COBRA Compliance: Notices

Too often, when employers outsource COBRA administration to a third party, they never review the notice content or delivery method. As a string of cases reveals, this inaction can result in an employer needing to pay a six- or seven-digit damage award. ^[1] As of September 1, 2023, the damage awards in 17 cases approved for settlement ranged from $65,000 to $1.6 million.

Risks of deficient COBRA notices

While the COBRA notice was properly provided to a covered person experiencing a qualifying event, the notice missed key details required by the COBRA regulations. Both COBRA administrators and employers generally use the Department of Labor’s (“DOL”) model notices without modification, believing they provide a “safe harbor” from penalties. 

However, repeated litigation has demonstrated that this practice can lead to failure to include simple information, such as the plan administrator's name and contact information or the address for remitting payments, which cannot be overlooked or omitted. While this missing content is called for in the model notices, COBRA administrators and employers often bypass these requirements to their detriment.

Since the law provides for a statutory penalty and legal fees in these situations, the former employee can sue their employer for minor deficiencies in the COBRA notice. The DOL’s penalty is $110 per person per day. While this amount may seem insignificant, consider a class of 100 people who lost their coverage in a reduction in force two years ago and whose notices were deficient.

$110 x 365 days x 2 years x 100 qualified beneficiaries = $800,300 in penalties

The above calculation shows just how quickly the penalties can add up. This does not include any additional legal fee award or the IRS daily excise tax of $100 per person.

Some lawsuits have further alleged that, even if COBRA election notices were complete, they are still deficient because the information was provided in multiple notices rather than a single notice. Sometimes, the notice included additional language referencing potential criminal and civil penalties for making false statements on the COBRA election form.

While each complaint has certain unique characteristics, the ultimate premise behind these lawsuits is the plaintiffs’ argument that to cut costs, companies are deliberately choosing to disregard the DOL's model COBRA notice to “confuse” or “scare” their employees into not obtaining COBRA continuation coverage.

Best practices for COBRA notices

Simply using the model notices is often insufficient when they are incomplete or not provided in a timely manner. Furthermore, the notice should be modified if the employer sponsors a health FSA or has other special situations, such as an EAP.

For an employer to proactively protect themselves against a COBRA claim, the employer should know what notices are needed, the content of such notices, and the administrative practices required to comply with the regulations. Please contact your advisor if you are unfamiliar with the COBRA requirements or would like a trusted advisor to review your notices and administrative practices.

^[1] See, e.g., Pinazo v. Citigroup, Inc. , No. 20-cv-21866 (S.D. Fla.);  Grant v. JPMorgan Chase & Co. , No. 19-CV-1808 (M.D. Fla.);  Dau Pham v. Greif, Inc. , No. 20-CV-1988 (N.D. Ill.);  York v. Nestle Waters North America, Inc. , No. 20-CV-973 (M.D. Fla.);  Strickland et al. v. United Healthcare Servs. , No. 19-CV-1933 (M.D. Fla.);  Conklin v. Coca-Cola Beverages Florida, LLC , No. 19-cv-2137 (M.D. Fla.);  Rigney et al. v. Target Corp. , No. 19-CV-1432 (M.D. Fla.);  Riddle et al. v. PepsiCo., Inc. , No. 19-CV-3634 (S.D.N.Y.);  Ousley v. Amazon Corporate, LLC , No. 20-CV-701 (M.D. Fla.);  York v. Nestle Waters North America, Inc. , No. 20-CV-973 (M.D. Fla.);  Bryant v. Wal-Mart, Inc. , No. 16-cv-24818 (S.D. Fla.);  Hicks v. Lockheed Martin Corporation , No. 19-CV-261 (M.D. Fla.);  Robles v. Lowe's Home Centers LLC , No. 19-cv-02713 (M.D. Fla.).