Bassiri v. Xerox Corp. , 463 F.3d 927 ( 2006 )

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.