Most employers are aware that COBRA exempts from its applicability employers with fewer than 20 employees. But sometimes there can be more than one employing entity that is "related" and that related entity has to be considered when determining applicability of COBRA. Take the case of Franco-Santos v. Goldstar Transport, Inc., decided last week.
The terminated employee claimed her employer failed to provide her with a COBRA election notice. The employer argued that it was not required to comply with COBRA because it fell within COBRA’s small employer exception because it had fewer than 20 employees. The court ultimately ruled that the employer met COBRA’s small employer exception. But in doing so, the Court considered the employees of a related company to determine whether the 20-employee figure was met.
The court reminded the parties of the COBRA regulations, which states that an employer has normally employed fewer than 20 employees during a particular calendar year if it employed fewer than 20 employees on at least 50% of its work days that year. There is also a mechanism for counting part-time employees as a fractional full-time employee. The court also assumed that the two related companies must be combined as a single employer. The court then found that the number of employees, 19.4, was still below the 20 employees required to subject the plan to COBRA’s requirements.
It is important to note that the Court did not make any further comment on how the companies were related. However, IRS regulations make it clear that when counting employees, you have to include all employees of all related employers under "common control." So while this case resulted in a win for the employer, it should also serve as a reminder to smaller employers that just because you have 3 companies, all with fewer than 20 employees, you are not automatically exempt from COBRA. You have to aggregate your employee count based on the rules of "common control."