For purposes of the ARRA, the term “involuntary termination” means more than simply being laid off or downsized. An employee is considered to be involuntarily terminated if:

  • Layoff.The employee is laid off, regardless of whether or not the employee enjoys recall rights.

  • Other Suspension.The employee is suspended in some other fashion which results in the loss of group health insurance coverage.

  • Resignation-Transfer.The employee resigns as the result of a material chagne in the geographic location of employment. For example, an employee living and working in New York resigns rather than moving to California when her employer relocates.

  • Resignation–Hours Reduction.The employee resigns when the employee’s hours are cut sufficiently to constitute a “material negative change” in the employment relationshiip for the employee. A reduction from 40 hours per week to 35 hours per week is unlikely to be considered a “material negative change,” while a reduction from 40 hours per week to 40 hours per month would almost certainly constitute such a change. The range in between such extremes will be open to interpretation and likely litigation. A reduction of hours which does not constitute a “material negative change” does not make an employee eligible for the subsidy.

  • Retirement.An employee who retires in lieu of being terminated is deemd “involuntarily” terminated, if he or she knows that the only alternative to retirement is termination.

  • Strikes and Lockouts. If employees strike, they do not have any rights to COBRA continuation coverage or the subsidy. Their suspension from work is voluntary. However, if an employer engages in a lockout so taht employees cannot work, the employees are deemed “involuntarily” terminated.

  • Buyouts. If an employee accepts a “buyout” in return for a severance package, the employee will be considered terminated “involuntarily” if after some period of time at lest some employees not bought out will be terminated.

  • Discharge. If an employee is discharged because of an extended illness or disability or “for cause” because of poor performance, poor attendance, or some other reason, the employee is deemed to have been involuntarily terminated for purposes of the ARRA. However, if the discharge is for “gross misconduct,” then the termination is not a qualifying event and the employee is not eligible for COBRA continuation coverage or the subsidy.

What Is Gross Misconduct?

Gross misconduct includes “intentional, wanton, willful, reckless, or deliberate indifference to an employer’s interest” by the employee. Illegal or dangerous acts committed in the workplace (and sometimes those committed away from work) will likely constitute gross misconduct. Examples include a teacher engaging in sexual activity with minor students or an airline attendant striking a coworker during flight.

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One of the provisions of the stimulus bill known as the American Reinvestment and Recovery Act of 2009 is the COBRA subsidy. The statute provides a federal subsidy for COBRA premium for employees involuntarily terminated from their employment, The new law was signed on February 1, 2009. It became effective for most employers with 20 or more employees on March 1, 2009. (Employees in states with Mini-COBRA statutes covering employers with fewer than 20 employees may also be eligible for the subsidy.)

The new law has three major components:

  1. The federal government will pay 65% of the COBRA premium for eligible individuals who were involuntarily terminated between September 1, 2008 and December 31, 2009.

  2. Persons who were terminated after September 1, 2008 but who did not elect COBRA coverage or elected it and then dropped it (perhaps for financial reasons) now will have an opportunity to elect COBRA and pay only 35% of the premium.

  3. Employers have the option to offer coverage other than that which the employee had immediately prior to termination. (This is contrary to the longstanding COBRA provisiions which give the employee the right only to continue what the employee already has.)

The subsidy is available to “assistance eligible individuals” (“Eligible Individual”). The subsidy is available to any “Assistance Eligible Individual” (“Eligible Individual”). An Individual is eligible if:

  1. S/he Is a “qualified beneficiary” (an employee, spouse, or dependent);

  2. The qualifying event was the “involuntary termination of employment” between September 1, 2008 and December 31, 2009;
  3. The Individual is eligible for COBRA continuation coverage (or comparable State Mini-COBRA coverage) at any time during that 16 month period; and

  4. The Individual elects the COBRA coverage.

The first bill signed into law by President Obama was the Lily Ledbetter Fair Pay Act, which overruled a controversial 5-4 decision by the Supreme Court, Ledbetter v. Goodyear Tire & Rubber Co., Inc., issued in 2007. The Act amends both the Title VII and the Age Discrimination in Employment Act and modifies the operation of the Americans with Disabilities Act and the Rehabilitation Act of 1973. The Act provides that in cases involving discrimination in compensation, under Title VII or the ADEA, an unlawful employment practice (which would trigger the running of the statute of limitations) occurs (1) when a discriminatory compensation decision or other practice is adopted; (2) when an individual becomes subject to a discriminatory compensation decision or other practice; or (3) when an individual is affected by application of a discriminatory compensation decision or other practice, “including each time wages, benefits, or other compensation is paid, resulting in whole or in part from such a decision or other practice.” (emphasis added)

The Act further provides that in addition to the damages recoverable under the Civil Rights Act of 1991, 42 U.S.C. § 1981a, Title VII claimants may recover back pay for up to two years preceding the filing of the charge, “where the unlawful employment practices that have occurred during the charge filing period are similar or related to unlawful employment practices with regard to discrimination in compensation that occurred outside the time for filing a charge.”

The provisions of the new statute are also extended to compensation claims under the Americans with Disabilities Act and the Rehabilitation Act of 1973.

Employers must now be aware that discriminatory compensation decisions made in the past which have a continuing effect on one or more employees today could now give rise to a sustainable claim of discrimination.

My advice to employers is to do a compensation audit in cooperation with employment counsel to determine whether there is any pay disparity in the work force. Even if the disparity is the result of a decision years ago, you could be subject to litigation today, including class action litigation. By taking steps now to remedy unlawful disparities,