Gross Misconduct Can Void COBRA Rights
In a recent court case, Gilson v. Pennsylvania State Police, 2016 WL 1237351
(W.D. Pa., March 30, 2016), a federal district court in Pennsylvania ruled that
the plaintiff, William Gilson, was appropriately denied the option of COBRA
coverage due to his termination of employment for “gross misconduct.” Although
the term “gross misconduct” is not clearly defined in COBRA statute, therefore
being rather ambiguous to affirm, courts generally look to state unemployment
law in making their determination of whether a termination occurred by actions
that escalated to the level of “willful misconduct.” In this case, state trooper
Gilson’s actions of sexual misconduct and deception were found to be just cause
for the negation of his COBRA rights.
The facts of the case are as follows: As an employee of the Pennsylvania
State Police (PSP) Gilson, along with several other officers, were called to an
incident in August of 2009 where a female crisis service worker was also
present. She alleged that Gilson touched her inappropriately, claiming he placed
his arm around her waist and pulled her toward him. There was at least one other
officer that corroborated this violation. Disciplinary and arbitration
proceedings ensued which found that Gilson lied several times about the facts of
his actions. Consequently, it was determined that Gilson had indeed violated the
PSP’s regulations prohibiting police officers from engaging in sexual
misconduct/harassment and was thereby given a notice of termination in November
of 2010. After an arbitrator upheld PSP’s decision, Gilson was terminated on
May, 2, 2011 and given no option of COBRA coverage by PSP because of his gross
Gilson decided to sue PSP as well as several individuals, claiming his COBRA
rights under the Public Health Service were violated. Because the COBRA statute
does not contain an actual definition of what “gross misconduct” means, the
court chose to take the lead from the standards set by the state in terms of
unemployment compensation. So in this case, the court noted that under
Pennsylvania law discharges resulting in willful misconduct connected with work
disqualifies an individual from receiving unemployment benefits. It was
therefore determined that for COBRA purposes, Gilson’s actions would also
constitute “willful misconduct” thereby taking away his COBRA rights.
fought back. Ironically, in this case, he was actually awarded state
unemployment compensation, therefore bringing into question whether his actions
did comprise the willful misconduct standards. Gilson argued that the
unemployment office determined that the August 2009 incident “was not
sufficiently related in time” to the notice of termination in November 2010.
Because of that, the unemployment office could not say for certain that his
termination was caused by the PSP rule violation. However, the court noted that
just because the unemployment office may have had a hard time with the timing
issue, it did not rule out the fact that Gilson’s inappropriate physical contact
and “serious act of deception” was deemed “gross misconduct.” Subsequently, the
court ruled in favor of the defendants.
In this author’s opinion, employers should be very cautious when considering
a gross misconduct decision. Because of the lack of a clear-cut definition in
COBRA statute this a judgment call that should be well thought out and
documented to avoid costly litigation. Remember laws vary from state to state.
Not all legal verbiage in one jurisdiction can be applied across the board.
Taking a good look at relevant cases in your locality may offer helpful
Small Employer Part of a Controlled Group
Business owners or plan administrators need to both understand their
obligations and abide by them in complying with COBRA regulations. Courts frown
upon employers offering erroneous advice and then blaming their qualified
beneficiaries for following that same misinformation.
For example, a small business employer may think they are exempt from COBRA;
however, if they are part of a controlled group of businesses, they may not be
considered a small business by COBRA regulations and therefore must comply with
In a recent case an employer was sued for only providing three months,
instead of 18 months of COBRA coverage. Since the employer had less than 20
employees, the employer tried to dismiss the claims by arguing that it met
COBRA’s small business employer exception. In this case however, the employer
was part of a controlled group of businesses with a combined employee count that
exceeded the COBRA exception cut-off, so the exception did not apply. The case
is Warnecke v. Nitrocision LLC, 2012 WL 5987429 (D. Idaho, Nov. 29, 2012).
Ronald Warnecke was the CEO/founder of Nitrocision LLC, a small company with
less than 20 employees. Warnecke also founded two other companies - Trutech, LLC
and Nitrocision Hanford LLC. Warnecke and his family were covered under a group
health plan jointly sponsored by Nitocision, Trutech and another company,
Channel Blend. All three companies were under common control.
In March 2009, Warnecke resigned from his position. After his termination,
Nitrocision provided the Warneckes with COBRA coverage for three months and then
terminated the coverage. Warnecke and his wife sued Nitrocision, Trutech, and
Nitrocision Hanford for various claims including an ERISA Section 503 claim to
recover benefits. They sued Nitrocision for violating COBRA law by terminating
their COBRA coverage after only three months. They asked for $6,850.80 which
accounted for the difference between their costs of comparable coverage (at
$738.75 per month) for the rest of the 18 month period of coverage they felt
they should have received.
Nitrocision stated that due to COBRA’s small employer exception, the
Warneckes’ claim should be dismissed. Although Nitrocision employed fewer than
20 employees, the Warneckes countered that Nitrocision was under common control
with both Trutech and Channel Blend which exceeded the 20-employee threshold.
The attorney for Nitrocision conceded that Nitrocision, Trutech, and Channel
Blend were under common control and the court held that the small employee
exception did not apply to Nitrocision.
Based upon the election form that the Warneckes signed, Nitrocision stated
that the Warneckes agreed to the three months of coverage. The form stated that
coverage would begin on May 1, 2009 and could last until July 31, 2009. A human
resources employee testified that Nitrocision’s management believed the company
was required to provide only three months of coverage, and at the end of that
period, a letter was sent to Warnecke indicating “that the COBRA benefit period
The complication in the Warneckes’ summary judgment motion was the issue of
their premium payments. The court noted that an employer has the right to
terminate COBRA coverage when a qualified beneficiary fails to pay a premium
payment in a timely manner. It is true - the Warneckes paid for only three
months - not 18 months. However, the court noted that they only stopped the
premium payments because Nitrocision stated on the election form that they were
only obliged to provide three months of coverage to the Warneckes.
The court noted, “Nitrocision may be barred by estoppels from claiming that
coverage was properly terminated because the Warneckes failed to make payments
after three months.” However, because the Warneckes’ legal claim did not
sufficiently mete out this point, the court denied their summary judgment
In this author’s opinion: The employer in this case was fortunate. The fact
that they were not required to pay COBRA penalties is remarkable. Usually a
court will not side with an employer or plan administrator who claims ignorance.
Just because the employer did not understand that they were not exempt from the
small business exception and they did not seem to understand COBRA timeframes,
is no excuse. Also, the qualified beneficiary was suing for the amount of
medical coverage not received and did not state any medical claim hardship which
could have been a factor in the court’s decision to deny summary judgment. If
the Warneckes had indeed incurred medical costs during this timeframe, the court
may have been more likely to apply COBRA penalties.