Bassiri v. Xerox Corp.

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ALI BASSIRI, 

Plaintiff-Appellant,

v.

XEROX CORPORATION; XEROX

CORPORATION LONG-TERM

DISABILITY INCOME PLAN; No. 04-55472

LAWRENCE BECKER,

Defendants-Appellees,  D.C. No.

CV-03-03597-DT

and OPINION

PATRICIA NAZEMETZ; PRUDENTIAL

COMPANY OF AMERICA; HEALTH

INTERNATIONAL; DOES 1-100

INCLUSIVE,

Defendants.



Appeal from the United States District Court

for the Central District of California

Dickran M. Tevrizian, District Judge, Presiding

Argued and Submitted

December 5, 2005—Pasadena, California

Filed September 12, 2006

Before: Harry Pregerson, John T. Noonan, and

Sidney R. Thomas, Circuit Judges.

Opinion by Judge Pregerson

11099

11102 BASSIRI v. XEROX CORP.

COUNSEL

Kathleen A. Brewer, Westlake Village, California, for the

plaintiff-appellant.

Richard J. Pautler, Thompson Colburn, LLP, St. Louis, Mis-

souri, for the defendants-appellees.

BASSIRI v. XEROX CORP. 11103

OPINION

PREGERSON, Circuit Judge:

The district court determined that the provisions of the

Employee Retirement Income Security Act (“ERISA”) apply

to Xerox’s Long-Term Disability Plan (“LTD Plan”) because

the plan pays only 60% of Appellant Ali Bassiri’s usual sal-

ary. Bassiri challenges that determination. The district court

certified this issue for interlocutory appeal, and we thus have

jurisdiction under 28 U.S.C. § 1292(b). We reverse and

remand for further proceedings.

I. Factual Background

Ali Bassiri was a permanent employee of Xerox Corpora-

tion from 1997 to 2002. While employed at Xerox, Bassiri

was eligible for short-term disability benefits, and he was

enrolled in the Xerox LTD Plan and a Prudential Disability

Income Plan. The three plans provided full coverage in the

event of a disability: (1) for the first five months of his dis-

ability, Bassiri would be paid full salary under the Xerox

short-term disability plan; (2) for the next twenty-four

months, Bassiri would be paid 60% salary under the Xerox

LTD Plan; and (3) any remaining disability period would be

covered under the extended Prudential policy. Under the

terms of the LTD plan, payments lasted only as long as the

recipient was a full-time permanent employee of Xerox; they

ended upon termination.

Bassiri had an excellent work record and was promoted to

a management position in 2000. In September 2001, Bassiri

began experiencing severe pain in his wrists and upper

extremities. In January 2002, Bassiri temporarily lost use of

one hand. Shortly thereafter, he was diagnosed with severe

bilateral carpal tunnel syndrome, with accompanying damage

to his nerves, spine, arm, wrist, and shoulder.

11104 BASSIRI v. XEROX CORP.

On January 21, 2002, Bassiri’s doctor notified Xerox man-

agement that Bassiri required a leave of absence. In April

2002, Bassiri underwent surgery for carpal tunnel syndrome.

When Bassiri returned to work on May 22, 2002, Xerox

informed Bassiri that he would be terminated effective July

21, 2002.

Bassiri received short-term disability benefits for the first

five months of his disability, from January 2002 to June 2002.

From June 2002 until his termination in July 2002, Bassiri

received payments under the Xerox LTD plan.

Bassiri filed a complaint against Xerox on May 21, 2003,

alleging that Xerox had wrongfully terminated his employ-

ment, and that Xerox had wrongfully terminated his disability

payments. Bassiri’s complaint, as amended, alleged that

either: (a) the Xerox LTD plan was an ERISA “employee

welfare benefit plan” under section 3(1) of ERISA, codified

at 29 U.S.C. § 1002(1), and he was entitled to a remedy under

ERISA; or (b) the Xerox LTD plan was a “payroll practice”

exempt from ERISA under 29 C.F.R. § 2510.3-1(b)(2), and he

was entitled to relief under state law for breach of contract,

fraud, and negligent misrepresentation.

Xerox filed a motion under Federal Rule of Civil Procedure

12(b)(6) to dismiss Bassiri’s state law claims as preempted by

ERISA. On November 13, 2003, the district court held that

the Xerox LTD plan was an employee welfare benefit plan

governed by ERISA. The court rejected Bassiri’s contention

that the LTD Plan was a “payroll practice” exempted from

ERISA because it concluded that the plan did not pay “normal

compensation” under 29 C.F.R. § 2510.3-1(b)(2). It therefore

dismissed Bassiri’s state and common law claims as pre-

empted by ERISA. On December 12, 2003, Bassiri filed a

motion asking the district court to certify its decision for inter-

locutory review pursuant to 28 U.S.C. § 1292(b). The district

court certified the order, and this appeal ensued.

BASSIRI v. XEROX CORP. 11105

II. Analysis

Our task in this interlocutory appeal is limited: we are

asked only to decide whether Xerox’s LTD plan is an

employee welfare benefit plan that falls within the scope of

ERISA, and if so, whether the fact that the LTD plan pays less

than Bassiri’s full salary precludes it from qualifying as a

“payroll practice” specifically exempted from ERISA. We

review de novo the district court’s decision to grant a motion

to dismiss for failure to state a claim, as well as its interpreta-

tion of ERISA. See Spink v. Lockheed Corp., 125 F.3d 1257,

1260 (9th Cir. 1997).

[1] Section 3(1) of ERISA, codified at 29 U.S.C. § 1002(1),

defines an employee welfare benefit plan as:

[A]ny plan, fund, or program which was heretofore

or is hereafter established or maintained by an

employer . . . to the extent that such plan, fund, or

program was established or is maintained for the

purpose of providing for its participants or their ben-

eficiaries . . . benefits in the event of sickness, acci-

dent, disability, death or unemployment . . . .

29 U.S.C. § 1002(1) (emphasis added). The Xerox LTD plan

was established by Bassiri’s employer, Xerox, and is main-

tained by a Plan Administrator who reports to Xerox. The

LTD plan documents state that the purpose of the LTD plan

is to “provide disability benefits for eligible employees of

Xerox Corporation.” Therefore, the LTD plan is clearly “es-

tablished or maintained” by an employer for the purpose of

providing disability benefits. We thus agree with the district

court that the LTD plan falls squarely within ERISA’s defini-

tion of an employee welfare benefit plan.

[2] The principle question before us, however, is whether

Xerox’s LTD Plan is a “payroll practice” exempted from

ERISA’s coverage under Department of Labor regulations

11106 BASSIRI v. XEROX CORP.

implementing the statute. The regulations define a payroll

practice as (among other things):

Payment of an employee’s normal compensation, out

of the employer’s general assets, on account of peri-

ods of time during which the employee is physically

or mentally unable to perform his or her duties, or is

otherwise absent for medical reasons (such as preg-

nancy, a physical examination or psychiatric treat-

ment) . . . .

29 C.F.R. § 2510.3-1(b)(2). According to the preamble to the

regulation, such plans are exempted from coverage under

ERISA because, “although related to benefits described in

[section 3(1) of ERISA], [they] are more closely associated

with normal wages or salary.” 40 Fed. Reg. 34256 (Aug. 15,

1975).

We must determine whether Xerox’s LTD Plan, which

pays 60% of one’s regular salary, could constitute payment of

“normal compensation.” We do not begin this question with

a blank slate: the Department of Labor has issued several

opinion letters interpreting “normal compensation.” We there-

fore first consider what deference, if any, we should give to

the Department of Labor’s opinion letters.

[3] Since 1979, the Department of Labor has penned eleven

opinion letters defining “normal compensation” to include

payments of less than full salary. Each of the eleven letters

advise that the respective programs are payroll practices

because they pay “not more than normal compensation.” See

Dep’t of Labor, Opinion 94-40A, 1994 ERISA LEXIS 65, at

*3 (Dec. 7, 1994); Dep’t of Labor, Opinion 93-27A, 1993

ERISA LEXIS 29, at *6 (Oct. 12, 1993) (finding that a dis-

ability program that paid disabled employees 65% of regular

salary is an exempt payroll practice; disability payments that

“either equal, or represent a significant portion of, an employ-

ee’s normal compensation, but in no event exceed an employ-

BASSIRI v. XEROX CORP. 11107

ee’s normal compensation” are payroll practices); Dep’t of

Labor, Opinion 93-20A, 1993 ERISA LEXIS 20, at *4 (July

16, 1993) (holding that disability plan that paid up to 100%

of regular salary was a payroll practice because payments “do

not exceed the employee’s normal compensation”); Dep’t of

Labor, Opinion 93-02A, 1993 ERISA LEXIS 2, at *4 (Jan.

12, 1993) (“It is the position of the Department that an

employer’s payment of less than normal compensation . . .

may constitute a payroll practice that is not an employee wel-

fare benefit plan.”); Dep’t of Labor, Opinion 92-18A, 1992

ERISA LEXIS 19, at *3 (Sept. 30, 1992); Dep’t of Labor,

Opinion 83-37A, 1983 ERISA LEXIS 23, at *5 (July 18,

1983); Dep’t of Labor, Opinion 82-44A, 1982 ERISA LEXIS

24, at *4-5 (Aug. 27, 1982); Dep’t of Labor, Opinion 81-71A,

1981 ERISA LEXIS 18, at *4 (Sept. 11, 1981); Dep’t of

Labor, Opinion 80-53A, 1980 ERISA LEXIS 24, at *3-4

(Sept. 5, 1980); Dep’t of Labor, Opinion 80-44A, 1980

ERISA LEXIS 33, at *3-4 (July 22, 1980); Dep’t of Labor,

Opinion 79-69A, 1979 ERISA LEXIS 23, at *4 (Sept. 25,

1979). Thus, under the interpretation of the Department of

Labor, payment of 60% of an employee’s regular salary may

constitute “normal compensation.”

[4] The district court concluded that the Department of

Labor’s letters should be given deference under Skidmore v.

Swift & Co., 323 U.S. 134, 140 (1944), “only to the extent

that they have ‘the power to persuade,’ ” citing Christensen v.

Harris County, 529 U.S. 576 (2000). The district court was

mistaken, however, because the proper construct for review of

these opinion letters is Auer deference, not Skidmore defer-

ence. In Christensen, the Court considered opinion letters in

which the Department of Labor purported to interpret a stat-

ute, the Fair Labor Standards Act. Under Skidmore, an agen-

cy’s interpretation of a statute that is not reached through the

normal notice-and-comment procedure does not have the

force of law and is not entitled to Chevron deference. See

Christensen, 529 U.S. at 587. But where an agency interprets

its own regulation, even if through an informal process, its

11108 BASSIRI v. XEROX CORP.

interpretation of an ambiguous statute is controlling under

Auer unless “plainly erroneous or inconsistent with the regu-

lation.” See Auer v. Robbins, 519 U.S. 452, 461 (1997).

Contrary to Xerox’s assertions, the Christensen court did

not overrule Auer; indeed, it cited Auer as the test for an agen-

cy’s interpretation of an ambiguous regulation. See Christen-

sen, 529 U.S. at 588; see also Barnhart v. Walton, 535 U.S.

212, 217 (2002) (citing Auer, post-Christensen, for the princi-

ple that “[c]ourts grant an agency’s interpretation of its own

regulations considerable legal leeway”). Thus, we continue to

apply Auer deference to an agency’s interpretation of an

ambiguous regulation. See League of Wilderness Defenders/

Blue Mountains Biodiversity Project v. Forsgren, 309 F.3d

1181, 1183 (9th Cir. 2002) (continuing to apply Auer after Chris-

tensen).1

Under Auer, as amplified by Christensen, the court must

first determine whether the regulation was ambiguous. See

Christensen, 529 U.S. at 588 (“Auer deference is warranted

only when the language of the regulation is ambiguous. . . .

To defer to the agency’s position [where the regulation is not

ambiguous] would be to permit the agency, under the guise of

interpreting a regulation, to create de facto a new regula-

tion.”).

[5] In this case, the meaning of the term “normal compen-

sation” is not entirely “free from doubt.” See Providence

1

This circuit is not alone in this conclusion. See United States v. John-

son, 437 F.3d 157, 178 (1st Cir. 2006); M. Fortunoff of Westbury Corp.

v. Peerless Ins. Co., 432 F.3d 127, 138 (2d Cir. 2005); Rain & Hail Ins.

Serv., Inc. v. Fed. Crop Ins. Corp., 426 F.3d 976, 979 (8th Cir. 2005);

Spectrum Health Continuing Care Group v. Anna Marie Bowling Irrecov-

erable Trust Dated June 27, 2002, 410 F.3d 304, 319 (6th Cir. 2005);

Humanoids Group v. Rogan, 375 F.3d 301, 306 (4th Cir. 2004); Wells

Fargo Bank of Tex. NA v. James, 321 F.3d 488, 494 (5th Cir. 2003). But

see Keys v. Barnhart, 347 F.3d 990, 993 (7th Cir. 2003) (“Probably there

is little left of Auer.”).

BASSIRI v. XEROX CORP. 11109

Health Sys.-Wash. v. Thompson, 353 F.3d 661, 665 (9th Cir.

2003). “Normal” in this context can be read to refer to the

amount of compensation, the source of the payment, the man-

ner of payment, or any combination of the above. In contrast

to the preceding section of the regulations, which refers to

“normal rate of compensation,” see 29 C.F.R. § 2510.3-

1(b)(1) (emphasis added), the term “normal compensation” is

left open to these various interpretations. Indeed, the fact that

the district court disagrees with the Department of Labor and

numerous other courts as to what “normal compensation”

means, as well the sheer number of opinion letters interpreting

“normal compensation,” suggests that the term is ambiguous.

See Beck v. City of Cleveland, 390 F.3d 912, 920 (6th Cir.

2004) (noting that the existence of opinion letters and differ-

ing judicial opinions reflects the ambiguity of a regulation’s

text).

[6] Because the regulation is ambiguous, the Department of

Labor’s interpretation is controlling under Auer unless it is

“plainly erroneous or inconsistent with the regulation.” See

Auer, 519 U.S. at 461 (citations omitted); see also Ford

Motor Credit Co. v. Milhollin, 444 U.S. 555, 565-66 (1980)

(holding that an agency’s construction of its own regulations

should be dispositive “[u]nless demonstrably irrational”).

Under this standard, we defer to the agency’s interpretation of

its regulation unless an “ ‘alternative reading is compelled by

the regulation’s plain language or by other indications of the

[agency’s] intent at the time of the regulation’s promulga-

tion.’ ” Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512

(1994) (quoting Gardebring v. Jenkins, 485 U.S. 415, 430

(1988)) (emphasis added).

[7] Here the Department of Labor’s interpretation is not

plainly erroneous or inconsistent with the regulation. Because

“normal compensation” is a vague term, it may reasonably

include reduced compensation that is “normal” in other senses

of the word, as mentioned above. Also, the preamble to the

regulation states that payroll practices are those which, “al-

11110 BASSIRI v. XEROX CORP.

though relating to benefits described in sections 3(1)(A) of

[ERISA] and 302(c) of the LMRA, are more closely associ-

ated with normal wages or salary.” 40 Fed. Reg. 34526 (Aug.

15, 1975). Xerox’s LTD Plan more closely resembles salary:

The payments come in regular paychecks, in an amount tied

to the employee’s salary and not to the variable performance

of a fund. And, like salary, LTD Plan benefits end upon termi-

nation. See Scott v. Gulf Oil Corp., 754 F.2d 1499, 1503 (9th

Cir. 1985) (noting that payroll practices end upon termina-

tion); see also Department of Labor, Opinion 96-16A, 1996

ERISA LEXIS 28, at *6 (Aug. 27, 1996) (finding that disabil-

ity plan was not a “payroll practice” because, inter alia, the

payroll practices exception is “not intended to apply to

arrangements that continue cash payments to individuals . . .

after the individuals have ceased to be considered employees

. . . .”).

[8] The Department of Labor’s interpretation also fits with

the purpose of ERISA: to protect employees from misman-

agement of benefit funds. See Massachusetts v. Morash, 490

U.S. 107, 115 (1989). As the Court stated in Morash:

In enacting ERISA, Congress’ primary concern was

with the mismanagement of funds accumulated to

finance employee benefits and the failure to pay

employees benefits from accumulated funds. To that

end, it established extensive reporting, disclosure,

and fiduciary duty requirements to insure against the

possibility that the employee’s expectation of the

benefit would be defeated through poor management

by the plan administrator . . . . If there is a danger of

defeated expectations [in receiving vacation benefits

paid out of general assets], it is no different from the

danger of defeated expectations of wages for ser-

vices performed — a danger Congress chose not to

regulate in ERISA.

Id. (internal citations omitted). The Department of Labor has

chosen to define “normal compensation” broadly and focus on

BASSIRI v. XEROX CORP. 11111

the source of the funding, rather than its amount. This choice

is in line with the purpose of the statute. See, e.g., Cal. Div.

of Labor Standards Enforcement v. Dillingham Constr., 519

U.S. 316, 326-27 (1997) (noting the importance of the source

of funding as a distinguishing feature between ERISA plans

and non-ERISA plans throughout Department of Labor regu-

lations).

We are not persuaded by Xerox’s argument that its plan

does not fit within Morash’s interpretation of a payroll prac-

tice because benefits under its LTD Plan are payable “only

upon the occurrence of a contingency outside of the control

of the employee.” See Morash, 490 U.S. at 116. Although

benefits under the LTD Plan are available only after the

employee becomes unable to work and is medically certified

as disabled, these are not the kind of contingencies Morash

had in mind. Because all sick leave and medical benefits are

contingent on illness, Xerox’s proposed definition would

obliterate the payroll practices exception at issue here. This

cannot be what the Department of Labor intended and is not

required by the statute. See Stern v. IBM, 326 F.3d 1367, 1373

(11th Cir. 2003) (noting that such a broad definition of contin-

gencies would make the payroll practices exception “mean-

ingless”).

Finally, Xerox points to language in the preamble suggest-

ing that Congress intended to cover “disability plans and other

medical plans under which benefits generally consist of a

scheduled percentage of normal compensation.” 40 Fed. Reg.

34526 (Aug. 15, 1975). The thrust of this section of the pre-

amble is that ERISA should cover “true disability plans,”

namely, those “that have traditionally been regarded as

employee benefit plans, rather than a continuation of wages

or salary.” Id. The parties have spilt much ink debating the

definition of a “true disability” plan. We believe this is a

question left to the sound discretion of the agency charged

with administering ERISA, which has provided a consistent

answer since 1979. When the agency has chosen a definition

11112 BASSIRI v. XEROX CORP.

that comports with the text and purposes of the governing

statute and is not “decidedly irrational,” it is not our place to

second-guess its judgment.

If this were de novo review, we might not have arrived at

the same interpretation of “normal compensation” as the

Department of Labor. Nonetheless, the Department of Labor’s

opinion letters, as interpretations of that agency’s own regula-

tions, are entitled to “great judicial deference.” See Zurich

Am. Ins. Co. v. Whittier Props., Inc., 356 F.3d 1132, 1137

(9th Cir. 2004). Special deference is due because “the letters

reflect a consistent view over an extended period of time” —

here, a position that the Department of Labor has taken uni-

formly since 1979. Archuleta v. Wal-Mart Stores, Inc., 395

F.3d 1177, 1186 (10th Cir. 2005). For over twenty-five years,

employers have relied on this interpretation and have shaped

their plans around the Department of Labor’s definition. We

will not upset that established definition unless compelled to

do so. See Thomas Jefferson Univ., 512 U.S. at 512.2

[9] Although Xerox argues to the contrary, we also con-

clude that adoption of the Department of Labor’s longstand-

ing interpretation does not cause the regulation to exceed the

agency’s authority under the statute. As the Supreme Court

noted in Morash, “[t]he precise coverage of ERISA is not

clearly set forth in the Act.” 490 U.S. at 113. Rather, ERISA

frequently defines terms vaguely, and leaves much to the

administrative discretion of the implementing agency. See id.

2

In deferring to the Department of Labor’s opinion, we reach the same

conclusion as every court that has explicitly considered whether a plan

that provides less than full salary may provide “normal compensation.”

See Langley v. DaimlerChrysler Corp., 407 F. Supp. 2d 897, 912-15 (N.D.

Ohio 2005); Havey v. Tenneco, No. 98C 7137, 2000 WL 198445, at *8

(N.D. Ill. Feb. 11, 2000); Hite v. Biomet, Inc., 38 F. Supp. 2d 720, 729-30

(N.D. Ind. 1999); Williams v. Great Dane Trailer Tenn., Inc., No. 94-

2189-G/A, 1995 WL 447268, at *2 (W.D. Tenn. Jan. 20, 1995); Martin

Marietta Energy Sys., Inc. v. Indus. Comm’n of Ohio, 843 F. Supp. 1206,

1211-12 (S.D. Ohio 1994).

BASSIRI v. XEROX CORP. 11113

at 116. This is particularly true of section 3(1)’s fairly tauto-

logical definition of an employee welfare benefit plan as “any

plan, fund, or program . . . established or maintained by an

employer . . .” for the purpose of providing various benefits.

29 U.S.C. § 1002(1). The statute “does not further define

‘plan, fund, or program,’ ” see Morash, 490 U.S. at 114, but

leaves ample room for the Department of Labor to provide a

more helpful definition. The Department has done so, and the

statute does not compel us to reject the agency’s views.

[10] We therefore defer to the Department of Labor’s inter-

pretation, and find that Xerox’s LTD Plan may qualify as an

exempt payroll practice under 29 C.F.R. § 2510.3-1(b)(2)

even though it pays less than an employee’s full salary.3

3

Xerox argues that its plan must be an ERISA plan because various

courts have premised jurisdiction on the fact that similar disability plans

that pay less than 100% of salary are ERISA plans. As its primary exam-

ple, Xerox points to Black & Decker Disability Plan v. Nord, 538 U.S. 822

(2003), a case in which both this court and the Supreme Court would have

jurisdiction only if the disability plan, which paid 70% of salary, was an

ERISA plan. See id.; Nord v. Black & Decker Disability Plan, 296 F.3d

823, 825 (9th Cir. 2002). Xerox argues that each court has an obligation

to consider its jurisdiction. Thus, because both courts exercised jurisdic-

tion, Xerox asks us to conclude that both the Supreme Court and this court

must have decided that its plan was a plan covered under ERISA and that

it was not a payroll practice.

Even assuming that the plans at issue are materially indistinguishable

from the one at issue here, this argument presumes too much. A court has

an obligation to consider its own jurisdiction, and should, sua sponte, raise

any doubts it has about its jurisdiction. See WMX Tech. Inc. v. Miller, 104

F.3d 1133, 1135 (9th Cir.1997). It cannot be presumed, however, that by

exercising jurisdiction the court has considered and rejected every juris-

dictional argument that a party might raise. In Nord, neither party argued

that the plan was a payroll practice nor did they raise any question as to

the jurisdiction of the court. Neither court showed any indication that it

considered whether the plan was a payroll practice. Accordingly, we will

not presume that the courts considered and decided, sub silentio, that the

payroll practice exception did not apply. See United States v. L.A. Tucker

Truck Lines, Inc., 344 U.S. 33, 38 (1952) (“[A court] is not bound by a

prior exercise of jurisdiction in a case where it was not questioned and it

was passed sub silentio.”).

11114 BASSIRI v. XEROX CORP.

III. Conclusion

[11] Based on the foregoing, we hold that Xerox’s LTD

Plan may qualify as a payroll practice even though it pays less

than Bassiri’s full salary. Because the district court reached a

contrary conclusion on that question, it did not consider

whether the LTD Plan otherwise qualified as a payroll prac-

tice. We therefore remand the case for the district court to

consider, in the first instance, whether Xerox’s LTD Plan is

in fact a payroll practice exempt from ERISA.

REVERSED AND REMANDED.