Ali BASSIRI, Plaintiff-Appellant, v. XEROX CORPORATION; Xerox Corporation Long-Term Disability Income Plan; Lawrence Becker, Defendants-Appellees, and Patricia Nazemetz; Prudential Company of America; Health International; Does 1-100 Inclusive, Defendants.
No. 04-55472.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted Dec. 5, 2005. Filed Sept. 12, 2006.
463 F.3d 927
Richard J. Pautler, Thompson Coburn, LLP, St. Louis, MO, for the defendants-appellees.
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 salary. Bassiri challenges that determination. The district court certified this issue for interlocutory appeal, and we thus have jurisdiction under
I. Factual Background
Ali Bassiri was a permanent employee of Xerox Corporation 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 disability, 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.
On January 21, 2002, Bassiri‘s doctor notified Xerox management that Bassiri required a leave of absence. In April 2002, Bassiri underwent surgery for carpal tunnel syndrome. When Bassiri returned to work оn 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 employment, and that Xerox had wrongfully terminated his disability payments. Bassiri‘s complaint, as amendеd, alleged that either: (a) the Xerox LTD plan was an ERISA “employee welfare benefit plan” under section 3(1) of ERISA, codified at
Xerox filed a motion under
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 preсludes 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 interpretation of ERISA. See Spink v. Lockheed Corp., 125 F.3d 1257, 1260 (9th Cir. 1997).
Section 3(1) of ERISA, codified at
[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 оr is maintained for the purpose of providing for its participants or their beneficiaries ... benefits in the event of sickness, accident, disability, death or unemployment....
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 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 periods 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 pregnancy, a physical examination or psychiatric treatment)....
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, Oрinion 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 disability 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 employee‘s normal compensation, but in no event exceed an employee‘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 ... mаy constitute a payroll practice that is not an employee welfare 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.”
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 opiniоn letters is Auer deference, not Skidmore deference. In Christensen, the Court considered opinion letters in which the Department of Labor purported to interpret a statute, the Fair Labor Standards Act. Under Skidmore, an agency‘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 interpretation of an ambiguous regulation is controlling under Auer unless “plainly erroneous or inconsistent with the regulation.” 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 agency‘s interpretation of an ambiguous regulation. See Christensen, 529 U.S. at 588;
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 pеrmit the agency, under the guise of interpreting a regulation, to create de facto a new regulation.“).
In this case, the meaning of the term “normal compensation” is not entirely “free from doubt.” See Providence 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 manner of payment, or any combination of the above. In contrast to the precеding section of the regulations, which refers to “normal rate of compensation,” see
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; see also Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 565-66 (1980) (holding that an agency‘s construction оf its own regulations should be dispositive “unless 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 promulgation.‘” Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994) (quoting Gardebring v. Jenkins, 485 U.S. 415, 430 (1988)) (emphasis added).
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
The Department of Labor‘s interpretation also fits with the purpose оf ERISA: to protect employees from mismanagement 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 services 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 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 Dеpartment of Labor regulations).
We are not persuaded by Xerox‘s argument that its plan does not fit within Morash‘s interpretation of a payroll practice 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 emрloyee 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 rеquired by the statute. See Stern v. IBM, 326 F.3d 1367, 1373 (11th Cir. 2003) (noting that such a broad definition of contingencies would make the payroll practices exception “meaningless“).
Finally, Xerox points to language in the preamble suggesting 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 preamble is that ERISA should cover “true disability plans,” namely, those
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 regulations, 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 uniformly since 1979. Archuleta v. Wal-Mart Stores, Inc., 395 F.3d 1177, 1186 (10th Cir. 2005). For over twenty-five years, employers havе 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
Although Xerox argues to the contrary, we also conclude that adoption of the Department of Labor‘s longstanding interpretation does not cause the regulation to exceed the agеncy‘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. at 116. This is particularly true of section 3(1)‘s fairly tautological definition of an employee welfare benefit plan as “any plan, fund, or program ... estаblished or maintained by an employer ... for the purpose of providing various benefits.”
We therefore defer to the Department of Labor‘s interpretation, and find that Xerox‘s LTD Plan may qualify as an exempt payroll practice under
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 practice. 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.