think you have a case of gross misconduct, consult your attorney, make sure that you document the reason for the denial, and explain it clearly to the employee.
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