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Northwest OH Legal Blog

Wednesday, April 5, 2017

United States Appellate Court Reinstates COBRA Rights for Employee Who Was Dismissed for Allegedly Stealing Stale Cake

A recent federal appellate court decision highlights the distinction between firing an employee for cause and firing an employee for gross misconduct for purposes of determining a terminated employee’s eligibility to continue employer-provided health insurance under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”).

Background.  In Mayes v. Winco Holdings, Inc., 2017 WL 461484 (9th Cir. 2017), Katie Mayes, a grocery store supervisor, was “a Person in Charge” (“PIC”) who supervised employees on the store’s night-shift freight crew.  In 2011, Mayes was fired by Winco Holdings, Inc. (“WinCo”) for theft and dishonesty because she took a stale cake from the store bakery to the crew’s break room to share with fellow employees and, when challenged about taking the cake, told a loss prevention investigator that management had given her permission to do so. WinCo contested the veracity of Mayes’ statement and determined that her behavior, viewed by WinCo as theft of store property, rose to the level of “gross misconduct” under the store’s personnel policies.  As a result, Mayes and her minor children were denied the right to maintain their employer-provided health insurance under COBRA.  Pursuant to COBRA, employees who are terminated for any reason other than gross misconduct have the right to continue their employer-provided health insurance by paying a monthly premium.  Employees who are terminated for gross misconduct are thus ineligible to continue their employer-provided health insurance after their termination. 

Following her termination for gross misconduct, Mayes sued WinCo for gender discrimination under Title VII of the Civil Rights Act of 1964, wage claims under the Fair Labor Standards Act, state law violations, and violation of her right to health care continuation under COBRA.  The district court granted summary judgment for WinCo.

Appeal.  On appeal, the United States Court of Appeals for the 9th Circuit (covering Montana, Idaho, Washington, Oregon, California, Nevada, Arizona, Hawaii, and Alaska) concluded that the district court had erred in granting summary judgment for WinCo and dismissing Mayes’ discrimination claims.  The district court’s decision was reversed on the ground that there was sufficient circumstantial evidence, as well as powerful direct evidence of a supervisor’s discriminatory comments, to raise a material dispute regarding a pretext for WinCo’s dismissal of Mayes.  Because Mayes had created a genuine dispute about whether she was fired for gross misconduct, the appellate court found that she was also entitled to a trial on the denial of her COBRA continuation rights.

Takeaway.  COBRA does not provide a specific definition of the term “gross misconduct” for purposes of denying a fired employee his or her COBRA continuation rights.  As a result, the courts are left to define the term.  The upshot of the court cases that have grappled with defining this term is that a termination for gross misconduct requires a greater level of proof than a termination for cause.  Some commentators have opined that unless an employee’s intentional actions have a negative impact on his or her employer and the employee knew or should have known that the employer would suffer from such actions, it will be difficult for an employer to prove that the employee’s conduct was sufficiently egregious to rise to the level of gross misconduct under COBRA.


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