Typically, interference with an employee’s COBRA coverage rights raises legal claims under ERISA; however, employers should take heed that in some instances other federal laws are invoked. Recently, an employer was found to have violated federal labor law when it engaged in an unlawful lockout of union employees that included the cancellation of their health coverage and a loss of their COBRA eligibility. The case is KLB Industries, Inc. v. National Labor Relations Board, 2012 WL 6013449 (D.C.C., Dec. 4, 2012).
KLB Industries’ was undergoing collective bargaining with a 16-member union at its Ohio facility. On Oct. 19, 2007, KLB informed the union that a lockout would begin on Oct. 22 and told employees that their health coverage would expire on Oct. 23 but COBRA was an option and a notice would be mailed to them. Typically, under the expiring labor agreement, insurance benefits would terminate by the end of the month following the month in which an employee is laid off or off work.
After the lockout began, KLB hired replacement workers and terminated the health plan, which meant employees were ineligible for COBRA coverage. The union filed unfair labor charges against KLB, asserting a variety of claims. One of those claims alleged that the lockout was unlawful and the cancellation of health coverage and COBRA rights violated the National Labor Relations Act.
The case was first heard before an administrative law judge, who generally took issue with KLB’s bargaining conduct, finding it unlawful. In analyzing the health coverage argument, the judge found that the coverage cancellation and the resulting loss of COBRA eligibility due to the lockout violated the NLRA. The judge said KLB offered “no legitimate reason” for terminating the plan — it was not required by the lockout, the existing plan or the existing employment terms and conditions, and was not part of KLB’s bargaining proposal.
“The intended result was to immediately eliminate health insurance for all locked out employees. Another result, perhaps unintended, was the elimination of employees’ eligibility for COBRA coverage, for which the Respondent had encouraged employee to apply when their insurance coverage ended,” the judge concluded. “Just like the lockout, it was intended to add to the pressure on the employees to accept the unlawfully maintained bargaining position of the employer.”
After the National Labor Relations Board adopted the judge’s findings, KLB petitioned the U.S. Court of Appeals for the D.C. Circuit for review. However, the D.C. Circuit agreed with the NLRB that the lockout was generally unlawful, so the court found “ no need to discuss KLB’s contention regarding the health insurance cancellation.” It then affirmed the NLRB’s order.
Note that under the NLRA, KLB was just required to restore the jobs and benefits and post a workplace notice. However, under ERISA, an employer/plan administrator found to have committed COBRA violations can be subject to financial penalties and damages.
For more details on this case, see Mandated Health Benefits — The COBRA Guide; go to http://www.hrcomplianceexpert.com.