Professional Service Agreement

Employer Must Pay $325K for Canceling Health Insurance of Fired Employee Early

January 09, 2017

An employer must pay $325,000 in compensatory and punitive damages for retroactively canceling a fired sales manager’s last month of healthcare coverage, and $3,300 for failing to provide the required notice regarding continuation of coverage. The evidence at trial supported a finding that the Employer canceled the Employee's insurance to retaliate against him after alleging age and gender discrimination.

The Employee was fired early in January 2012 after failing to meet a sales quota. At his termination meeting on January 6, the Employee was told his health insurance was paid through the end of the month. Later the Employee discovered that the Employer had canceled his health insurance retroactively to December 31, which meant he had no medical coverage for the month of January.

Claiming that the Employer canceled his health coverage early to punish him for filing a charge with the Equal Employment Opportunity Commission (EEOC), the Employee filed suit. A jury rendered a verdict in the Employee's favor and awarded him $325,000—$75,000 in compensatory damages, plus an equal amount for a willful violation under the Age Discrimination in Employment Act (ADEA), and tacked on another $175,000 in punitive damages under Title VII.

On appeal, the court upheld the jury’s verdict. Although the Employee was fired on January 6, the Employer canceled his insurance effective December 31, without offering to repay the portion of the January premium that was deducted from his last paycheck. Also, the Employer appeared to falsely inform Blue Cross that the Employee was fired in December rather than January. And, the retroactive cancellation came just a few weeks after the Employer learned about the Employee’s EEOC charge, of which it had been unaware at the time it fired him. The court held that the jury was authorized to find the cancellation was retaliatory.

Finally, the Employee also brought a claim under the Consolidated Omnibus Budget Reconciliation Act (COBRA) alleging he was not given the statutorily required notification of his right to continuation of health insurance coverage. The Employer responded that it was exempt from COBRA because it had fewer than 20 employees. The court rejected the Employer’s method of counting its employees. The Employer was a temporary staffing agency and it had significantly more than 20 employees if staffing workers were counted along with its full-time employees such as the Employee. Although staffing workers were outsourced to other job sites, they remained employees of the company, as shown by the fact that the Employer was designated as their “sole employer” in its client contracts. Also, the Employer handled their payroll and taxes, and held itself out as their employer by claiming federal tax credits for them. Given this evidence, the court held that the Employer satisfied the 20-employee threshold of COBRA, and upheld the lower court's imposition of a $3,300 COBRA penalty in addition to the damages awarded on the retaliation claims.