You should consult with an employment attorney about your options, either via telephone or in person. Because you are not governed by FMLA based on the size of your business, there are options available to you with respect to your injured employee. However, the number of employees you have meets the minimum requirements for the California Fair Employment and Housing Act (FEHA) which requires that you engage in a good faith interactive process with the employee in order to determine what, if any, reasonable accommodations can be made to allow the employee to return to work. Your post does not specify all of the details surrounding the injury, possible restrictions, accommodations sought, etc.
It is not unlawful for an employer to cease employee benefit insurance if the terms of the plan dictate that the employer can do so.
It would be prudent for you to consult with experienced employment law counsel to deal with this situation. If you do not have one, every California employer should have an employment attorney on speed dial given the complexities of the state and federal laws with which you must contend.
Good luck to you.
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Employment law for businesses Business insurance Business health insurance Business Employment Employment law and finances Workers' compensation Employee benefits Employee rights FMLA (Family and Medical Leave Act) and employees Sick leave and work hours Termination of employment Wrongful termination of employment