Can a business owner sell his business and immediately stop health insurance coverage for his former employees?

UPDATED: Dec 6, 2014

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Can a business owner sell his business and immediately stop health insurance coverage for his former employees?

Isn’t there a federal statue of some type that protects employees from this happening?

Asked on December 6, 2014 under Employment Labor Law, Hawaii


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

If the new owner did not buy the business entity (the limited liability company [LLC] or corporation [inc.])--assuming there was a business entity, and the business was not a sole proprietorship or partnership--then the new owner is not obligated to continue the health coverage, even for the balance of the plan year. That's because insurance coverage is based on a contract (i.e. between the insurer and business), but if the new owner bought only the assets, not a business entity, he's not a party to that health insurance contract--that is, he did not enter into the contract or sign it--even if he is still using the same business name. So in this case, he could stop the coverage immediately. The law does not require a business to have or provide health insurance--what it says is that many or most businesses will have to pay a penalty if they don't provide insurance, but that penalty is less than the cost of insurance, so many businesses are opting to do this. Under a different law (not the ACA or "Obamacare" as it's often known), called COBRA, you do have the right to continue the coverage *if* you pay 100% of it; that is, pay the employer's portion as well as your own. Your employer is supposed to provide you information about doing this, but if he's not, try calling the insurer directly about it for more information.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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