In a 7-2 decision, the United States Supreme Court has held that AT&T did not violate the Pregnancy Discrimination Act (“PDA”) when it based its calculation of employees’ pensions in part on a pre- PDA accrual rule that treated pregnancy leave less favorably than other forms of disability leave. AT&T Corp v. Hulteen, No. 07-543 (May 18, 2009). The Court’s decision reversed the Ninth Circuit and confirmed the presumption that discrimination statutes will not be applied retroactively.
Plaintiffs were Noreen Hulteen and three other AT&T employees who had taken pregnancy leave before April 29, 1979, the effective date of the PDA. At the time they took leave, AT&T based employee pension benefits on a seniority system (i.e., a system based on length of service) that provided less service credit for pregnancy leaves than it did for other forms of temporary disability leave. When the PDA took effect, AT&T changed its system and began to provide full service credit for pregnancy leaves. It did not, however, retroactively adjust the accrued service credits of Plaintiffs or any other employees who previously had taken pregnancy leave. Therefore, when those employees retired, they received an overall pension amount that was less than it would have been if AT&T had afforded full service credit to their pre-PDA pregnancy leaves.
Plaintiffs and their union filed suit against AT&T in the Northern District of California alleging discrimination on the basis of sex and pregnancy in violation of Title VII of the Civil Rights Act of 1964, as amended by the PDA. Plaintiffs argued that it was unlawful for AT&T, in the present day, to apply a seniority-based pension system that incorporated antiquated pre-PDA accrual rules that had differentiated on the basis of pregnancy. Doing so, Plaintiffs contended, carried forward the old service credit differential so as to produce a disparate effect in the amount of the pension benefits of employees who had taken pre-PDA pregnancy leave. The district court agreed, holding that AT&T had engaged in unlawful pregnancy discrimination, and the Ninth Circuit, en banc, affirmed. Because the Ninth Circuit’s decision directly conflicted with rulings from other circuits, the Supreme Court granted certiorari to resolve the circuit split.
The Supreme Court’s Decision
The Supreme Court reversed the Ninth Circuit and held that AT&T had not violated Title VII. Writing for the Court, Justice Souter (who was joined by six other justices), held that although it would be unlawful today for a company to adopt a service credit system containing rules that differentiated based on pregnancy, such a “system does not necessarily violate [Title VII] when it gives current effect to such rules that operated before the PDA.” The Court reasoned that a service-based pension system like that of AT&T qualifies as a “bona fide seniority system” exempt from liability under Section 703(h) of Title VII, as long as the system is not “the result of an intention to discriminate.” The Court explained that before the PDA, there could be no doubt that AT&T’s pension accrual rules were lawful, because the Court in General Elec. Co. v. Gilbert, 429 U.S. 125 (1976), had specifically held that “an accrual rule limiting the seniority credit for time taken for pregnancy leave did not unlawfully discriminate on the basis of sex.” Therefore, the Court reasoned, pregnancy discrimination was not unlawful intentional discrimination during the years that AT&T’s pregnancy differential was in place, and such differential therefore did not result from an “intention” to discriminate.
Finally, the Court rejected Plaintiffs’ argument as to the relevance of the Lilly Ledbetter Fair Pay Act (which recently amended Title VII to provide, inter alia, that unlawful compensation discrimination occurs not only when a discriminatory compensation decision is made, but also when an individual “is affected by” the application of such decision). The Court reasoned that because AT&T’s pre-PDA decision not to afford full service credit for pregnancy leave was not unlawful discrimination, Plaintiffs were not “affected by” application of a discriminatory decision or other practice within the meaning of the statute.
Justice Ginsburg authored a dissent, joined only by Justice Breyer. The dissent criticized the majority for perpetuating the effects of the now-discredited Gilbert decision, in which, Justice Ginsburg wrote, the Court had “erred egregiously” when holding that pregnancy discrimination was not gender discrimination. The dissent would have held that “AT&T committed a current violation of Title VII when, post-PDA, it did not totally discontinue reliance upon a pension calculation premised on the notion that pregnancy-based classifications display no gender bias.”
What This Decision Means for Employers
ATT v. Hulteen is welcome news for employers. The decision has reinforced the presumption that employment discrimination statutes will not be applied retroactively — thereby increasing certainty and predictability for employers in this area. For the relatively small number of employers who maintain benefit plans that incorporate pre-PDA accrual features like those in the AT&T plan, the decision also brings more direct relief. Such plans may continue to operate, and the plan sponsors will not be forced to go back and recalculate the service credits of participants like the Hulteen plaintiffs.
In practice, however, the decision is unlikely to have any broad, concrete impact. Arguably, the decision can be viewed as having created a limited carve-out to Ledbetter Act liability, in the situation of a past “discriminatory” compensation system that was only “discriminatory” on the basis of a characteristic that was not legally protected at the time. The Court could have gone further, by basing its decision on statute of limitations grounds or otherwise providing more guidance as to how the Court may construe the Ledbetter Act in the future. Instead, the Court gave Ledbetter very little discussion (interestingly, Justice Ginsburg did not even mention it). The decision appears to have been carefully and narrowly crafted to apply only to the specific type of seniority system before the Court.
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