363 / What is gross misconduct for the purposes of disqualifying an employee and the employee’s beneficiaries from COBRA health insurance continuation requirements?
The fact that an employer has grounds to terminate an employee for gross misconduct does not support a denial of COBRA coverage if the employee voluntarily resigns to avoid being fired. An allegation of gross misconduct after a voluntary termination cannot be used to evade liability where an employer has not properly processed a COBRA election and the carrier refuses to extend coverage.3
The Seventh Circuit Court of Appeals decided that it is not sufficient that an employer believed, in good faith, that an employee had engaged in gross misconduct. The district court had held that the proper test is not whether an employee actually engaged in gross misconduct but whether the employer believed in good faith that the employee had. The appeals court held that COBRA requires more than a good faith belief by an employer and that an employee should have been given the chance to demonstrate that the employer was mistaken and thus obtain COBRA rights.4
An insurance carrier is bound by an employer’s determination and cannot decline COBRA coverage merely because the employer might have been entitled to terminate the employee on grounds of gross misconduct.5
Case Law Examples