Is an employee who is terminated for not being able to verify eligibility to work in the United States eligible for COBRA?

Eligibility for COBRA in this situation depends on a) whether the undocumented former employee was an eligible plan participant and b) whether the exception for denying COBRA coverage due to gross misconduct may be applied. The employer needs to review its plan documents and summary plan document to see if its definition of eligible plan participant addresses undocumented employees. If the terminated employee was never an eligible plan participant, the employer can cancel coverage retroactive to the original coverage date. If the former employee is considered an eligible plan participant, then he or she would be a qualified beneficiary and entitled to COBRA coverage unless the second exception (denial based on gross misconduct) is applied.

Under COBRA, a person who has been terminated for gross misconduct may be denied COBRA. Gross misconduct is not specifically defined by COBRA, but when based on an employer's practice or policy it could include misrepresentation during the hiring process or falsifying information on a Form I-9. However, an employer needs to be very careful about denying COBRA. If the employer is incorrect in its assessment and did not have the correct facts about the employee's situation, it may be faced with defending a federal complaint or civil lawsuit. In all cases, including in this type of situation, an employer should seek legal advice before refusing to extend COBRA.

Usually it may be in the employer's best interest to offer COBRA to eliminate possible court costs, fines and penalties. It is unlikely in this situation that an election or payment would be made to continue coverage. If the employee returns to his or her home country, the employer has no obligation to provide benefits or insurance coverage in that country, if not otherwise provided to other employees.

The former employee may not be in any position to elect continuation coverage or pay the COBRA premiums. However, he or she may have a spouse or dependents who qualify to continue to live in the United States. The employer's denial of COBRA coverage to the eligible qualified beneficiaries could result in daily penalties, litigation, reimbursement of unpaid claims and other related costs.