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A Service of OnQue Technologies, Inc. |
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Do you provide terminated employees with adequate and timely benefits information? |
September 25, 2003
Santa Rosa,
CA |
Once again, an employer is hit
with stiff penalties for failing to provide a terminated employee with information about
benefits rights. This COBRA Tip presents the benefits administration issues underlying a
recent opinion from the U.S. Court of Appeals,
Brown v. Aventis Pharmaceuticals, Inc., which resulted in an award of $89,875 to
a former employee. That sum does not include the cost to the employer of defending the
lawsuit in the trial and appeals courts, so the total cost to the employer is certainly
well over $100,000.
What Happened In
This Case
Linda
Brown was employed by Aventis Pharmaceuticals for 14 years when she took a six-month
disability leave. When she failed to return to work at the end of this leave, she was
terminated. On November 15, 2000, Aventis sent Brown a letter informing her that the
effective date of her termination was October 29, 2000 and that she would receive
information regarding her benefits in the near future. However, no benefits information
was forthcoming, even after Brown twice contacted Aventis' human resources department.
Next, Brown's attorney sent two
letters requesting information about his client's COBRA rights and other employee benefits,
as well as insurance conversion forms because Brown was entitled to obtain individual life
insurance upon termination. Once provided with the application form, Brown applied for
conversion insurance, which was denied. She was not provided with a Summary Plan
Description describing her benefits.
Aventis was penalized for:
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Acting in bad faith when it failed to
properly notify Brown of her COBRA rights, even though the court found that the failure was
due to an unintentional administrative error;
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Failing to provide Brown with a
Summary Plan Description, even though she requested benefits information on more than
one occasion;
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Failing to provide notice of insurance conversion rights,
which resulted in expiration of the conversion option and subsequent rejection of Brown's
application for coverage.
Failure To Provide Notice Of COBRA Rights:
An Act Of Bad Faith
This case points up a mistaken belief that seems to be
common among business owners and benefits administrators — that the courts will
forgive unintentional errors, particularly when no apparent harm has been done. Even
though Aventis' failure to provide the COBRA election notice appeared to be nothing
more than an administrative error likely due to relocation of its offices, the appeals
court ruled it could still be considered bad faith. In approving the maximum penalty
allowed under ERISA, the court said, "Although Brown did not suffer any loss of health
benefits due to the delay, she was forced to invest time, effort and money in hiring an
attorney to gain access to information that she was legally entitled to."
 Tip: Assume
nothing. Get organized. The creation and distribution of COBRA notices should be a
routine task. (Are You Prepared?)
Failure To Provide Summary Plan
Description
Brown's attorney wrote two letters to Aventis, in which
he requested information about COBRA, insurance conversion, and other benefits.
Nearly four months after Brown's termination, Aventis finally provided COBRA
information and insurance conversion forms, but no Summary Plan Description. Although
Aventis maintained that a copy of the SPD had not been specifically requested, the
appeals court approved the penalty. Brown's attorney, by asking for "notice of termination
of any of her other benefits," satisfied the requirement of making a written request
for the SPD.
Tip: Have a
plentiful supply of up-to-date Summary Plan Descriptions on hand. And don't be
stingy — make it your policy to provide the SPD on a moment's notice, written
request or not. Waiting for requests from attorneys before complying with regulations is
never a good practice.
Failure To Provide Insurance Conversion Rights
The conversion
policy in the Brown case was for life insurance, rather than for health insurance.
However, the option to elect individual conversion insurance of any type must be made
available in a timely manner. Aventis unsuccessfully argued that it had no obligation
to provide information about life insurance benefits upon termination because it previously
provided a SPD to the employee. But Aventis actually had prevented Brown's access to that
document, which was in her employee locker and destroyed by maintenance personnel.
Aventis added insult to injury by denying her a life insurance policy on the basis that
her application was too late, even while conceding that they failed to provide her with
timely information.
Tip: Be responsive
and don't be picky about which rights to communicate to workers. Although currently the
law does not mandate actual notification of the right to convert to an individual insurance
policy, it is implied in the COBRA regulations. And the newly proposed regulations,
if passed, would require plans to include information about conversion options in COBRA
election notices.
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How OnQue Software Handles These Issues: |
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COBRA OnQue automatically reminds you when notifications are due.
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COBRA OnQue's notifications are compliant with the Department of Labor's proposed regulations.
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COBRA OnQue automatically generates more than 40 notifications.
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Related COBRA Tips |
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IRS COBRA Audits and Penalties: Are You Prepared? |
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Description of COBRA Rights Must Be Included in SPD | | | | Related Court Cases | | Inadequate COBRA Notice Results In Damages And Penalties | | Failure to Provide SPD Results in $17,000 Penalty | | Unclear SPD Results in Lawsuit Against Employer |
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This information is provided by
OnQue Technologies, Inc. for educational purposes only and does not constitute
legal advice. If legal advice or other professional assistance is required, the
services of a competent professional should be sought.
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Copyright © 2003 OnQue Technologies, Inc. All Rights Reserved.
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