Tax Law Insights

The Consolidated Omnibus Budget Reconciliation Act (“COBRA”) became law on April 7, 1986.  For most of its nearly 35-year history, litigation involving COBRA has been relatively quiet.  Most COBRA claims are tag-alongs, added as an afterthought to various sorts of discrimination claims, and a few cases involving the definition of “gross misconduct” (essentially the one narrow exception where an offer of COBRA coverage is not required).

In the wake of the pandemic, this is changing.  Recently, there have been a number of cases filed (most filed as class actions) involving largely technical violations of COBRA’s notice rules. 

Most of the suits have originated in Florida, but at least one is from New York.  These cases each involve a former employee that did not elect COBRA continuation coverage upon his/her termination of employment. Each of the suits alleges that the COBRA notices provided by the employers to the plaintiffs were deficient in some respect.  As a result of these deficiencies, the plaintiffs seek to recover statutory penalties and other damages.  The statutory penalties alone could be as much as $110 per person per day and apply with respect to failures involving either the initial COBRA notice or the election notice.  Simple math puts the potential yearly penalty at a little more than $40,000 per person.  If a large enough class is involved, damages could quickly rise to a problematic level for an employer. 

Based upon publicly available information, several of these suits have settled early in the process.  Several more have survived the employer-defendant’s motions to dismiss. Although this wave of cases is just beginning, it’s fairly clear these cases will not be “easy” wins for employers.

The good news is that the best defense for these particular claims should be very familiar to plan sponsors.  It’s the same defense used for most employee benefit related claims: process and documentation. COBRA notices should be reviewed and updated based on the new DOL model notice. Changes to this notice should be carefully considered and discussed with counsel.  Employers should ensure their COBRA processes are functioning as required and those responsible for implementation should understand COBRA and its applicable timelines and content requirements.  If the employer relies upon third-party vendors for COBRA compliance, those vendors should be carefully monitored.  Employers must inquire as to the processes used by those vendors and what sort of liability protections (i.e., indemnification) are available for failures.

As with most things in 2020, these cases are rapidly developing and changing frequently.  Please stay tuned to this blog for additional updates.

If you would like to speak to an attorney about a legal issue you are facing, please contact a member of our PPP and CARES Act Audit, Investigations and Defense Team, the COVID-19 Response Team , or your Burr attorney.