Law360 (May 7, 2020, 4:16 PM EDT) -- Even before the coronavirus outbreak, big-name employers like Amazon found themselves facing proposed class actions claiming they failed to properly notify departing workers of their COBRA rights, and a spike in those cases could be part of the pandemic's fallout.
Amazon Corporate LLC and Nestle Waters North America Inc. were slapped with suits invoking the Consolidated Omnibus Budget Reconciliation Act — which lets workers choose to continue their health care coverage with their employer after they experience a job loss or other qualifying event — in March and April, respectively. PepsiCo settled a suit over its COBRA notices in April.
The COVID-19 pandemic, with the resulting layoffs and unemployment, has the potential to stoke employment litigation generally, including for COBRA cases.
"We may see an uptick in lawsuits of all kinds by current and former employees due to the pandemic because we are all suffering from the social and economic impacts of the pandemic, and the plaintiffs bar will have less trouble finding named plaintiffs," noted Orrick Herrington & Sutcliffe LLP's Patricia Anglin.
Here, attorneys offer four tips to help businesses avoid getting sued under COBRA.
Keep It 'Boring'
COBRA requires employers to inform workers and their spouses of their right to continue coverage under the law through notices that must contain certain information. The U.S. Department of Labor provides a model notice form that companies can use to meet those requirements.
W. Michael Gradisek, chair of Duane Morris LLP's employee benefits and executive compensation practice, recommended "being boring" and "staying as close as possible to the model notices" for employers that don't outsource their COBRA process to a third-party vendor.
"No one can ever fault you for using what the DOL has provided," he said.
However, employers might want to change parts of the notice that don't specifically apply to them or may not be as clear as they could be, said Ogletree Deakins Nash Smoak & Stewart PC shareholder Timothy Stanton. Tweaking the DOL's model notice — perhaps to make it more user-friendly — hasn't been uncommon in the past, but now those changes should get close scrutiny, he said.
"Companies over the years have modified those notices or put in information that wasn't there," Stanton said. "Ordinarily it wasn't considered a big decision to add to or supplement that notice, but it's come up now as an issue to focus on."
Include Necessary, Not Scary, Info
Because many workers are unfamiliar with COBRA, it's important that employers include in the notices all the information needed for them to understand how to continue health care coverage, said Andrew Shamis, who has represented plaintiffs in class action cases over the law's notice requirements.
According to Shamis, who is managing partner of Shamis & Gentile PA, companies should provide information on who the plan administrator is and who is providing the COBRA extended coverage, along with their contact information.
"You really would be surprised just how often those particular pieces of information aren't there," Shamis said. "When a letter doesn't have that, how is a person really supposed to understand how to get that coverage?"
However, employers should avoid having unnecessary information in their notices that might frighten workers, the attorney advised.
The suits against Amazon and Nestle allege that the companies failed to properly identify the plan administrators and wrongly included "ominous warnings" and irrelevant information about IRS penalties in their notices to spook workers away from continuing their coverage.
Workers should be able to receive all the required information and not be scared to sign up for extended coverage as they transition from one chapter of their life to the next, Shamis said. References to IRS penalties and fines don't belong in the notices, the attorney said.
"Having stuff on there about the IRS, that can potentially scare people away," Shamis said. "It's unnecessary information, and it just isn't needed."
Consider Outsourcing COBRA Obligations
Many companies use third parties like WageWorks Inc. to take care of their COBRA processes. If that's the approach an employer wants to take, Anglin said her best tip is to "negotiate pretty strongly out of the gate" to make sure there are strong performance guarantees in their contract.
For instance, employers should have an agreement for the vendor to indemnify the employer for any negligence or contract breaches on the vendor's part, Anglin said, and also tie payments for the vendor's services to certain minimum performance standards.
"That will enable you to hold your vendor's feet to the fire, if you will, if and when they do screw up, so that you can find problems as they occur and fix them before there is some type of a lawsuit from a disgruntled employee," she said.
Ogletree's Stanton said he recommends employers clarify beforehand whether the responsibility for COBRA notice compliance lies with the company or the outside administrator.
And it's best to use a "tried and true" vendor that understands the nuances of federal benefits law, according to Anglin.
"Check out the vendor that you're going to select," she said. "COBRA is a highly technical area and you want to have a vendor that's done it for awhile."
Watch the Legal Landscape — and Your Vendor
Employers not only have to stay on top of regulatory changes, but litigation as well.
While an isolated decision in one district court might not warrant changing a notice, a trend of substantive decisions can't be ignored, said Eric Mathisen, another Ogletree shareholder.
And for companies that outsource COBRA work, staying in touch with their vendors and making sure they too are up to speed on the latest from federal agencies and courts is also important.
"Typically, any kind of communication and coordination of efforts is going to result in a better product than not having that discussion," Mathisen said.
If there's a change in the law, employers should make sure notices are updated in a timely manner, Anglin said. And businesses should check in with employees, too, to make sure the vendor is behaving appropriately.
COVID-19 has inspired some changes to COBRA, with the IRS and the DOL extending certain deadlines until after the "outbreak period." And the DOL updated its model notices at the beginning of May to include more information about how Medicare and COBRA interact.
Duane Morris' Gradisek also said employers should keep tabs on vendors to make sure the notices they'll use are up to snuff. Simply contracting with a third party doesn't guarantee that COBRA liability disappears.
"Just because you've outsourced it, doesn't mean that it's always necessarily the best document," he said.
Ogletree's Stanton said the adequacy of COBRA notices needs to get heightened attention in today's climate.
"If a COBRA administrator has sent you a model notice to review, or if you heard from them about changes in the notice, I do think it makes sense to pay attention to it in a way that companies may not always have over the years," Stanton said. "These class action lawsuits have reminded us that even technical issues can have consequences."
--Editing by Kelly Duncan and Alanna Weissman.
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