Severance Agreement Not a Substitute for COBRA Compliance

Davis v. World Ins. Assocs., LLC, 2023 WL 2665727 (D.N.J. 2023)

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As part of a larger employment discrimination lawsuit, a former employee alleged that her employer failed to notify her of her COBRA rights or timely process her request for continued health coverage. The employer asked the court to dismiss the COBRA claim, arguing that the employee’s severance agreement notified her of her COBRA eligibility. The agreement provided that the employee would “receive a COBRA…Election Notice. . .at [her] home address within the next 14 Business Days” that would include “information regarding COBRA coverage and alternative options.”

The court determined that while the severance agreement provided the employee with initial notice that she had rights under COBRA, it did not indicate whether the employee received the additional information or if the employer timely processed the employee’s request for continued coverage. Thus, the court denied the employer’s motion to dismiss, allowing the COBRA claim to proceed to trial.

EBIA Comment: While the outcome of this case is yet to be decided, it reminds us that severance agreements are not a substitute for COBRA compliance. In planning severance packages, employers and employees have options for coordinating severance and COBRA. For example, employers may agree to subsidize the cost of COBRA coverage for a specified period. Regardless of the provisions of the severance agreement, employers must administer their plans consistent with COBRA, including timely notification to the plan administrator of the COBRA qualifying event and timely provision of a COBRA election notice to the employee (and related qualified beneficiaries) with whom it has made a severance agreement. For more information, see EBIA’s COBRA manual at Section VII.M (“Special Issues: Severance Agreements and Severance Pay”).

Contributing Editors: EBIA Staff.

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