The federal stimulus package contains a COBRA premium subsidy for employees who are “involuntarily terminated” between September 1, 2008 and December 31, 2009. The Internal Revenue Service (IRS) has recently published guidance for employers on what an “involuntary termination” is for the purpose of determining which employees should be sent the required COBRA subsidy notices. CEA Online subscribers can download California-compliant model COBRA notices.
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According to the IRS, an “involuntary termination means a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment,” if the employee is willing and able to continue working. This includes:
- Employees who are fired—even if fired for “good cause”—except that employees fired for gross misconduct are not eligible for the subsidy (gross misconduct is rare, and includes things like theft or acts of violence by the employee, but does not include routine misconduct such as insubordination, poor performance, or failure to follow company procedures);
- Employees who are laid off due to a reduction in force, cessation of work, relocation of work, or facilities closure, even if the employee is only temporarily furloughed or work is temporarily suspended, and even if the employee is on a recall list;
- Employees who are laid off while on leave, such as medical leave or a leave of absence, if the employee would have been ready and able to return to work at the end of the leave period;
- Where the employer elects not to renew or continue an employee”s contract for services, if the employee was ready and able to continue under a new contract with similar terms (this means that employees who were hired on a project, seasonal, or temporary basis are considered to be involuntarily terminated for the purposes of the COBRA subsidy if the employer chooses not to retain them);
- Employees who choose to resign and take a severance package in lieu of being laid off or terminated; and
- Employees who choose to resign because actions of the employer have negatively affected the employment relationship, including:
- Where the employee is given the choice to resign or be terminated/laid off;
- Where the employee is given the choice to retire or be terminated/laid off;
- Where the employee is subjected to a reduction of hours such that the employee is forced to seek other employment with greater hours or pay;
Employees who go choose to out on strike are not considered involuntarily terminated, unless the strike follows an employer lockout.