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COBRA changes help laid-off workers – but could ensnare employers
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Laid-off workers will have to pay less to maintain their health insurance as a result of changes enacted by Congress – but these changes are creating new problems for employers who must take steps to comply with the law.
The changes affect a federal law known as COBRA. The COBRA law says that fired or laid-off employees who had been eligible for health insurance through their employer have a right to continue receiving that insurance for up to 18 months. Normally, the employees have to pay their full share of the premiums – with no employer subsidy – but even so, this is usually much cheaper than buying health insurance individually and not as part of a group plan.
However, under the new changes from Congress, employees who are fired or laid off between September 1, 2008 and December 31, 2009 get a break. They only have to pay 35% of the cost of the insurance.
The employer must pay the remaining 65% – although the employer can then be reimbursed for this amount by taking it as a credit against federal payroll taxes.
While this is great news for fired employees, the change can make life complicated for employers. Here are some reasons:
• Employers must send a written notice about this change to all current employees.
• Employers must also send a written notice about the change to all employees who were “involuntarily terminated” between September 1, 2008 and December 31, 2009. The law does not define what “involuntarily terminated” means, so if there’s any ambiguity about whether an employee left voluntarily, the employer should generally err on the side of caution and send a notice.
• The Department of Labor has published model notices to make it easier for employers. However, there are four
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different model notices to be used depending on the status and eligibility of various employees.
• The change (and the notices) might result in some disputes in which former employees apply for COBRA benefits and the employer refuses, claiming that the employees are not eligible. If the employer refuses to provide coverage, the former employee can appeal. The changes in the law include a new appeals process that allows a former employee to go directly to the Department of Labor, which will rule on the case within 15 days.
• A big problem for employers is that they can’t seek a credit under the federal payroll tax until they are certain that the former employee has paid his or her 35% share to the insurance company. However, there’s no legal requirement that either the former employee or the insurance company notify the employer when the payment is made.
• Finally, while COBRA generally applies only to companies with 20 or more employees, many states have a similar law for smaller companies. In such states, smaller companies are now required to pay a 65% share of benefits. This could be a problem for some employers because their 65% share could exceed their payroll taxes, meaning they can’t be fully reimbursed by taking a tax credit.
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Can employees be forced to arbitrate their claims?
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Can an employer demand that employees give up their right to go to court with employment disputes, and instead submit any case to arbitration?
Many companies have been doing so lately. They often prefer arbitration because it is quicker, less expensive and more private.
However, it’s still unclear whether – and when – employers can legally do this. One result has been that many employees are now going to court to resolve the question of whether they can go to court.
Here are three of the latest cases that have addressed this issue:
► A union can agree that workers must arbitrate age discrimination claims as part of a collective bargaining agreement, the U.S. Supreme Court ruled in a 5-4 decision.
The employees in this case filed grievances about age discrimination. When the union declined to pursue their claims, they sued under the federal age discrimination law.
But the Supreme Court said the employees had to go to arbitration instead of court.
“There is no legal basis for the Court to strike down the arbitration clause…which was freely negotiated by the union,” the Justices wrote.
► A company can put an arbitration clause in a job application form, such that any employee who signs the application also legally agrees to give up the right to sue in court, the California Court of Appeal has ruled.
The job application in this case stated,
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“I further agree, in the event I am hired…all disputes…whether during or after that employment, will be submitted to binding arbitration.”
An employee argued that this wasn’t a fair contract because the parties didn’t have equal bargaining power.
But the court said the application was fair and amounted to “a valid, mutual obligation to arbitrate.”
► However, an employer who wants to require arbitration has to be willing to pay the full cost of the arbitration itself, according to the Alaska Supreme Court.
The Alaska case involved an employee at an auto dealership who sued for unpaid overtime. Even though the employee had signed a contract agreeing to arbitrate any disputes, he argued that that it was unfair because it required him to pay at least half the cost of the arbitration.
The court agreed with the employee. It also said the contract was unfair because it allowed the dealership to appeal from awards over $50,000, but didn’t allow the employee to appeal from smaller awards or from awards in favor of the dealership.
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Fired employee has to pay income tax on his settlement
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A fired employee who received a $65,000 settlement has to pay income tax on this amount, according to a decision from the U.S. Tax Court.
The employee was fired after working for 30 years at the “Story Land” amusement park in New Hampshire. He claimed he was wrongfully terminated and that Story Land officials subsequently damaged his reputation. The $65,000 was agreed to during a mediation session.
In general, people who receive a jury award don’t have to pay income tax on it if it was for physical injury or physical sickness, or was intended to compensate them for psychological treatment for emotional problems.
The employee in this case claimed he
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suffered physical problems as a result of the firing, including depression, a sleep disorder, and elevated blood sugar levels, and that he saw a psychologist as a result.
But the court said that wasn’t good enough. It said the settlement in this case was for wrongful firing and defamation. While the employee might have suffered emotional distress, the settlement was intended as being in place of wages and wasn’t designed primarily to compensate him for a physical injury or a psychologist’s bills.
In the end, the employee had to pay more than $13,000 in back taxes, as well as a $2,650 penalty to the IRS.
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Worker could be fired when he returned from medical leave
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An employer who fired a worker for performance problems that were discovered while he was on medical leave didn’t violate the Family Medical Leave Act, a federal appeals court has ruled.
The employee requested leave for a health condition that required hospitalization. While on leave, the company hired replacement workers who discovered multiple problems with the employee’s work. The company terminated the employee the day he returned from leave. The employee sued, claiming the firing was in retaliation for his taking leave.
But the court disagreed, finding that there was undisputed evidence that
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the company discovered the problems during the leave, investigated the problems, and determined he was responsible for them. As a result, the firing was fair and wasn’t merely retaliation.
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Worker who is afraid to drive isn’t ‘disabled’
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A nurse who worked as a family case worker – and who had to drive to various people’s homes to evaluate their situation – suffered post-traumatic stress disorder after a car accident. As a result, she had difficulty driving. She took multiple leaves of absence, received unsatisfactory evaluations, and eventually left her job.
Later she sued, claiming she was discriminated against because of a disability.
So the question was, is “fear of driving” a disability?
Not under federal law, a federal
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appeals court in Chicago decided.
Under the law, a “disability” is something that substantially restricts a person in a major life activity. And the court said that driving doesn’t count as a major life activity.
Many Americans choose not to drive, and there is no inherent right to drive, the court said.
However, the court noted that an employee’s fear of driving might amount to a disability if it somehow interfered with some other activity that qualified as a major life activity.
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Police department can prohibit religious dress
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A police department can refuse to allow a female police officer to wear a traditional Muslim headscarf, a federal appeals court has decided.
This didn’t amount to religious or sex discrimination.
The officer had asked to wear a headscarf that would cover her hair and the back of her neck, but the police department’s dress code didn’t contain a provision for religious attire.
The court sided with the police department, saying it would be an “undue hardship” for the department to have to allow religious dress. It noted that the police commissioner had testified that it
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was vital for the department to promote the appearance of religious neutrality in dealing with the public and in working together cooperatively.
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Independent contractor can sue for injury on the job
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An independent contractor can sue for injuries on the job – even though the workers’ compensation law generally bars lawsuits for workplace injuries, according to an appeals court in California.
The worker was hired by a subcontractor to install a canopy at a gas station. He fell into a hole at the construction site and was injured. He sued the general contractor and the
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subcontractor.
The defendants argued that the suit should be thrown out because of the workers’ comp law.
But the court said the suit could go forward because the worker was a contractor, not an employee. An independent contractor isn’t eligible for workers’ comp benefits, so the ban on lawsuits doesn’t apply, the court said.
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This newsletter is designed to keep you up-to-date with changes in the law. For help with these or any other legal issues, please call our firm today.
The information in this newsletter is intended solely for your information. It does not constitute legal advice, and it should not be relied on without a discussion of your specific situation with an attorney.
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