High Court Rules Employer Did Not Violate the Pregnancy Discrimination Act

On May 18, 2009, the U.S. Supreme Court ruled that an employer that paid pension benefits, which were calculated in part under an accrual rule that was only applied prior to the Pregnancy Discrimination Act (PDA) but which gave less retirement credit for pregnancy leave than it did for medical leave did not violate the PDA. The high court also held that the benefit calculation rule that the employer used was part of a bona fide seniority system under §703(h) of Title VII of the Civil Rights Act of 1964, and thus is insulated from challenge. AT&T Corporation v. Hulteen, No. 07–543, U.S. Supreme Court (May 18, 2009).

Factual Background

Since 1914, AT&T Corporation 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 early to mid-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 altered its plan. 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, however, did not make a retroactive adjustment to the service credit calculations 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 seniority systems (i.e., those that do not have 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 under the terms of subsection (h)” since when the rule was in effect it 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 subsection (h) 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, 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 discriminatory, 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.”

Additional Information

Should you have any questions about the impact of this ruling, contact the Ogletree Deakins attorney with whom you normally work or the Client Services Department at 866-287-2576 or via e-mail at clientservices@ogletreedeakins.com.

Note: This article was published in the May 18, 2009 issue of the National eAuthority.