Employer Learns Importance of General Notice

Sunday, July 05, 2009

The two main COBRA notices are the General Notice (sent when participation begins) and the Election Notice (sent when a Qualifying Event occurs). In most cases, courts will focus primarily on failures related to the Election Notice. However, as one employer learned, the General Notice is important also.

The Cepeda-Hernandez v. First Transit case presented an employer whose COBRA administrator was less than meticulous in its COBRA compliance. After an employee voluntarily resigned, he and his family sued his former employer for several COBRA violations, including failure to send both the General Notice and Election Notice.

The employer did not have a very good excuse for failing to send the General Notice, arguing that it did not harm the Qualified Beneficiaries and the mistake was not done in bad faith. The employer had a slightly better defense on the Election Notice: it sent the notice to employee's last known address where the entire family resided. It sent other important mailings there as well, including the annual bonus payment that the employee acknowledged receiving. However, there was only one Election Notice in the envelope, which the court saw as significant.

The employer tried to have the case dismissed on summary judgment but did not fare too well. Despite the Single Notice Rule in the DOL Regulations (which allows a single notice to be sent to all Qualified Beneficiaries residing at the same address), the court held that the employer failed to show it had sent the Election Notice to the covered spouse or dependent children. And there was no proof of mailing for the General Notice. The case could proceed, putting the employer at risk for daily civil penalties, uncovered medical expenses (for a family of five), attorneys' fees, and related costs.

We don't see many cases related to failure to provide the General Notice, but penalties apply to those failures like they do for Election Notices. This case is a good reminder that the "no harm, no foul" defense is not an automatic win for an employer. The court took  an uncommon view as to what is required to satisfy the Election Notice requirement. Presumably, in this case, the employer’s administrator needed to send five notices. The DOL has allowed a single notice to be sent to all Qualified Beneficiaries who reside at the same household. The court made no reference to these widely accepted regulations.

Infinisource recommends that employers take the General Notice requirement seriously. Besides the specter of penalties, this document contains vital notice procedures that plan participants need to report certain Qualifying Events. Failure to provide these procedures can result in lengthening the notification period. For more information on how our COBRA services can help you, please contact our COBRA Blanket Mailing team at 800-300-3838.