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 March 2017 |
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Employer Claims of ‘Small Business Exception’ & ‘Gross Misconduct’ Denied by Court In a recent COBRA case, the 11th U.S. Circuit Court of Appeals affirmed a lower court ruling that assessed a $3,300 penalty against a company that tried to use both the gross misconduct and small employer exception to no avail. In this unpublished opinion of Virciglio v. Work Train Staffing LLC, 2016 WL 7487725 (11th Cir. December 30, 2016) the employer, Work Train USA and Work Train Staffing (Work Train), offered employee staffing services that were outsourced for its clients. Work Train’s revenue came from hiring the personnel that provide the services and as such were claiming federal tax credits for hiring those staffing employees. The facts of the case are as follows: Sam VIrciglio, an employee of Work Train, was terminated on January 6, 2012 after returning from a leave of absence. The reason given for the termination was failure to meet a monthly sales quota. The company owner, Frank Petrusnek, told Virciglio that his health insurance coverage would remain in effect through the end of January 2012; therefore, Virciglio obtained alternate coverage that began February 1, 2012. However, Work Train, decided to cancel his coverage retroactive to the 1st of January, and failed to reimburse him for the premium that was taken out of his last paycheck. In the month of January Virciglio’s wife had cancer treatments that cost more than $50,000. At first, these expenses were paid through his employer-based policy, however, once the retroactive cancellation came through, Virciglio was billed for those expenses without ever being notified of his COBRA rights. At that point, VIrciglio decided to sue his former employer for COBRA notice violations. In response, Work Train was able to reinstate Virciglio’s full January coverage and his medical expenses were then covered. During the ensuing litigation, Work Place first attempted to claim they were exempt under the small employer exemption. They tried to say that their “full time” employers numbered less than 20 and that the staffing workers did not count. However, the court determined that even though the staffing workers were outsourced at other jobsites, they were still considered to be Work Train employees. After examining the evidence, the court found that Work Train was referred to as the “sole employer” of the staffing workers in its client contracts as well as the fact that the contracts confirmed Work Train was responsible for all hiring and management of those workers. But most compelling was the fact that Work Train had claimed federal tax credits for the staffing workers therefore that excuse not pan out. Next, they tried the “gross misconduct” exemption, which would negate the termination as a trigger for a “qualifying event” however, it was clear that Virciglio was fired for poor sales performance – not a misconduct issue. So in the end, the court ruled in Virclgio’s favor confirming the $3,300 penalty against Work Train for the COBRA notice violation. In this author’s opinion, this case serves to remind employers of two important standards that have relevance in similar court cases. First, “gross misconduct” can be a very difficult and risky claim to prove. Performance issues or incompetence does not qualify. And secondly, to determine if an employer does not have to extend COBRA coverage, in general, if the employer normally employed less than 20 employees on a typical business day during the proceeding calendar year, the exemption may qualify. But keep in mind both full and part-time employees are counted tin order to determine whether a plan is subject to COBRA mandates. Furthermore, each part-time employee counts as a fraction on an employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full-time.
COBRA Notice Part of USERRA Case Military personnel are protected by federal law for continuation coverage when called up for military duty under the Uniformed Services Employment and Reemployment Rights Act of 1994. In a recent case the 8th U.S. Circuit Court of Appeal’s reversed the ruling of a lower court which ruled that sending a COBRA notice election notice shortly after an employee began military duty was not evidence that the employee was fired due to his military status in violation of USERRA. The case is Dorris v. TXD Services, LP, 2014 WL 747476 (8th Cir., Feb 27, 2014). As an employee for TXD Services, Jonathan Dorris received orders in April 2007 that informed him that in six months he would have to report for active military service. He notified both his supervisor and human resource department. Dorris continued working until Sept. 11, 2007 and reported for military training on Oct. 1 where he served on active duty for 12 months beginning January 2008. Dorris received a COBRA qualifying event notice from TXD in October 2007 that stated the reason for his qualifying event was ‘Termination of Employment’. After receiving this notice Dorris called the human resource department and they told him his was terminated for not showing up to work. While Dorris was away on active duty TXD sold its assets to Foxxe Energy Holdings in February 2007. The sale included a list provided to Foxxe of all current TXD employees. Foxxe stated that they would use reasonable efforts to retain employment for all the individuals on that list, however Dorris’ name was not included. When Dorris returned from military service in August 2008, he found out through friends that all of TXD’s employees had been hired by Foxxe Energy. In December 2008 Dorris decided to contact both TXD and Foxxe looking to be rehired. Foxxe hired Dorris in April 2009 to the same position he held at TXD. Dorris then decided to sue TXD for USERRA reemployment and discrimination claims. A federal district court ruled in TXD’s favor on the claims, both of which were based on the COBRA notice and termination reason provided by TXD. The court stated that although Dorris had sued TXD, it was no longer operating as a business. The court did not think that the COBRA notice constituted discrimination under USERRA even though the notice stated ‘Termination of Employment’ because that reference was derived from the COBRA statue, not from TXD or USERRA. Dorris decided to appeal just the discrimination ruling and the COBRA notice was not addressed again at this level. Dorris stated that TXD violated its USERRA obligations by not including him on the list of TXD employees provided to Foxxe. USERRA states that an employee on military leave in entitled to the same rights as similarly situated employees on furlough or leave of absence. The court stated that two issues were in contention. The first being whether the TXD list to Foxxe was a benefit of employment protected by USERRA, and the second issue was that if being on that list was a benefit of employment and Dorris’s military service was a ‘motivating factor’ in his not being on that list, then the burden shifts to TXD to show that the same action would be taken in the absence of military service, i.e., that anyone similarly on furlough or leave of absence would have been left off the list. The court reversed the ruling on the USERA discrimination claim and set the case for further proceedings. In this author’s opinion: Ultimately this case did not did not really involve COBRA but it does show how two laws can interplay. USERRA provides continued employer-sponsored group health plan coverage to employees who are called to active military duty. It is possible for employees to have continuation coverage rights under both USERRA and COBRA.
Is Your Cafeteria Plan Ready for 2017? Most employers have been receiving large rate increases over the last several years from their insurance providers because medical trend is over 15%. In many cases, the employer is forced to pass on the increase to employees. A good way to minimize rate increases is to start a Cafeteria Plan. A Cafeteria Plan allows employees to pay for their portion of premiums on a pre-tax basis. This lowers their taxable base, therefore decreasing federal, FICA and most state's taxes. Most employees (depending on their tax bracket) will see that a Cafeteria Plan saves them 20% to 35% of their cost of premiums. Not only does the employee save money but the employer sees a reduction in their FICA and other payroll taxes. In addition to paying for premiums on a pre-tax basis, employees may set up Flexible Spending Accounts (FSAs) to pay for items not covered by an insurance plan (i.e. deductibles, copays, coinsurance, over the counter medication, etc.) and even Dependent Care expenses. It is a win-win situation; both the employer and employee save money in taxes. COBRA Solutions offers Cafeteria Plan Manager software program that assists employers with the administration of a Cafeteria Plan. Please visit our website at www.cobrasolutions.com for further information and a free 60-day no obligation demonstration version of Cafeteria Plan Manager. It is an outstanding software program that will pay for itself in the first few months, and the savings will continue for years. To see what your firm may save by implementing a Cafeteria Plan, visit our site at http://www.cafeteriaplanmanager.com and click the "Calculate Your Savings" link.
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