Legal Innovation
Employers and plan sponsors must comply with a patchwork of federal laws that sometimes push in opposite directions. Chief among these are COBRA continuation coverage, the Affordable Care Act (ACA), ERISA, and immigration laws that impose criminal penalties for knowingly harboring or encouraging unauthorized individuals to remain in the United States. This article addresses the tensions employers face when an employee loses valid work authorization or is discovered to have used false identity documents.
Conflicting obligations in focus
Examples of common situations include:
- An employee hired and enrolled in a group health plan later turns out to have used a false identity and/or Social Security number.
- An employee loses temporary protected status (TPS) or other temporary work authorization due to a change in federal policy.
In both scenarios, employers typically terminate employment. However, under COBRA, a termination of employment with a loss of health plan coverage usually triggers a legal obligation to offer continuation coverage. This can leave employers questioning whether offering COBRA to someone now unlawfully present could violate immigration law.
COBRA basics
COBRA generally requires employers to offer continued health coverage after a qualifying event, including termination of employment, to individuals who meet COBRA’s definition of a covered employee. Under COBRA, a “covered employee” is “an individual who is (or was) provided coverage under a group health plan by virtue of the performance of services by the individual for 1 or more persons maintaining the plan (including as an employee defined in [Code §] 401(c)(1)).” This broad definition means that once someone has been hired and paid wages, they generally qualify for COBRA rights, regardless of whether they later lose work authorization.
Failing to offer COBRA can expose employers to civil penalties, excise taxes, and lawsuits. However, employers sometimes fear that offering COBRA might be viewed as encouraging someone without lawful status to stay in the country, raising the risk of criminal penalties under immigration law.
Immigration law risks
Federal immigration law prohibits knowingly bringing in, harboring, or encouraging or inducing someone to remain in the United States unlawfully. Violation can be a criminal offense. Employers are generally familiar with penalties for hiring unauthorized workers but may not realize that offering post-employment benefits could theoretically be challenged as an inducement to remain in the United States.
Although routine benefits compliance, such as providing COBRA continuation coverage, hasn’t been tested directly in this context, the risk is that aggressive immigration enforcement efforts could treat benefits as inducement to remain in the United States unlawfully. This uncertainty makes it important to have clear plan language and legal advice.
Rescissions and the ACA
The Affordable Care Act (ACA) prohibits rescinding group health coverage retroactively, except in cases of fraud or intentional misrepresentation of material fact. Among other things, a plan seeking to cancel coverage retroactively due to discovered identity fraud will want to be able to show that its plan language allows rescission for fraud and intentional misrepresentation, and that its procedures comply with ACA requirements for notice and appeal rights. Challenges to rescissions might not be brought only by former employees but also by healthcare providers or covered dependents.
Gross misconduct exception
COBRA doesn’t require continuation coverage if an employee was terminated for gross misconduct. This exception has been narrowly interpreted and is highly fact specific. Again, clear plan language defining conduct that constitutes gross misconduct for COBRA, coupled with consistent HR policies, can strengthen the employer’s position when using this exception to deny COBRA.
Loss of temporary protected status
Employees who lose TPS or other temporary work authorization present a particular challenge. The loss can require termination of employment, but COBRA rights may still arise because the individual met the definition of “covered employee” at the time of the qualifying event. Many employers fear that offering COBRA to someone newly out of status might expose them to allegations of encouraging unlawful presence.
Although there’s no definitive legal ruling that providing COBRA violates immigration law, the threat of criminal liability under 8 U.S.C. § 1324(a) remains a source of concern. Employers should understand that the penalties for violating this provision are criminal and can carry significant reputational and legal risk.
Practical steps to reduce risk
Given this complex overlap, employers and plan sponsors should take proactive measures to minimize both civil and criminal exposure:
Clarifying eligibility in plan documents
- Clearly define who is eligible to enroll.
- Include provisions that fraud or intentional misrepresentation is grounds for termination of coverage and provide examples.
- Spell out examples of gross misconduct that may justify denying COBRA.
- Engage experienced benefits and immigration counsel when facing possible fraud, identity issues, or loss of work authorization.
- Assess whether the facts support using the gross misconduct exception or an ACA-compliant rescission.
- Keep thorough records of all decisions related to eligibility, rescission, and COBRA offers or denials.
- Maintain copies of plan language, notices, and internal communications supporting the employer’s compliance position.
Conclusion
Balancing employee benefits obligations with immigration law compliance is a growing challenge, especially as immigration policy shifts and enforcement priorities evolve. Employers and plan sponsors should not assume that compliance in one area shields them in another. Instead, they should actively align plan language, HR protocols, and legal oversight to avoid exposure to costly civil penalties, excise taxes, or potential criminal charges.
With clear plan terms, coordinated procedures, and timely legal advice, employers can better fulfill their obligations under benefits laws while reducing the risk of immigration law violations. Being prepared now can help avoid costly dilemmas and mistakes later.
Steven Mindy is a partner in Alston & Bird’s Compensation, Benefits and ERISA Litigation group. Before law school he was a Customs and Border Protection (CBP) Officer and inspector with the Immigration and Naturalization Service (INS).
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