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Supreme Court Rules For AT&T In Pregnancy Discrimination Case

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May 19, 2009

In a 7-2 decision, the United States Supreme Court ruled yesterday that AT&T Corporation did not violate the Pregnancy Discrimination Act ("PDA") by giving less credit for maternity leave taken before the PDA took effect than for other medical leave in calculating pension benefits. AT&T Corp. v. Hulteen.

Case History

Under AT&T's pension plan, employees' benefits are calculated according to an employee's term of employment, less any uncredited leave time. From the 1960's through the 1970's, AT&T employees on "disability" leave received full service credit for the entire period of their absence. Employees who took "personal" leave received a maximum service credit of 30 days. Leave for pregnancy was treated as personal leave. In 1977, AT&T changed its practice by adopting a Maternity Payment Plan ("MPP"), under which pregnant employees could receive disability credits and service credit for up to six weeks of leave. Absences beyond six weeks were treated as personal leave, with no further benefits or credit. Employees out on disability unrelated to pregnancy continued to receive full service credit for the duration of the absence.

At the time, this differential treatment of pregnancy leave was lawful. However, in response to the U.S. Supreme Court's decision in General Electric Co. v. Gilbert that such differential treatment of pregnancy was not sex discrimination under Title VII, Congress amended Title VII in 1978 by passing the PDA, which made it unlawful to treat pregnancy-related conditions less favorably than other medical conditions. AT&T replaced the MPP with a new plan providing equivalent benefits for pregnancy and non-pregnancy-related disability leave. However, AT&T did not make any retroactive adjustments to the service credit calculations of women who took leave before enactment of the PDA.

In the case before the Supreme Court, four female employees who took pregnancy-related disability leave before passage of the PDA sued, alleging that AT&T improperly calculated their pension benefits by failing to give them equal credit for their leave as that extended to employees on non-pregnancy disability leave. The trial court ruled for the employees, holding that AT&T violated Title VII by not adjusting its pension accrual rules in accordance with the PDA. Rejecting earlier opinions of the federal appeals courts for the Sixth and Seventh Circuits, the Ninth Circuit Court of Appeals affirmed the decision of the trial court. The U.S. Supreme Court accepted review of the case to resolve the split between the circuits.

Majority Upholds AT&T's Pension Practice

In a majority decision authored by Justice David Souter, the Court noted that under § 703(h) of Title VII, it is not an unlawful employment practice for an employer to apply different standards of compensation pursuant to a bona fide seniority system so long as such differences are not the result of an intention to discriminate because of sex. In Teamsters v. U.S., the Supreme Court held that a pre-Title VII seniority system that disproportionately advantaged white employees over minorities was nevertheless a bona fide seniority system, because the discrimination preserved by the system resulted from the employer's pre-Title VII hiring practices and job assignments. The Court held that AT&T's pension system was similarly a bona fide seniority system, because although it perpetuated the effects of the pre-PDA pregnancy leave policies, it did not itself contain any discriminatory terms. Further, in Gilbert, the Supreme Court held that the company's pre-PDA pregnancy leave policy did not unlawfully discriminate on the basis of sex. Consequently, the only way to find AT&T's pension calculation policy illegal would be to apply the Pregnancy Discrimination Act retroactively – which the Court declined to do.

The majority likewise rejected plaintiffs' argument that the recently-enacted Lily Ledbetter Fair Pay Act applies to their claim. The Ledbetter Act provides that for purposes of Title VII (as well as the Age Discrimination in Employment Act and the Americans With Disabilities Act), an unlawful employment action occurs when an employee is affected by application of a discriminatory compensation decision or other practice. While this provision allows many employees to proceed with claims that would previously have been considered untimely, the Court held that it did not aid the plaintiffs in this case because AT&T’s pregnancy leave policies were lawful when they were applied to the plaintiffs.

Two Justices Dissent

In a dissenting opinion joined by Justice Breyer, Justice Ginsburg asserted that AT&T committed a "current violation" of the PDA when it relied upon the pre-PDA policy to calculate pension benefits for the four plaintiffs. Justice Stevens, who, with Justice Souter, is also regarded as part of the Court's more "liberal" wing, issued a brief opinion in which he expressed sympathy for Justice Ginsburg's argument, but cast his vote with the majority because he acknowledged that the court's decision over 30 years earlier in Gilbert (from which Stevens also dissented) was the governing interpretation of Title VII until Congress enacted the PDA.

Potential Effect of the Decision

While this case may ultimately have little direct impact on most employers, it could have a significant political impact, both in terms of legislation and selection of a new Justice to replace Justice Souter following his retirement at the end of this term. After the Court's recent ruling in Ledbetter v. Goodyear Tire & Rubber Co., a firestorm of controversy resulted in passage earlier this year of the Ledbetter Act, which in many cases effectively eliminates the statute of limitations on discrimination claims. It remains to be seen whether this case will result in the same level of political opposition. However, it will likely bolster already strong support for appointment of another female Justice.

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