Covered employees and other qualifying beneficiaries such as dependent spouses and children are generally eligible for COBRA upon termination of employment for any reason other than "gross misconduct."  Since the term "gross misconduct" is not defined by the COBRA statute and regulations, whether or not an individual is determined to have engaged in gross misconduct will depend on the specific facts and circumstances surrounding the employee's termination.  Although the Department of Labor states that typically being fired for "ordinary reasons" will not amount to gross misconduct, courts are notoriously inconsistent in applying the definition.

A federal district court in Idaho recently ruled that a supervisor at a grocery store committed gross misconduct when she directed another employee to take a stale cake from the store bakery's "stales cart."  The supervisor argued that theft of the stale cakes was a common practice, and that she had been given approval from management.  She claimed that she was terminated because of gender discrimination.

The court found that the supervisor did not offer any evidence that her termination was based on gender discrimination.  The court noted that she was terminated solely for her theft and dishonesty.   It held that stealing, regardless of the value of the item, constitutes a willful and intentional disregard for the interests of the employer and are properly considered "gross misconduct" under COBRA.

In light of this decision, employers may believe that courts have broadened the definition of "gross misconduct."  However, courts have been historically inconsistent in applying the term. 

Therefore, employers should exercise caution when denying COBRA coverage on the grounds of gross misconduct, and may wish to consult legal counsel in making this determination.

Federal district court decisions (like state trial court decisions) are not precedent, but provide some hint as to how a Court of Appeal may rule.

The full decision is available at: http://www.gpo.gov/fdsys/pkg/USCOURTS-idd-4_12-cv-00307/pdf/USCOURTS-idd-4_12-cv-00307-0.pdf  and LCW's blog post discussing the case can be found at http://www.calpublicagencylaboremploymentblog.com/employment/let-them-eat-stale-cake-but-they-wont-be-getting-cobra/.