Jones v. OfficeMax, Inc.
1999 U.S. Dist. LEXIS 2239 (D. Utah 1999)

Facts Of The Case:

While employed by OfficeMax, Mr. Jones was hospitalized for several reasons, including treatment for drug abuse.  When he returned to employment, OfficeMax terminated him (for reasons other than his drug use), but failed to notify him of his COBRA rights or provide him with a Qualifying Event Notice.

When OfficeMax learned of its compliance failure, it sent a Qualifying Event Notice to Mr. Jones and stated that it would pay the COBRA premiums due with respect to the period between Mr. Jones’ termination of employment and the time Mr. Jones received the Qualifying Event Notice.

Mr. Jones sued OfficeMax claiming that he had a right to COBRA compliance penalties. In addition, Mr. Jones sought additional damages, arguing that his medical condition had deteriorated because he did not seek treatment for a medical condition during the noncompliance period because he believed he was not covered by the health plan.

Question Presented:

The question presented to the court was whether Mr. Jones was entitled to COBRA compliance penalties or any other damages because of OfficeMax’s failure to provide him with a Qualifying Event Notice on a timely basis.

Court's Decision:

Although OfficeMax provided the Qualifying Event Notice as soon as it realized that it had failed to do so, and although OfficeMax agreed to pay the COBRA premiums due for the period until the Qualifying Event Notice was actually provided, the court nonetheless imposed compliance penalties on OfficeMax.  Specifically, the court ordered OfficeMax to pay Mr. Jones a penalty of $2,110 ($10 per day, beginning 44 days after Mr. Jones’ termination of employment and ending on the date he received the Qualifying Event Notice).

As for the addition damages sought by Mr. Jones, the court held that, although a court may award “other relief” in addition to COBRA’s per day penalties, that other relief typically has been in the form of the payment of actually incurred medical expenses and not damages incurred due to deteriorating health because of the failure to seek medical treatment, and the court declined to expand the scope of damages available under COBRA beyond those typically awarded.                   

Implications For Employers:

Most employers, when discovering a COBRA compliance error, take steps very similar to those taken by OfficeMax with respect to Mr. Jones.  That is, those employers typically send the errant notice — under a better late than never theory — and offer some form of accommodation to the affected individual (e.g., employer payment of required premium, waiver of required premium, payment schedule for delayed payment of required premium, etc.).

Although such an approach almost certainly reduces an employer’s risk of incurring substantial COBRA compliance penalties, the OfficeMax case shows that even this approach does not entirely eliminate the likelihood that COBRA compliance penalties will be imposed.  Happily for OfficeMax, because of the limited time involved and the fact that the compliance failure affected only one Qualified Beneficiary, and given that the judge exercised his discretion and imposed COBRA’s statutory penalties at the $10 per day level, rather than the maximum $100 per day level, the actual penalties imposed were quite small (although the attorneys’ fees and costs incurred undoubtedly were not).

On the other hand, the OfficeMax decision is encouraging in that it shows that at least some courts are disinclined to create broad remedies under COBRA beyond the per day statutory penalties.  The moral of all of this for employers, again, is to take all appropriate steps to ensure COBRA compliance and to respond promptly with appropriate “damage control” when COBRA compliance errors are discovered.

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