July 6, 2007 | Posted By Diane Pfadenhauer | print this article

How to End Up With COBRA Liability When You Have Fewer Than 20 Employees

A recent Supreme Court Case discusses the doctrine of estoppel and the Sixth Circuit relied on that case in noting that an employer with fewer than 20 employees may be liable for COBRA coverage.  The Supreme Court case in question was Arbaugh v. Y&H Corp.   and the Sixth Circuit Case was Thomas v. Miller.  According to the Health Plan Law Blog:

This holding stands for the proposition that, even though an employer may have less that 20 employees, it may be subject to COBRA requirements if the employer has used “conduct or language amounting to a representation” that an employee is entitled to COBRA benefits. If the employer’s insurance contract does not provide COBRA benefits, the employer could be stuck with huge medical bills with no insurance carrier to turn to for reimbursement.

In this case, although the plaintiff actually lost her case, the Sixth Circuit noted that the doctrine of estoppel could apply in an instance such as this where the employer may have held itself out as to have a plan subject to COBRA when in fact it did not.

And, according to Michael Fox over at Jottings by an Employer's Lawyer:

...an employer's conduct under certain circumstances can cause it to be covered, even though it falls below the statutory threshold.

He further notes the threshold that a plaintiff would have to satisfy:

  • the employer must have used “conduct or language amounting to a representation of material fact;”
  • the employer must have been aware of the true facts;
  • the employer must have had an intention that the representation be acted on, or have
    conducted itself in such a way that the employee had a right to believe that the employer's conduct was so intended;
  • the employee must have been unaware of the true facts; and
  • the employee must have detrimentally and justifiably relied on the representation.

While most seasoned HR professionals could hardly imagine how something like this could happen, the reality is that we see many smaller employers that presume that they are covered under COBRA and a variety of other laws that do not apply to them.  This is truly a lesson for all of them.