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ALERT: Supreme Court Upholds Employer Pension Payment Based in Part on Pre-PDA Differentiating Rule

In a 7-2 decision, the Supreme Court on Monday decided that an employer's calculation of pension benefits that gave less retirement credit for pregnancy leave than for other medical leave, based on a rule applied only prior to enactment of the Pregnancy Discrimination Act ("PDA"), did not violate Title VII of the Civil Rights Act. AT&T Corp. v. Hulteen, No. 07-543, (May 18, 2009), available at http://www.supremecourtus.gov/opinions/08pdf/07-543.pdf (hereinafter "slip op."). The Court held that there was no violation because the benefit calculation rule was part of a bona fide seniority system insulated from challenge by 42 U.S.C. § 2000e-2(h). Justice Souter delivered the opinion of the Court, joined by Chief Justice Roberts and Justices Stevens, Scalia, Kennedy, Thomas, and Alito. Justice Stevens also filed a concurring opinion. Justice Ginsburg, joined by Justice Breyer, dissented.

Prior to the 1978 enactment of the PDA, through the 1960s and the early 1970s, AT&T implemented a pension and benefit plan that provided benefits based on a seniority system that calculated the employee's accrued time as company time minus time spent on uncredited leave. Under that plan, AT&T employees taking "personal" leave, which included leave for pregnancy, received a maximum service credit of 30 days regardless of the length of the absence, while employees on "disability" leave received service credit for the full absence. The Hulteen Court noted that, at the time, "[t]his differential treatment of pregnancy leave . . . was lawful" under General Electric Co. v. Gilbert’s holding that differential treatment for benefits based on pregnancy was not sex-based discrimination under Title VII. See Gilbert, 429 U.S. 125 (1976).

Later, when Congress passed the PDA, AT&T adopted a new disability plan which fully complied with the PDA by providing service credit for pregnancy leave on the same basis as leave taken for other temporary disabilities. However, AT&T did not retroactively change the accrued benefits of any employee who had taken pregnancy leave previously, even though the previously-existing benefit accrual rules were contrary to the PDA. As a result, women who took leave under the prior plans "received less service credit for pregnancy leave than [they] would have accrued on the same leave for disability." Slip op. at 3. Four of these women, including Noreen Hulteen, along with the Communications Workers of America, filed suit in the Northern District of California. Both the district court, and the Ninth Circuit en banc, held that AT&T had violated Title VII and the PDA by refusing to make retroactive changes to these individuals’ benefit levels.

The Supreme Court reversed, holding that "a seniority system does not necessarily violate the statute when it gives current effect to such [accrual] rules [differentiating on pregnancy] that operated before the PDA." Slip op. at 6. The Court noted that seniority systems are given special treatment under Title VII, in part because of the desire to keep such systems stable, meaning that "[b]enefit differentials produced by a bona fide seniority-based pension plan are permitted unless they are ‘the result of an intention to discriminate.’" Id. (quoting 42 U.S.C. § 2000e-2(h)). "Because AT&T’s differential accrual rule was . . . a permissible differentiation given the law at the time" the rule was implemented, the Court found that AT&T’s seniority system was a bona fide system protected by Title VII. Id. at 9. The Court rejected the argument that the PDA applied retroactively, given the lack of clear Congressional intent for retroactivity.

The Court also rejected Hulteen’s argument that AT&T’s pension system was subject to 42 U.S.C. § 2000e-5(e)(2), which defines when an unlawful employment practice occurs with respect to a seniority system, because, according to the Court, that section requires the system to have been "adopted for an intentionally discriminatory purpose in violation of this subchapter," and, at the time of adoption, AT&T’s system "was not discriminatory . . . let alone intentionally so in violation of this subchapter." Slip op. at 11. For the same reasons, the Court rejected Hulteen’s argument that the newly enacted Lilly Ledbetter Fair Pay Act saved her claim, finding that Hulteen "has not been ‘affected by application of a discriminatory compensation decision or other practice.’" Id. at 14 (quoting Lilly Ledbetter Fair Pay Act of 2009, Pub. L. No. 111-2, § 3(A), 123 Stat. 5-6).

In dissent, Justice Ginsburg, joined by Justice Breyer, would read the PDA to "protect women, from and after April 1979, when the Act became fully effective, against repetition or continuation of pregnancy-based disadvantageous treatment." Slip op. at 4 (dissent). While admitting that "[t]he PDA does not require redress for past discrimination [or] oblige employers to make women whole for the compensation denied them when, prior to the Act, they were placed on pregnancy leave," the dissent wrote that "when, post-PDA, [an employer] did not totally discontinue reliance upon a pension calculation premised on the notion that pregnancy-based classification display[s] no gender bias," the employer committed a current violation of Title VII. Id. at 3-4. In closing, the dissenters found it "at least reasonable to read the PDA to say, from and after the effective date of the Act, no woman’s pension payments are to be diminished by the pretense that pregnancy-based discrimination displays no gender bias." Id. at 13.

It is important for employers to note that the specific facts of this case are vital to the majority’s holding. AT&T was careful to ensure that it was in compliance with the then-current law by changing to a plan that complied with the PDA as of the PDA’s effective date. As a result, it is likely that the Hulteen opinion will be limited to situations in which the employer can show that it complied with then-current law. Employers who make benefit payments based on accrual rules that differentiated based on pregnancy should carefully review those rules to ensure that any such distinctions were lawful at the time they were made. And, employers should be aware that with multiple pieces of legislation involving leave and fair pay currently pending in Congressional committees, there is a possibility that Justice Ginsburg’s opinion may resonate in Congress and bring about legislative change.

This alert is intended to provide a brief synopsis of recent developments in the law and should not be construed as legal advice. For more information, please contact your Jones Day contact, Lawrence DiNardo at 312.782.3939, or Jacqueline Holmes or Sarah McClure, at 202.879.3939. 

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