In AT&T v. Hulteen, the US Supreme Court held that because Congress did not intend the Pregnancy Discrimination Act (PDA) to apply retroactively, the pension benefit calculation used by AT&T prior to the enactment of the PDA was lawful and must be considered a bona fide seniority system immune to Title VII challenges.

Case Background

During the 1960s through the mid-1970s, AT&T and its affiliates based their pension calculations on a seniority system that relied on years of service minus uncredited leave time, giving less retirement credit for pregnancy absences than for other medical and disability leaves in general. At the time, this practice of treating pregnancy leave differently from other medical and disability leaves was lawful pursuant to the Supreme Court's decision in General Elec. Co. v. Gilbert, 429 US 125 (1976), which held that a disability benefit plan excluding disabilities related to pregnancy was not sex-based discrimination within the meaning of Title VII of the Civil Rights Act of 1964.

In 1978 Congress amended Title VII by passing the PDA, which effectively overruled the Gilbert decision and made clear that it was discriminatory to treat pregnancy-related conditions less favorably than other medical conditions. When the PDA went into effect in 1979, AT&T abandoned its past practice and adopted a new plan that provided service credit for pregnancy leave on the same basis as leave taken for other medical conditions. It did not, however, make any retroactive adjustments to the service credit calculations of women who had been subject to the pre-PDA personnel policies. As a result, four female employees who took pregnancy leave prior to the passage of the PDA filed charges of discrimination with the Equal Employment Opportunity Commission (EEOC) and later brought suit in federal court alleging discrimination on the basis of sex and pregnancy in violation of Title VII. Each woman alleged that she would have been entitled to greater pension benefits if she had not been given less service credit for pregnancy leave as compared to other forms of medical or disability leave.

In the ensuing lawsuit, the Ninth Circuit Court of Appeals, sitting en banc, affirmed the lower court's decision by holding that "calculation of service credit excluding time spent on pregnancy leave violates Title VII[.]" This decision directly conflicted with previous decisions rendered by the Sixth and Seventh Circuits holding that reliance on a pre-PDA differential accrual rule to determine pension benefits did not constitute a current violation of Title VII. Thus, the Supreme Court granted certiorari to resolve the split between the circuits.

The Hulteen Decision

In reversing the Ninth Circuit, the Supreme Court held that "[a]lthough adopting a service credit rule unfavorable to those out on pregnancy leave would violate Title VII today, a seniority system does not necessarily violate the statute when it gives current effect to such rules that operated before the PDA." In reaching its decision, the Court relied heavily on the "special treatment" afforded to seniority systems under §703(h) of Title VII. Pursuant to §703(h), benefit differentials produced by a bona fide seniority-based pension plan are permitted unless they are the result of intentional discrimination.

Writing for the majority, Justice Souter explained that AT&T's pre-PDA seniority system had to be viewed as a bona fide plan – a plan lacking discriminatory terms – because at that time an exclusion of pregnancy leave from a disability-benefits plan providing general coverage was not, as a matter of law, a gender-based discriminatory act. Instead, AT&T's intent when it adopted the pregnancy leave rule (before the PDA) was to give differential treatment that was in fact lawful. As the Supreme Court recognized, the only way to avoid this simple fact "would be to read the PDA as applying retroactively to recharacterize the acts as having been illegal when done[.]" However, there was no clear intent or indication at all that Congress had retroactive application in mind when it passed the PDA. Thus, as Justice Souter put it, giving retroactive affect to the PDA was "not a serious possibility."

The Supreme Court also addressed the supplemental briefing filed by both parties concerning the recent amendment to Title VII based on the passage of the Lilly Ledbetter Fair Pay Act (Ledbetter Act), and the possible effect the Act could have on the outcome of the case. The Court rejected the plaintiffs' argument that the payment of their pension benefits marked the moment in time at which they were affected by a discriminatory compensation decision or other practice under the Ledbetter Act. Instead, the Court held that the Ledbetter Act was inapplicable to the case at hand because the plaintiffs had not been affected by a discriminatory compensation decision or other practice since AT&T's pre-PDA decision not to award service credit for pregnancy leave was not discriminatory at the time.

Bottom Line

The PDA does not apply retroactively to pension benefit calculations made prior to the effective date of the Act. Thus, as long as employers have adopted new pension plans that provide service credit for pregnancy leave on the same basis as leave taken for other medical conditions, pre-PDA decisions will not affect current payment of pension benefits. In addition, it is important to note that this was the Supreme Court's first opportunity to interpret the legal scope of the Ledbetter Act. In doing so, the Court refused to read the Ledbetter Act as applying retroactively to employment decisions that while illegal now, were perfectly legal when rendered.