DOL Issues New COBRA Notice Requirements; Fourth Circuit Opens The Door To Repetitious Litigation Of Sarbanes-Oxley Whistleblower Claims

By:  Lawrence P. Postol, Vice President-Legislative Affairs

COBRA NOTICE

The Department of Defense Appropriations Act (Defense Act) extended the length of the COBRA subsidy period to 15 months and the period of eligibility to February 28, 2010. The Defense Act also included additional COBRA notice requirements. To help employers comply with these new notice requirements, the Department of Labor (DOL) has updated the model notices they originally released after the passage of the American Recovery and Reinvestment Act of 2009 (ARRA). The information on the DOL’s COBRA website has also been updated to include a Fact Sheet explaining when the notices must be provided.

 Model Notices

ARRA, as amended by the Defense Act, requires plans to notify certain participants and beneficiaries about the availability of the extended COBRA subsidy. The DOL has issued three separate updated DOL model notices covering different situations.

• General Notice. The General Notice (the “full version”) must be sent to all qualified beneficiaries (not just covered employees) who have not been provided a COBRA election notice, and who have a qualifying event at any time from September 1, 2008 through February 28, 2010 (regardless of the type of qualifying event). The updated General Notice is very similar to the general notice that was released by the DOL after ARRA’s enactment, and has only been slightly modified to include the new subsidy provisions of ARRA made by the Defense Act.

Individuals who experience any qualifying event after December 19, 2009 must get the updated General Notice within the normal timeframes for providing a COBRA election notice.

•  Extension Notice. The “Premium Assistance Extension Notice” should be provided to individuals who:
  • As of October 31, 2009, were receiving premium assistance;
  • As of October 31, 2009, had received the full nine months of premium assistance required under ARRA and either did not make a payment for subsequent periods of coverage, made payment of less than the full COBRA premium, or made payment of the full premium; or
  • Experienced a qualifying event that was the termination of a covered employee’s employment on or after October 31, 2009, and did not received a notice that explained the premium subsidy as extended.

This version of the notice includes information regarding the changes made to the subsidy provisions of ARRA by the Defense Act. The timing of this notice differs depends on what circumstances entitle the individual to the Extension Notice.

• Alternative Notice. This version is to be sent by insurance issuers that provide group health insurance coverage to persons who became eligible for continuation coverage under State law. Since these coverage requirements vary among states, issuers should modify this model notice as necessary to conform to applicable State law. The updated Alternative Notice is very similar to the alternative notice that was released by the DOL after ARRA’s enactment, and has only been slightly modified to include the new subsidy provisions of ARRA made by the Defense Act.

Timing

According to the DOL’s Fact Sheet, the Premium Assistance Extension Notice must be provided within the following timeframes:

• Individuals who are in a “transition period” must be provided notice of the changes made to the premium reduction provisions of ARRA within 60 days of the first day of the transition period. (The transition period begins immediately after the end of the nine month premium reduction in effect under ARRA, if the premium reduction provisions of the Defense Act would apply due to the extension from nine to 15 months.)
• Other individuals who were “assistance eligible individuals” as of October 31, 2009 and individuals who experienced a termination of employment on or after October 31, 2009 and lost health coverage (unless they were already provided a timely, updated General Notice) must be provided notice of the changes made by the Defense Act by February 17, 2010.

Although the groups listed above may overlap in some instances (making some individuals entitled to multiple notices), providing a single notice that includes all of the required information is sufficient as long as the notice is provided by the earliest date required.

Employers should update their notices as soon as possible to reflect the new subsidy extension.

SOX COURT RULING

The U.S. Court of Appeals for the Fourth Circuit recently ruled in Stone v. Instrumentation Laboratory Co. that an employee could pursue a whistleblower claim de novo under the Sarbanes-Oxley Act (SOX) in a federal district court where a final decision was not reached within 180 days of the filing of the administrative complaint even where an administrative law judge (ALJ) already adjudicated the claim. Case Nos. 08 CV 1970, 08 CV 2196, 2009 WL 5173765 (4th Cir. Dec. 31, 2009).

In Stone, the plaintiff, a Director of National Accounts, claimed he was discharged for “blowing the whistle” on alleged discrepancies regarding tracking, reporting, and payment of certain administrative fees. On June 19, 2006, the plaintiff filed a SOX complaint with the Occupational Safety and Health Administration. On January 3, 2007—more than 180 days after the complaint was filed—OSHA issued preliminary findings, which the plaintiff appealed to an ALJ. On September 6, 2007, the ALJ granted the defendant’s motion for summary decision. The plaintiff then petitioned the Administrative Review Board (ARB) for review, and the ARB set a briefing schedule on October 1, 2007. On November 8, 2007, the plaintiff filed a notice with the ARB expressing his intention to bring a de novo action in federal district court.

The U.S. District Court for the District of Maryland granted the defendant’s motion to dismiss the complaint on claim preclusion principles, finding the ALJ’s ruling was a final decision on the merits. The Fourth Circuit, however, ruled in the plaintiff’s favor, relying on SOX’s language providing that a de novo review may be sought in a federal district court if the Secretary of Labor has not issued a final decision within 180 days of the filing of the administrative complaint. 18 U.S.C. § 1514A(b)(1). In so ruling, the Fourth Circuit noted that an ALJ’s ruling may be challenged through a petition for review with the ARB, and the ARB’s acceptance of the petition renders the ALJ’s decision “inoperative” unless and until the ARB adopts it. The Fourth Circuit added that the ALJ’s decision becomes a final order if the ARB does not accept the petition for review.

Notably, the Fourth Circuit considered the Secretary’s employer-friendly comments to the applicable regulations. Those comments recognize that it would unnecessarily waste resources for complainants to be permitted to pursue duplicative litigation where a party has had a full opportunity to litigate a claim. Still, the Fourth Circuit concluded that permitting the plaintiff to pursue a de novo action after an ALJ has adjudicated his or claim would not engender an “absurd” result justifying a departure from SOX’s text.

The Stone decision, which is the first federal appellate decision to directly address these issues, poses a risk of heightening the number of SOX cases filed in district courts, as plaintiffs may not hesitate to roll the dice by pursuing a claim in a new forum de novo upon receiving unfavorable results through Department of Labor proceedings. On the other hand, the practical reality is that plaintiffs often pursue claims in federal district courts after the 180-day time-frame has lapsed. Likewise, the Stone decision could compel the Secretary of Labor to render final decisions more swiftly.

If you have any questions, you can contact Mr. Postol at Lpostol@seyfarth.com. Or 202-828-5385