Bassiri v. Xerox Corp.

• Decision Date: 12 September 2006
• Docket Number: No. 04-55472.,04-55472.
• Citation: 463 F.3d 927
• Parties: 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.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 927

463 F.3d 927

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 December 5, 2005.

Filed September 12, 2006.

Kathleen A. Brewer, Westlake Village, CA, for the plaintiff-appellant.

Richard J. Pautler, Thompson Colburn, LLP, St. Louis, MO, for the defendants-appellees.

Appeal from the United States District Court for the Central District of California; Dickran M. Tevrizian, District Judge, Presiding. D.C. No. CV-03-03597-DT.

Before PREGERSON, NOONAN, and THOMAS, Circuit Judges.

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 28 U.S.C. § 1292(b). We reverse and remand for further proceedings.

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 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 employment, 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 preempted by ERISA. On December 12, 2003, Bassiri filed a motion asking the district court to certify its decision for interlocutory review pursuant to 28 U.S.C. § 1292(b). The district court certified the order, and this appeal ensued.

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 interpretation of ERISA. See Spink v. Lockheed Corp., 125 F.3d 1257, 1260 (9th Cir.1997).

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 beneficiaries . . . benefits in the event of sickness, accident, 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 maintained 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 "established 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 definition of an employee welfare benefit plan.

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).. . .

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 therefore first consider what deference, if any, we should give to the Department of Labor's opinion letters.

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 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... may 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, 65 S.Ct. 161, 89 L.Ed. 124 (1944), "only to the extent that they have `the power to persuade,'" citing Christensen v. Harris County, 529 U.S. 576, 120 S.Ct. 1655, 146 L.Ed.2d 621 (2000). The district court was mistaken, however, because the proper construct for review of these opinion 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...