This post was authored by Jessica Frier

Federal COBRA legislation allows departing employees and dependents to continue coverage under an employer’s group health plan after coverage is lost for almost any reason—including death, divorce, reduction in hours, and even termination for cause.  Only the employee’s “gross misconduct” provides a basis to deny COBRA coverage.

But what is “gross misconduct”? Employers often struggle, for good reason, to know when COBRA benefits can or should be denied due to gross misconduct.  The term “gross misconduct” is not defined by the statute or regulation, and although a handful of courts have applied the standard, judicial interpretations of what it means for an employee to engage in “gross misconduct” are sparse.

Employers can start with guidance from the Department of Labor (DOL), which states that being fired for most ordinary reasons, such as excessive absences or generally poor performance, does not amount to “gross misconduct.”  But when an employee’s termination is based on more serious infractions, such as theft or dishonesty, an employer may be justified in not offering COBRA to that former employee and his or her family members.

California district courts examining gross misconduct under COBRA have considered the following definition of “misconduct” applied by the California Supreme Court:

Conduct evincing such willful or wanton disregard of an employer’s interests as is found in deliberate violations or disregard of standards of behavior which the employer has the right to expect of his employee, or in carelessness or negligence of such a degree or recurrence as to manifest equal culpability, wrongful intent, or evil design, or to show an intentional and substantial disregard of the employer’s interest or the employee’s duties and obligations to his employer.

Paris v. F. Korbel & Brothers, Inc., citing Amador v. Unemployment Insurance Appeals Board.  Applying this definition, a security guard who intentionally deserted his post and falsified records to receive additional paychecks was found to have committed gross misconduct.  (Adkins v. United Int’l Investigative Servs., Inc., 1993 WL 345186 (N.D. Cal. Mar. 27, 1993).)

Recently, a federal district court in Idaho applied a similar definition in Mayes v. WinCo Holdings, Inc., ruling that the supervisor of a grocery store’s night time freight crew committed gross misconduct when she directed another employee to take a cake from the store bakery’s “stales cart.”  The supervisor argued that the stale cake had no value, she had permission to use it, management was aware of the practice, and it was a common for other management employees to use the cakes in the same fashion.  She then claimed that she was terminated not because she stole the cake, but because her supervisor wanted a man in charge of the freight crew.  The court found that the supervisor did not offer any evidence that her termination was based on anything other than theft and dishonesty, and noted that “[s]tealing from and/or lying to one’s employer, regardless of the value of the item, constitutes a willful and intentional disregard for the interests of one’s employer and is properly considered ‘gross misconduct’ under COBRA.”  (Id. at 21.)

Employers are cautioned that the Idaho district court broadly construed the definition of gross misconduct here.  Deciding to deny COBRA coverage on the grounds of gross misconduct should be considered only where an employee can be shown to have substantially disregarded or neglected the employer’s interest.  This will depend on the specific facts and circumstances of each firing, and employers may wish to seek legal counsel.  Federal district court decisions (like state trial court decisions) are not precedent, but provide some hint as to how a Court of Appeal may rule.