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Guest Hedwig

COBRA and Sale of Assets

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Guest Hedwig

The buyer is the successor employer and hired all of seller employees except two who will be working for buyer as independent contractors. Buyer is assuming COBRA obligation (buyer has a health plan, seller has terminated their plan). Buyer's plan excludes independent contractors. Under 54.4980B-9 Q&A 6, an asset sale is a qualifying event with respect to covered employees unless the buyer is a successor employer (it is) and the employee is "employed by the buying group." Are the independent contractors treated as "employed by the buying group" thus there is no qualifying event or must they be offered COBRA?

Thanks for any help.

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Guest jhall

Sorry, i do not have an answer but a somewhat related question.

Similar facts with asset purchase, Seller going away and terminating health plan at closing. Buyer will be successor employer and plans to hire all of seller's employees, including offering employment to a handful of seller's employees out on FMLA leave. Question is what happens if the individuals out on FMLA leave are unable or do not desire to return to work at the end of the leave. My understanding is that a COBRA qualifying event for these individuals does not occur until they fail to return to employment at end of the leave. At that point, the Seller's plan will be gone and these individuals would not appear to come within the regular definition of a M&A qualified beneficiary for COBRA purposes because their qualifying event did not occur before or in connection with the transaction.

My general thoughts are that the COBRA rules would try and find some way to provide them COBRA coverage. Perhaps the best argument would be that they are already considered Buyer's employees for plan / COBRA purposes by virtue of Buyer having offered them employment and thus would be entitled to COBRA coverage under Buyer's plan just as any other Buyer employee with a qualifying event. That would mean that Buyer has to cover their COBRA even though they never worked for Buyer--seems a situation where Buyer would want to require Seller to reimburse those costs.

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Guest KAL

Hello,

If you had independent contractors, what is stipulated their contract? Is an in individual contract made with the former company or was it with an outside company? Most contractors are not eligible for COBRA because they are either self employed or they are working through a firm that should cover COBRA. Probably need more information.

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