With the filing of a class action complaint in late 2016 in the U.S. District Court for the Southern District of Florida, Wal-Mart Stores, Inc. became the latest large company accused of failing to provide adequate notices as required by the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). Companies should consider taking this opportunity to review COBRA's notice requirements to ensure that their COBRA notices and procedures are in compliance.

In addition to class action concerns, there are also monetary penalties that can be assessed by the two federal agencies that have jurisdiction over COBRA—the U.S. Department of Labor (DOL), which fines $110 per person per day for COBRA notice and disclosure failures, and the Internal Revenue Service (IRS), which enforces $100 per person excise tax for COBRA compliance failures generally. Note that for COBRA notice failures, both the fines and excise tax penalties may be imposed.

COBRA Notice and Content Requirements

COBRA requires companies with 20 or more employees that sponsor a group health plan to provide both a general notice within 90 days of starting coverage and a continuation coverage election notice within 14 days of learning that a qualifying event occurred. The general notice must inform covered employees and spouses of their COBRA rights, either separately or as part of the plan's Summary Plan Description (SPD). Caution should be exercised when relying on the SPD because of the DOL’s timing and method of delivery requirements.

In addition to the timing and method of delivery requirements, there are content requirements for the general and qualifying event notices. The DOL has made model general and qualifying event notices available, and though employers should tailor the models to meet their individual needs, the DOL considers companies that use the model notice to be compliant.

Recent Lawsuits Due to Inadequate COBRA Notices

Wal-Mart is just one of several companies that have faced putative class action complaints as a result of allegedly inadequate COBRA notices. Examples of the notice deficiencies claimed by various plaintiffs include the following:

  • Wal-Mart Stores Inc. Among the allegations listed was that the required information was "piecemealed" throughout Wal-Mart's notice, and the notice did not provide contact information for the plan administrator; the notice did not explain that a covered employee's spouse may elect continuation coverage on behalf of all other qualified beneficiaries; and the notice did not explain how electing continuation coverage would affect the qualified beneficiaries' future group health coverage rights.
  • Capgemini North America, Inc. and Capgemini Financial Services USA, Inc. Capgemini's business practices allegedly involved transferring its employees between its operations in the United States and its operations in India. Employees lost health plan coverage on their transfer, and Capgemini failed to provide COBRA notices to these employees.
  • Shipcom Wireless, Inc. Shipcom allegedly neither issued COBRA general notices at the time when covered employees commenced coverage, nor provided covered persons with election notices despite learning of qualifying events three years earlier.

Steps to Reduce Risk of Litigation

Companies subject to COBRA should take this opportunity to review whether their procedures and existing notices satisfy COBRA requirements. This review should consider whether the required notices are being furnished in the timeframes and manner required and include the required content. In addition, companies should follow COBRA disclosure procedures and update those procedures regularly.  

 © 2017 Perkins Coie LLP


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