Category: Firing

Employer’s Guide to COBRA

Published by Brett Holubeck on May 22, 2020

Picture of a person holding a stethoscope to represent an employee electing to continue COBRA coverage to keep their doctor. — Photo by Online Marketing on Unsplash

Cobra. No, not that Cobra. Not that one either. The employment law one that sounds like it has absolutely nothing to do with employment law. The Consolidated Omnibus Budget Reconciliation Act of 1985. You know COBRA. The law that, among other things, requires companies that lay off or terminate employees to provide employees the option to continue their health insurance coverage for a period of time.

What Triggers COBRA Notice

Employers with 20 or more employees are subject to COBRA. First, group health insurance plan administrators that are covered by COBRA must give a general COBRA notice to employees within the first 90 days after their group health insurance coverage begins (when they first join the employer health insurance plan). A model notice is available on the DOL website.

COBRA also requires any employer that uses a group health plan to offer employees the choice to continue coverage for themselves, their spouses, and any dependent children when certain events occur. As stated by the Department of Labor (DOL), the following are the qualifying events that trigger COBRA coverage:

Termination of the employee’s employment for any reason other than gross misconduct;
Reduction in the number of hours of employment [(if it causes employees to lose coverage)]
Covered employee becomes entitled to Medicare;
Divorce or legal separation of the spouse from the covered employee; or
Death of the covered employee.
Loss of dependent child status under the plan rules. Under the Affordable Care Act, plans that offer coverage to children on their parents’ plan must make the coverage available until the adult child reaches the age of 26.

FMLA leave (for example for maternity leave) is not a qualifying event under COBRA.

Employers must provide notice to the plan administrator within 30 days of a qualifying event. After it receives notification, the plan administrator will provide an election notice to employees within 14 days. Many employers are also the plan administrators of their health insurance plans and are thus responsible for providing notice to their employees. A model COBRA election notice is available on the DOL website. Using the DOL’s election notice may be preferable to avoid lawsuits for an insufficient election notice. Employees then have 60 days to elect to coverage under COBRA. In the coronavirus pandemic, it is especially important that employers give this notice as soon as possible to initiate the process and allow the employee to obtain the coverage that they need.

Employees and their dependents must have been previously enrolled in the employee’s health plan coverage to continue coverage after the qualifying event. Employees and other qualified beneficiaries can remain on the health insurance for 18 months “when the qualifying event is the covered employee’s termination of employment or reduction in hours of employment….”Guidance from the DOL also states that “[w]hen the qualifying event is the end of employment or reduction of the employee’s hours, and the employee became entitled to Medicare less than 18 months before the qualifying event, COBRA coverage for the employee’s spouse and dependents can last until 36 months after the date the employee becomes entitled to Medicare.”

Knowing when to provide notice is often the most important step to avoiding liability. Many employers fail to provide timely notice and/or fail to include all the necessary items in the notice.

Penalties for Failure to Comply with COBRA

There are severe penalties for employers that fail to follow the requirements of COBRA. My Cobra Plan has a good outline of the penalties for violations. They state:

Plans that violate COBRA’s provisions may be subject to a non-deductible excise tax penalty equal to $100 per day, per affected individual, per violation. In addition, ERISA provides notice penalties of up to $110 per day from the date of the compliance failure. A violation is anything that can cause a company to fall out of compliance with COBRA regulations. The minimum tax levied by the IRS for non-compliance discovered after a notice of examination is generally $2,500. The maximum tax for “unintentional failures” is the lesser of 10% of the amount paid during the preceding tax year by the employer for group health plans, or $500,000. In addition, employee/COBRA administrators can be held personally liable for COBRA non-compliance.

In short, failing to comply with COBRA is expensive.

Texas’s COBRA Law

Texas has its own mini-COBRA law. The Small Employer Health Insurance Availability Act grants employees insurance continuation rights if the company has 2 to 50 employees. The law grants employees up to nine months of coverage if the employee did not qualify for COBRA and up to six months of additional coverage once the continuation under the federal COBRA law expires (if they qualified for COBRA). As noted by the Texas Department of Insurance, the Texas state law does not apply to self-funded plans and employees must have had coverage for 3 months before the job ended to be eligible for the additional coverage under the law.

Conclusion

COBRA used to be more frequently used before the Affordable Care Act/Obamacare became law. Many employees now choose to go on the Healthcare Exchange/Obamacare rather than continue COBRA coverage as the exchange is much cheaper. However, some employees will choose to remain on COBRA to retain the same doctor that they have been using, to keep certain medications covered, if they have already hit their deductible and if other factors are present. Regardless, it is a law that employers need to be careful to follow to avoid potential penalties.

The information provided in this blog is for educational purposes only and is not legal advice. If you need legal advice, then you should speak with a lawyer about your specific issues. Every legal issue is unique. A lawyer can help you with your situation. Reading the blog, contacting me through the site, emailing me or commenting on a post does not create an attorney-client relationship between any reader and me.

The information provided is my own and does not reflect the opinion of my firm or anyone else.

Severance Agreement Checklist

Published by Brett Holubeck on May 8, 2020

Unfortunately, the Coronavirus and COVID-19 layoffs are going to continue. In one survey, 32% of Chief Financial Officers believe that there will be more job cuts. There are a number of surveys that discuss what people will do once restrictions regarding the coronavirus are lifted. One survey found that 57% of people in Seattle will avoid social gatherings once restrictions are lifted. There are a lot of stories out of Texas about restaurants and other businesses that have no customers coming back. Some experts expect a recovery sometime soon and others looking at a recovery in 2 years or so.

With more layoffs expected now is a good time to review the basics of severance agreements.

One thing that many employers fail to do is to create a severance agreement checklist when they are laying off employees. There are a number of items that should be included. A checklist is a great way to make sure that companies have the information that they need to let create the best severance agreement. Here are some provisions that should be considered to include in any severance agreement checklist.

1. Waiver of Liability

All severance agreements normally have a waiver and release of various claims including: Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act (ADA), the Equal Pay Act (EPA), 42 U.S.C. § 1981 (“Section 1981”), Veteran’s Reemployment Rights Act, Employee Retirement Income Security Act, Age Discrimination in Employment Act including the Older Worker’s Benefit Protection Act, and many other statutes such as state statutes.

Some claims cannot be waived such as Workers’ Compensation claims or rights falling under the National Labor Relations Act.

Severance agreements should normally include a waiver of liability and some sort of admission that the employee does not have any claims that they are aware of against the company. This waiver serves as a way to reduce a company’s liability.

2. Company Property Returned

Companies need to make sure that employees return property. Any severance payment should be contingent on the employees returning any files, computers, passwords, and other items that they have taken or have from the company.

Employees should also be required to return any confidential information in any medium including flash drives, passwords, access to dropbox and other accounts on home and other devices. Employers should ideally change passwords after an employee leaves.

3. Confidentiality

Most people want to keep the terms of the agreement secret (both for the employee’s and the company’s sake). Moreover, confidentiality is something that the employer may also be purchasing with the payment that they give to their soon to be former employee. The confidentiality provision usually protects the employer and the employee from revealing issues about each other and the terms of the agreement. The employer would be prohibited from revealing the terms that the employee is leaving under to anyone that asks them (usually a future employer or member of the media).

4. Non-Disparagement

Companies and employees often seek a non-disparagement agreement that prevents both parties from discussing problems in the workplace or with each other. Again, this is beneficial for both employers and employees. Both parties are prohibited from giving negative comments about the other party. For employees, this generally prohibits them from commenting to the media, writing on social media, and engaging in other communication that is negative about the company. For employers, this usually is meant to stop them from making negative comments about an employee to potential future employers.

5. Medical Benefits

Many companies will offer me`dical benefits to employees as an incentive for the employee sign the agreement or as a benefit that that they want departing employees to have. Employers may wish to pay for an employee’s COBRA insurance for a certain period while alerting employees that they will be responsible for COBRA after that period.

6. Older Worker Benefits Protection Act

The Older Worker Benefits Protection Act modified the Age Discrimination in Employment Act that protects workers that are 40 and older. There are some requirements that the OWBPA imposes on any severance agreement.

It must be in writing.
The agreement must be drafted in plain language so that the employee signing the agreement can understand it.
It should not be misleading. Any advantages or disadvantages should be adequately described.
The waiver must specifically waive rights under the ADEA and OWBPA.
The agreement cannot waive future claims.
The agreement must be backed by consideration. The employer must give something of value to the employee in exchange for the agreement.
Employees must have 21 days to consider the severance offer, or 45 days if more than one employee is laid off as part of a group lay off.
When the layoff is for a group of employees then the individuals must be informed in writing of the group of individuals that will be laid off, the eligibility factors for the exit program (e.g. voluntary early retirement), the job titles and ages of all employees that are eligible to participate in the lay off or those that are laid off involuntarily, the ages of all employees in the same job/class as the person being laid off that were not eligible for the voluntary layoff or were not selected for the layoff.
Employees also have 7 days to revoke the severance agreement after signing. The parties cannot waive this time to revoke.
Employees should also be advised in writing to consult a lawyer before signing the agreement.

Employers are strictly liable when they fail to follow the requirements. An employer either followed it or failed to follow it. There is not much arguing about whether the required steps were in the agreement, so employers should be careful to follow all requirements.

7. Waiver of Future Employment

A severance agreement may need to address whether an employee will be able to join the company in the future and what will happen if they apply. When an employee is being terminated for cause or because of a disagreement with the company, the employer will typically require the employee to waive the right to rejoin the company or apply for jobs at the company.

8. Address Letters of Recommendation

There are usually two purposes to a provision about letters of recommendation and they differ based on the circumstances for the termination of the employee. For employees that had good performance and were not fired for cause, a severance will often say that the employer will provide a detailed letter of recommendation on request. For employees that were terminated for cause or due to some dispute with the company, the provision usually states that the employer will give a letter confirming dates of employment and job title with few other details. Some employers will refuse to do even this.

9. Dispute Resolution

How will disputes between the parties be solved? Will the agreement require claims to go to arbitration or through the court system? Is the agreement going to include a class action waiver that limits class claims? Will the agreement have a jury waiver so that the dispute will be heard by the judge? These are a few of the issues that should be resolved.

10. Tax Issues

Employees should be required to accept and bear all tax consequences for the payment (under most circumstances). Some payments may not be treated as wages and the employer is not able to withhold income taxes for the employee (which should be outlined in the agreement) for these payments.

11. Unemployment

Employers often agree not to contest unemployment. It is often beneficial to not contest a departing employee’s unemployment even when they are being terminated for cause to discourage the employee from filing a claim against the company.

12. Paying Out Vacation

Companies should consider whether they intend to pay out vacation. In may states, PTO must be paid out. Texas does not require companies to pay out any accrued paid time off or other leave. Employers should follow their policies and past practices for paying out vacation.

13. Governing Law and Venue

What state law will apply to the agreement? How will disputes be resolved? Some states allow you to insert a choice of law provision to apply the law of another state to the dispute concerning the agreement. Usually, this occurs when an employer is headquartered in a different state than the state where the employee works, when the employee works in more than one state, or when the employee lives in a different state from where they work. The venue, particular state or federal court or arbitration association and the location of any arbitration, should be outlined in the agreement. There are very specific state laws to follow here so you should consult an attorney.

14. No Admission of Liability

A severance agreement normally includes a clause that the company does not admit liability for anything that may have happened, and the agreement should not be evidence that the company did something wrong.

15. Severability Provision

Agreements should include a provision stating that provisions within the agreement may be removed from the agreement or not enforced if they are unlawful or impermissible. However, the rest of the agreement will remain in force.

16. Liquidated Damages Provision

This is not a necessary part of the agreement. However, many agreements will put some form of liquidated damages that will or could be enforced upon a party that breaks the agreement. Frequently, this is something that the employer seeks to include in the agreement in the event that the employee disparages the company, breaks the confidentiality agreement, or violates other portions of the agreement.

17. Entire Agreement Clause

Severance agreements should contain a statement that the severance agreement encompasses the entire agreement between the parties. Essentially, this provision means that there is no other agreement between the parties. Oftentimes, employers may have separate agreements (e.g. noncompetition agreements) that they wish to continue to enforce and may also be referenced in this section.

18. Statement of Legal Competence

Agreements generally include a provision that the signee has legal competence; they are of sound mind and understand what they are signing.

Conclusion

Severance agreements are an important part of ensuring a smooth departure for both the employees and the companies. In the times of the coronavirus, they are critical to ensure that companies reduce potential liability and to ensure that employees get some payment as their service to a company ends. All companies can benefit from using a severance agreement checklist to ensure that they include all the needed or wanted provisions within their severance agreement.

The information provided is my own and does not reflect the opinion of my firm or anyone else.

How to Conduct Effective Workplace Investigations

Published by Brett Holubeck on April 20, 2019

Magnifying glass on a computer to symbolize that many workplace investigations occur online or in electronic files — Photo by Agence Olloweb on Unsplash

One of an employer’s worst nightmares is having a workplace incident. And the worst workplace incidents are the ones where the employer has no idea what to do. Fortunately, there are some things that employers can do to avoid this situation. Workplace investigations can be broken down into 3 different parts: 1) preparing for a problem before it occurs; 2) conducting the investigation; and 3) making a decision and following through.

Preparation is Key:

Many incidents at work could have been prevented with better preparation and communication with employees, and a problem that is prevented is one less headache for you as an employer.

You Need to Communicate Expectations with Your Employees

It is imperative that employees know the rules that they are required to follow. An employee that does not know the rules is going to feel like they are being unfairly treated when they are eventually disciplined for a rule that they did not know or when they feel that a rule was inconsistently enforced. It is a bit like this scene from Office Space when Joanna’s boss counsels her about how much “flair” she is wearing at her job at the restaurant. In her case, the rules said one thing (you need 15 pieces of flair), but she was counseled for only doing the minimum (there was an unwritten rule).

You Need to Keep Good Records

In the event that a problem arises, even with adequate communication and training, you need to document the various problems that arise with an employee so that you can take appropriate actions against an employee. When you conduct workplace investigations, it matters whether an individual has committed a similar offense prior to the one that they are being investigated for- and documentation is key. It matters for determining what punishment the employee should receive and for determining whether they committed the offense, the frequency of offenses, and types of offenses committed. Every single instance of an employee not obeying the rules must be documented.

You Need to Train Your Supervisors

Supervisors need to know how to enforce the rules of the workplace. They cannot merely have a familiarity with the rules. They need to know how to address a variety of scenarios in the workplace from sexual harassment, workplace performance problems, and any other major, common issues that the worker may face meaning they need to know what exact steps to take in the event something occurs. In the event supervisors are not certain of their steps, they should know who to contact (e.g. their supervisor or company legal counsel) to prevent any missteps for the company.

You’ve Got a Problem- Now what?

Unfortunately, not all problems will be prevented even with adequate preparation. Some of these incidents (like absences, showing up late, failing to complete paperwork) are routine and will not require a workplace investigation. However, problems that are fact specific and require a tailored response will. These sorts of incidents are the ones that keep HR up at night. Let’s start at the beginning. Something’s happened. You have a problem. What should you do?

Respond in a Timely Manner

Once you hear of an incident, it is your responsibility to take steps to mitigate the situation in a timely manner. Employee safety is an imminent concern- if safety is in question, you have to deescalate the situation ASAP. For example, if two employees engage in a verbal altercation then you may need to suspend an employee while you conduct the workplace investigation. The same thing may be true if there is a workplace accident that you need to investigate. You also need to consider who all needs to be involved in conducting an investigation. Some investigations can be conducted with inside counsel/HR, but outside counsel is preferred when litigation is likely. If it is the CEO or owner, then you may also need outside counsel that you do not normally use. Any investigator should be independent to avoid any semblance of bias or undue influence/interference with the investigation.

Gather Information

The next step is to interview the various people that may have relevant information about the incident.

The first person to interview is the complainant. There are a number of questions that you will need to ask the complainant. The goal of this interview is to gather as much information as possible. You want to know who committed the action against them, where did it take place (Was it in more than one location? Away from work? Online?), when it did it take place (Was it more than 1 time?), how did it take place (What was the context?), and what exactly happened. You want to know whether there are any other people that may have other information about the incident, did anyone else complain about the conduct that he or she is accusing another employee of, and whether there are any notes or other documents that they have that may be relevant (This may be past accusations, discipline notices, and other documents in the employee’s folder) .

The next person to interview is the person that the complainant is making accusations against (the offending employee). You will let them know what they are being questioned about and ask what their response is to the allegations. If an employee admits that they committed the conduct, then you will ask questions around the behavior to determine any appropriate punishment or reason that shows that they did not violate company policy. If the employee says that the allegations against them are false, then you will ask why the complainant may lie or be incorrect. You will also ask if they have any other relevant information, if there is anyone else that may have relevant information, and if they have any documents, text messages, or other physical evidence about the incident.

Finally, you will ask any additional witnesses about the information that they may have about the allegations. You will ask the witnesses what they may have seen or heard about the incident and when the incident(s) may have occurred. You may ask what the complainant, other witnesses, or the offending employee told them about the incident and when they gave them this information. You will also ask whether they have any relevant information or know anyone that may have relevant information.

Wrapping up the Investigation

After you have interviewed all the witnesses, the next step is assessing the credibility of your witnesses and any evidence and taking action.

The EEOC has some great information on how to determine whether a witness is reliable:

Inherent plausibility: Is the testimony believable on its face? Does it make sense?
Demeanor: Did the person seem to be telling the truth or lying?
Motive to falsify: Did the person have a reason to lie?
Corroboration: Is there witness testimony (such as testimony by eye-witnesses, people who saw the person soon after the alleged incidents, or people who discussed the incidents with him or her at around the time that they occurred) or physical evidence (such as written documentation) that corroborates the party’s testimony?
Past record: Did the alleged harasser have a history of similar behavior in the past?

After each witness interview you need to determine whether a witness is believable/credible. Can you believe what they are telling you? Is it physically or otherwise impossible for what they said to have occurred? You also need to consider whether the employee’s demeanor makes it seem like they are telling the truth. Were they able to look in your eyes or were they being shifty in their answers or not being direct in answering the question that you asked? You also want to determine whether an employee has a reason to lie. An employee may have been recently disciplined by a supervisor or given a last chance warning that they would be fired for another performance issue. Some employees may retaliate against a supervisor or competitor in the workplace. Essentially, you have to examine all the factors that could determine whether or not a witness is telling the truth.

After interviewing the witnesses, you will assess the evidence as a whole to determine whether the individual(s) violated company policy. This is a fact specific determination that requires examining your company policy and the evidence to determine whether the employee committed a violation.

Determine the Appropriate Action

Once you have made a determination based on the evidence, then you need to decide how you respond to the employee’s offense or conduct. You need to consider whether you will absolve an employee and determine that they did not violate company policy or if you will discipline or terminate the employee. It is important to review whether there are any circumstances that indicate that the punishment should be reduced. Finally, you should document any actions that you take and follow-up with the employee that made the accusations to ensure that the problem is not recurring.

Conclusion

Workplace investigations are an important part of any business. By taking these simple steps you can conduct better investigations and follow-up on any issues that arise so that you can prevent similar problems in the future.

The information provided is my own and does not reflect the opinion of my firm or anyone else.