'Sham' Termination Did not Trigger COBRA Eligibility

May 1, 2009 (PLANSPONSOR.com) - A federal district court has denied COBRA claims from an employee whose termination it said was a "sham."

According to EBIA, the court said the employee, who was fired and then immediately rehired, did not prove he had a qualifying event resulting in the loss of medical coverage. The court noted the employee’s employment was not terminated since he remained employed with his employer without a break in service or reduction of hours – a “sham termination” – which is not a qualifying event that triggers an obligation to offer COBRA, the news report said.

The employer in the case received payroll and human resources services from an employee leasing organization. The employee participated in a health plan sponsored by the leasing
organization, with premiums deducted from his paycheck. His coverage was terminated when the employer directed the leasing organization to stop deducting premiums for the coverage, according to EBIA.

During that same month, the employer fired and immediately rehired the employee. Three months later, the employer terminated its relationship with the leasing organization, and the leasing organization sent a COBRA election notice to the employee, offering him COBRA for the three-month period between the employee’s termination date and the date on which the leasing organization had terminated its relationship with the employer.

The employee elected COBRA, but when he sought to continue it beyond the end of the three-month period, his payment for COBRA was returned and coverage was denied, EBIA said.

The case is Powell v. Strategic Outsourcing Inc., 2009 WL 746253 (S.D. Tex. 2009).