June 18, 2009

The U.S. Supreme Court recently held that an employer did not violate Title VII of the Civil Rights Act by granting limited service credit for purposes of calculating retirement benefits for pregnancy leaves taken before Title VII was amended in 1978 by the Pregnancy Discrimination Act (PDA). In a 7-2 decision, the majority found that the company based its benefit calculations on a "bona fide" seniority system. AT&T Corporation v. Hulteen, No. 07-543, U.S. Supreme Court (May 18, 2009).

Factual Background

Since 1914, AT&T and its Bell System Operating Companies have provided pension and other benefits to employees based on seniority, taking into account an employee's period of service at the company minus uncredited leave time. In the 1960s and much of the 1970s, AT&T gave employees on disability leave full service credit for their entire leave. However, employees who took personal leave (including pregnancy leave) received a maximum service credit of 30 days.

In 1977, AT&T revised these rules. Under its new Maternity Payment Plan (MPP), pregnant employees were entitled to disability benefits and up to six weeks of leave. Absences beyond six weeks were considered personal leave.

In 1978, Congress amended Title VII by passing the PDA, which made it "discriminatory to treat pregnancy-related conditions less favorably than other medical conditions." As a result, in 1979, AT&T replaced the MPP with its Anticipated Disability Plan, which treated pregnancy and disability leaves equally. AT&T did not, however, retroactively adjust the service credits of women who had been subject to the company's former policies.

After retiring, Noreen Hulteen filed a charge with the Equal Employment Opportunity Commission (EEOC) alleging sex and pregnancy discrimination and challenging her pension benefit calculation. After receiving a right-to-sue letter, Hulteen and three current and former AT&T employees, in addition to the Communications Workers of America, filed suit arguing that AT&T violated Title VII by failing to provide them with full credit for pregnancy leaves taken before the effective date of the PDA.

The trial judge ruled in favor of the employees and the Ninth Circuit Court of Appeals affirmed. AT&T appealed this ruling and the case was ultimately heard by the U.S. Supreme Court.

Legal Analysis

Writing for the majority, Justice David Souter first noted that although AT&T's pre-PDA service credit rule would violate Title VII today, a seniority system does not necessarily violate Title VII by merely giving effect to rules that operated before the PDA. Justice Souter next noted that §703(h) of Title VII immunizes bona fide se-niority systems (i.e., those that do not have unlawful discriminatory terms). Thus, AT&T's system, which was bona fide, was not unlawful even though it granted employees on pregnancy leave less service credit.

Although AT&T's pre-1979 plan included a rule of differential treatment, the Court held that "it did not taint the system" since when the rule was in effect such a practice was not unlawful. According to the Court, "AT&T's intent when it adopted the pregnancy leave rule (before the PDA) was to give differential treatment that as a matter of law . . . was not gender-based discrimination." Since AT&T's differential accrual rule was lawful at that time, the Court found that AT&T's pre-1979 seniority system was not at odds with the bona fide requirement. Moreover, the Court found that there was no clear intent from Congress to retroactively apply the PDA.

The high court also considered the effect of the recent amendment to §706(e) of Title VII, adopted in response to the 2007 U.S. Supreme Court decision in Ledbetter v. Goodyear Tire & Rubber Co. Hulteen argued that payment of pension benefits marks the moment at which she "is affected by application of a discriminatory compensation decision or other practice." The Court rejected this claim for the same reasons it rejected her other argument. Because AT&T's pre-PDA decision regarding service credit for pregnant employees was not unlawful at the time, the Court could not find that Hulteen had been "affected by application of a discriminatory compensation decision or other practice."

Practical Impact

According to Michael Fox, a shareholder in Ogletree Deakins' Austin office: "What was always a long shot for a quick look at the newest employment legislation did not pan out as the Supreme Court issued its decision without providing any guidance on how it would view the Lilly Ledbetter Fair Pay Act. If the case had gone the other way, it is possible to imagine how it could have had broad ramifications. However, given the narrow holding of Justice Souter's opinion, its impact should be quite limited. The passage of time will limit the opportunities for seniority systems to be impacted by discriminatory practices that were legal at the time, but became illegal at a later date, which is the narrow focus of this decision."

Note: This article was published in the May/June 2009 issue of The Employment Law Authority.