Gross Misconduct: What It Means for Employers

What it means in practice

Employers usually meet the phrase "gross misconduct" when a job ends. It is not a general federal standard for firing: the Department of Labor's termination page says a termination not based on discrimination, whistleblower status or a DOL complaint is subject only to any private or labor contract (see at-will employment). The phrase matters because two separate systems attach consequences to it: federal COBRA continuation coverage and state unemployment insurance. This page explains what those laws and agencies say. It does not say whether any particular conduct qualifies; that is decided case by case, and a professional should be consulted about a specific situation.

The COBRA exception. COBRA requires group health plans to offer continuation coverage when coverage would otherwise be lost because of a qualifying event. ERISA lists as a qualifying event "the termination (other than by reason of such employee's gross misconduct), or reduction of hours, of the covered employee's employment" (29 U.S.C. 1163(2)), and the Internal Revenue Code and the IRS regulation use the same words (26 U.S.C. 4980B(f)(3)(B); 26 CFR 54.4980B-4). The DOL employer guide to COBRA (October 2021) lists termination "for any reason other than 'gross misconduct'" as a qualifying event for the employee and for the spouse and dependent children.

No federal definition. The ERISA COBRA definitions section (29 U.S.C. 1167) and the IRS qualifying-event regulation do not define the phrase. The Department of Labor's Health Benefits Advisor glossary says the term "is not specifically defined in COBRA or in regulations under COBRA," so whether a terminated employee engaged in gross misconduct that would justify a plan in not offering COBRA "will depend on the specific facts and circumstances." It adds that "being fired for most ordinary reasons, such as excessive absences or generally poor performance, does not amount to 'gross misconduct.'"

Why other facts usually do not matter. The IRS regulation says: "Apart from facts constituting gross misconduct, the facts surrounding the termination or reduction of hours are irrelevant in determining whether a qualifying event has occurred." It does not matter whether the employee quit or was discharged, and a strike, lockout or layoff that causes a loss of coverage is a qualifying event (26 CFR 54.4980B-4, Q&A-2).

Which employers are involved. Per the DOL employer guide, COBRA generally applies to private-sector group health plans of employers with at least 20 employees on more than 50 percent of typical business days in the prior calendar year, and to state and local government plans (administered by HHS), but not to federal government or church plans. The DOL employee guide (September 2022) notes that many states have "mini-COBRA" laws for smaller employers; those are outside this page.

Where the term shows up in the notice chain. The DOL rule requires the employer to notify the plan administrator of a qualifying event such as "termination of employment (other than by reason of gross misconduct)," generally within 30 days after the event, with enough information to identify the plan, the employee, the event and its date (29 CFR 2590.606-2). The plan then sends an election notice within 14 days, and qualified beneficiaries get at least 60 days to elect. For a termination, the maximum period is generally 18 months, and premiums cannot exceed 102 percent of plan cost (DOL employer guide). When an administrator receives a notice from an employee or beneficiary and decides the person is not entitled to coverage, it must explain why (29 CFR 2590.606-4(c)).

What is at stake if a plan gets it wrong. The Internal Revenue Code imposes an excise tax for failing to meet the continuation coverage requirements: $100 per day of noncompliance for each qualified beneficiary, capped at $200 a day when several beneficiaries share the same qualifying event (26 U.S.C. 4980B(b) and (c)(3)). For a single-employer plan, the employer is liable. No tax applies to a failure due to reasonable cause, not willful neglect, that is corrected within 30 days, and unintentional failures are capped at the lesser of 10 percent of prior-year group health spending or $500,000. The IRS says plans or employers report the tax on Form 8928. ERISA also lets qualified beneficiaries and the Department of Labor sue over noncompliance (26 CFR 54.4980B-1).

Worked example. Suppose a plan fails to offer COBRA to a former employee and spouse for 40 days, and the termination is later found not to have been for gross misconduct. Two beneficiaries at $100 each is $200 a day, equal to the daily cap, so 40 days comes to $8,000 before any statutory limit or waiver. Adding a covered child would not raise the daily amount above $200. This illustrates the statute only; real outcomes depend on the facts and IRS determinations.

The unemployment insurance side. DOL explains that workers unemployed through no fault of their own, as determined under state law, may be eligible for benefits, and each state runs its own program. The DOL Employment and Training Administration's Comparison of State Unemployment Insurance Laws (2023 edition, state law as of January 1, 2023) says that in terminations the state looks to whether the individual engaged in misconduct, and that many states impose a greater disqualification for dishonesty, a criminal act or other aggravated misconduct. It notes many states rely on the 1941 Wisconsin definition in Boynton Cab Co. v. Neubeck, describing "willful or wanton disregard" of the standards an employer may expect. The Comparison says it is "not an official interpretation of state UI laws."

How states describe gross misconduct. The Comparison groups every greater disqualification under "gross misconduct," even where a statute does not use those words. Terms states use include a dishonest or criminal act connected with the work; assault or threatened assault at the work site; theft, sabotage, embezzlement or falsification of employer records; any act amounting to a gross misdemeanor or felony; and use of or impairment from alcohol or drugs while working. Penalties vary: new earnings equal to a multiple of the weekly benefit amount, a fixed period such as 12 months, or cancellation of wage credits.

Example state: Maryland. Maryland's Labor and Employment Article sets three tiers. Section 8-1002 defines gross misconduct as "deliberate and willful disregard of standards of behavior that an employing unit rightfully expects and that shows gross indifference to the interests of the employing unit," or "repeated violations of employment rules that prove a regular and wanton disregard of the employee's obligations." Disqualification lasts until the person is reemployed and earns at least 25 times the weekly benefit amount. Aggravated misconduct (8-1002.1) requires actual malice and physical assault or serious property loss or damage, and requires 30 times the weekly benefit amount. Simple misconduct (8-1003) brings 10 to 15 weeks of disqualification. The Maryland Board of Appeals digest describes decisions holding that the employer had not met its burden of showing a discharge was for misconduct.

Worked example: Maryland. For a hypothetical weekly benefit amount of $300, gross misconduct would require at least 25 times $300, or $7,500, in new covered wages before benefits could resume; aggravated misconduct would require 30 times $300, or $9,000. Simple misconduct would instead delay benefits 10 to 15 weeks.

Example state: Minnesota. Minnesota uses "employment misconduct" and "aggravated employment misconduct" instead (Minn. Stat. 268.095). Employment misconduct is "any intentional, negligent, or indifferent conduct, on the job or off the job, that is a serious violation of the standards of behavior the employer has the right to reasonably expect of the employee." The statute excludes, among other things, inefficiency or inadvertence, simple unsatisfactory conduct and good faith errors in judgment, and says a single incident is an important fact to consider. Aggravated employment misconduct is an act that would amount to a gross misdemeanor or felony and had a significant adverse effect on the employment; no charge or conviction is needed, and wage credits from that employment are canceled.

The employer's part in a UI claim. The state agency decides eligibility; Maryland's statute turns on behavior "that the Secretary finds is gross misconduct." The DOL Comparison adds that federal law bars states from relieving an employer of benefit charges when its failure to respond timely and adequately to a request for information caused an inappropriate payment and it has a pattern of such failures.

Final pay is a separate obligation. DOL says federal law does not require employers to give former employees their final paycheck immediately, but some states may, and an unpaid employee can contact the Wage and Hour Division or the state labor department. The Maryland Department of Labor says all wages due must be paid on or before the day they would have been paid had employment continued. Minnesota's Department of Labor and Industry says a terminated employee's paycheck is due within 24 hours of a demand for wages, with 10 extra calendar days to audit accounts when the employee handled money or property. Neither page makes an exception for the reason for discharge. Unpaid wages can become back pay claims; wider exit steps are covered under offboarding.

Statements of reason. Minnesota's Department of Labor and Industry says an employer must give a truthful written reason for a termination if the employee asks in writing within 15 working days, within 10 working days of the request. Other states differ. Departure conversations are covered under exit interview.

Recordkeeping. Employers covered by the FLSA must keep payroll records at least 3 years (29 CFR 516.5). Under the EEOC rule, personnel records of an involuntarily terminated employee must be kept one year from termination, and relevant records must be kept until final disposition of any discrimination charge (29 CFR 1602.14). Written conduct rules often live in an employee handbook; Maryland's definition refers to "repeated violations of employment rules."

FAQ: Does a UI gross misconduct finding decide COBRA? The sources treat them as separate systems: COBRA is federal law enforced by the Departments of Labor and the Treasury and the courts, while UI eligibility is decided by state agencies under state definitions such as Maryland's and Minnesota's.

FAQ: Does the exception affect family members? The DOL employer guide lists termination "for any reason other than 'gross misconduct'" as the qualifying event for the spouse and dependent children too. Death, divorce and Medicare entitlement are separate qualifying events.

Why it matters and common mistakes

How Remindax helps

Related terms

See all terms in Payroll & Compensation Basics or browse the full HR Glossary.