Terminated for Misconduct: Does COBRA apply?

When an individual’s employment is terminated due to misconduct, questions often arise about whether the employee (and their spouse and dependents) can be denied COBRA continuation coverage due to “gross misconduct”. While the law disqualifies an employee from COBRA continuation coverage when the employee engaged in “gross misconduct”, the phrase is not defined in the law. Moreover, courts have not agreed on when it is proper to apply this exception to the COBRA rules. Generally, it can be assumed that when an employee is fired for ordinary reasons, such as excessive absences or poor performance, the facts of the situation would not meet the “gross misconduct” standard. But, there are circumstances under which courts have denied an employee this coverage based on their actions.

Definition Used by Most Courts

Illegal or dangerous acts committed in the workplace are likely to qualify as “gross misconduct” for COBRA purposes even if the acts do not result in criminal charges.In some instances, even acts that occur away from the workplace have qualified as gross misconduct. Typically, courts will use a definition similar to the following: Acts of gross misconduct are those acts which are intentional, wanton, willful, deliberate, reckless, or in deliberate indifference to an employer's interest. Simple negligence or incompetence will not be sufficient to disqualify a terminated employee from eligibility for COBRA benefits. So, when an employee’s employment is terminated for acts done in deliberate violation of the employer's known standards, do those deliberate acts constitute “gross misconduct?”.

Examples of “Gross Misconduct”

Examples of court cases (even from the same court) involving the denial of COBRA benefits for gross misconduct illustrate that there is no bright line rule governing this exception.

McKnight v. School District of Philadelphia, 171 F.Supp.2d 446 (U.S. Dist. Ct., E.D. PA).

A teacher in the Philadelphia School District was fired after he was arrested and charged with sexually assaulting an 18-year-old former male student in his home. The judge held that the teacher was not entitled to COBRA continuation coverage, defining “gross misconduct” as "action that may be intentional, wanton, willful, 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."

Chatterjee v. School District of Philadelphia, 170 F.Supp.2d 509 (U.S. Dist. Ct., E.D.PA).

Dr. Basant Chatterjee was fired from University City High School in Philadelphia after being accused of misappropriating funds from extra-curricular programs, writing proposals for his own personal gain, making "several thousands of dollars" worth of unauthorized expenditures, and changing the locks of storage areas without authorization.

Because COBRA law does not define "gross misconduct," the judge looked to the Pennsylvania Supreme Court's definition for guidance: "The wanton or willful disregard of the employer's interest, a deliberate violation of the employer's rules, a disregard of standards of behavior which the employer has a right to expect of an employee, or negligence indicating an intentional disregard of the employer's interest of the employee's duties and obligations to the employer." The court said it could not conclude that Dr. Chatterjee was guilty of gross misconduct as a matter of law and so would not dismiss the former employee’s claim for COBRA benefits without further evidence of gross misconduct.

Conclusion

Denial of COBRA continuation coverage for gross misconduct runs a high risk of being challenged in the courts. If a terminated employee successfully sues for denial of COBRA benefits and the act for which he was fired is ruled not to be gross misconduct, the employer may be liable for ERISA penalties, IRS taxes, medical expenses, courts costs and attorney's fees. We recommend that school officials work closely with counsel when making the decision about COBRA notification in the face of serious misconduct.