Employer Pays for COBRA Chaos

Wednesday, February 03, 2010

Leaves of absence are often difficult to manage, and errors are easy to make. This can be an expensive lesson, as one employer learned recently.

In the case of Sonnichsen v. Aries Marine Corp., an offshore oil rig cook took some time off for back surgery. Afterwards, the employee obtained a doctor certification, stating he could not return to work for 12 weeks. There was a factual dispute as to whether the employer ever knew about the certification. About two months after the surgery, the employer sent the now ex-employee a COBRA election notice, telling him for the first time that his employment had been terminated as of his last day at work. Because COBRA was too expensive, he declined COBRA coverage.

The ex-employee sued under COBRA for the late notice and more than $30,000 in unpaid medical claims. The District Court did not award penalties for the late notice because the individual was not prejudiced by the delay. He declined COBRA and did not contact the employer about health coverage during his absence. The court then examined the unpaid medical claims. It reviewed the over-arching purpose of COBRA:  to keep employees fully informed after a loss of coverage caused by a qualifying event. Thus, the court awarded the individual the amount of his medical claims minus the applicable COBRA premiums he would have paid if he had COBRA coverage. In addition, the court awarded attorney’s fees to the individual.

Several things stand out in this case. First, the employer did a poor job of clarifying job status during the leave of absence and what that meant for health coverage. Presumably, the employee was eligible for FMLA, but there was no mention of it in the opinion. If FMLA did apply, the COBRA Qualifying Event and loss of coverage were premature, and these actions violated FMLA as well as COBRA.

Second, the termination occurred after September 1, 2008, so the employer should have sent a notice related to the ARRA subsidy. The employer did claim that the termination was voluntary, but ARRA notices were required to be sent for all qualifying events on or after that date, and the individual should have had a second election right if the termination was involuntary. The IRS has stated that when an employer initiates the action to terminate, the termination will be viewed as involuntary. If the employer had refused to provide the subsidy, that action would have been subject to the right of expedited review by the DOL.