The Sixth Circuit Court of Appeals has held that, in appropriate cases, courts may exercise their equitable powers to prevent defendants from avoiding liability by arguing that they are not covered by the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) merely because they do not meet the statute’s numerical threshold of 20 employees. Thomas v. Chancey Miller and Elmwood Cemetery, No. 05-2404 (6th Cir., June 27, 2007). In this case, it was undisputed that the defendant had less than twenty (20) employees. The company provided group health insurance to its employees. Thomas was not notified that her coverage terminated until 2 months after she was fired. She claimed that the company breached a duty under COBRA to notify her of her right to continue in force without interruption the health insurance that she had been provided during her employment. Thomas had overheard that the company had offered COBRA benefits to another employee.
This decision follows the United State Supreme Court’s decision in Arbaugh v. Y&H Corp. DBA The Moonlight Café, 546 U.S. 515-16 (2006), in which the Supreme Court held that Title VII’s employee-numerical threshold is not jurisdictional in nature, but rather, one of the elements to establish a case. Therefore, under the doctrine of equitable estoppel, COBRA may apply to an employer that does not have 20 employees if the plaintiff can establish that: 1) the employer used conduct or language amounting to a representation of material fact; 2) the employer was aware of the true facts; 3) the employer intended that the representation be acted on, or acted in a way toward the employee that the employee had a right to believe that the employer’s conduct was so intended; 4) the employee was unaware of the true facts; and 5) the employee must have detrimentally and justifiably relied on the representation.
The appellate court affirmed the dismissal of Thomas’ case because she could not establish the first and third estoppel elements: that the company made a representation of material fact to her regarding COBRA coverage or that it intended to do so.
This decision is significant because many other federal statutes also have thresholds (e.g., Title VII, Family and Medical Leave Act (“FMLA”), and Worker Adjustment and Retraining Notification Act (“WARN”), among other statutes). After the Supreme Court’s decision in Arbaugh and this decision, an employer may not be able to use the defense that the statute is not applicable because it employed less than the requisite employees if the plaintiff can establish the estoppel elements. The employer-defendant will then be required to fight against each element of a case to defeat the employee-plaintiff, which will be much more difficult than disproving one jurisdictional ground (i.e., numerical threshold).
Employers that offer FMLA, COBRA, and other types of employee benefits to their employees even though they are not covered by the relevant statute should consult with their legal counsel to discuss the possible consequences of doing so. Those employers who offer employee benefits regardless of their size should review their internal procedures or ask their legal counsel to review their internal procedures to ensure that they are in compliance with procedural requirements under each applicable statute.