Its risky business to deny COBRA benefits due to gross misconduct

Q We fired an employee because of theft, and he is currently incarcerated. Do we have to offer COBRA due to these circumstances?

Under COBRA, a covered employee's termination is a qualifying event for continued group health insurance coverage, unless the termination was by reason of the employee's "gross misconduct." The statute itself doesn't define "gross misconduct" for purposes of denying COBRA coverage, but courts have indicated it must constitute more than just minor breaches of employee standards. Likewise, mere negligence, incompetence, or carelessness don't count as gross misconduct.

In this instance, at least on its face, employee theft can be "gross misconduct" that could warrant denial of COBRA benefits. In particular, when an employee is caught stealing from his employer, courts have deemed such acts to be gross misconduct. Even so, if an employer's stated reasons for the denial of COBRA benefits are a pretext (excuse) for another, unlawful motive (particularly discrimination based on race, gender, etc.), then it may nonetheless be liable for any denial of COBRA benefits based on such unlawful motives, depending on the facts.