THE COURT'S PREGNANT PAUSE

On Dec. 10, 2008, the U.S. Supreme Court heard oral arguments in AT&T v. Hulteen. At issue is whether AT&T discriminated against pregnant women via its employment benefits system in violation of Title VII of the Civil Rights Act, as amended by the Pregnancy Discrimination Act.

Noreen Hulteen and three other current and former AT&T female employees took pregnancy leaves before 1978 and retired in the 1990s. Before the Pregnancy Discrimination Act was enacted in 1978, AT&T classified pregnancy leave as personal leave with a maximum of 30 days of service credit toward employee benefits. Employees on disability leave, however, were not restricted to the 30-day maximum. The Pregnancy Discrimination Act amended Title VII to require employers to accord women who take pregnancy leave the same benefits as employees who take other types of disability leave. In response to the amendment, AT&T immediately changed its employment benefits system and provided service credit for pregnancy leave on the same terms as temporary disability leave. No credit adjustments were made for female employees who had taken pregnancy leave before the enactment of the Pregnancy Discrimination Act. As a result, Hulteen and others filed suit in federal court claiming AT&T violated Title VII by not crediting their pre-1978 pregnancy leaves toward their employee benefits upon retirement.

The District Court found in favor of Hulteen and the employees, based on a prior 9th Circuit decision, Pallas v. Pacific Bell, 940 F.2d 1324 (9th Cir. 1991), which held that Pacific Bell's (predecessor to AT&T) reliance in 1987 on pre-Pregnancy Discrimination Act adjusted benefits perpetuated earlier discrimination and thereby rendered the benefits system "facially discriminatory." Both parties agreed that Pallas was decided on "virtually identical facts" as those in Hulteen. However, AT&T claimed that Pallas is no longer controlling law due to a more recent Supreme Court case, Ledbetter v. Goodyear Tire & Rubber Co., 127 S. Ct. 2162 (2007). Ledbetter held that a new violation of Title VII does not occur when an employer gives present effect to a past act of unlawful discrimination. Although recognizing the "great logical and legal force" of AT&T's arguments, the District Court maintained that it was bound by Pallas in finding for the employees. On appeal, a three-judge panel of the 9th Circuit agreed with AT&T and held that Pallas was no longer good law, overturning the District Court's decision.

Rehearing the case en banc, however, the 9th Circuit affirmed the District Court, holding that AT&T violated Title VII by its post-Pregnancy Discrimination Act reliance on pre-Pregnancy Discrimination Act service credit calculations. While AT&T's calculations may not have been unlawful when they were made before the Pregnancy Discrimination Act was enacted, AT&T's post-Pregnancy Discrimination Act reliance on those earlier calculations constituted new violations of Title VII. Reaffirming Pallas, the en banc majority distinguished Pallas from Ledbetter on the grounds that Ledbetter had involved facially neutral seniority systems, whereas the benefits systems at issue in Hulteen and Pallas were "facially discriminatory" against pregnant women. Rather than relying on Ledbetter, the majority concluded that Hulteen's case was more closely related to Bazemore v. Friday, 478 U.S. 385 (1986), where the Supreme Court found that an employer's decision to continue paying black workers less than equally skilled white workers after Title VII was enacted constituted a new violation of Title VII.

By ruling that AT&T's continued reliance on pre-Pregnancy Discrimination Act service credits violated Title VII, the en banc majority also rejected AT&T's argument that Pallas wrongfully gave the Pregnancy Discrimination Act retroactive effect. Judge Diarmuid F. O'Scannlain dissented, joined by three other judges, contending that the majority contravened Supreme Court precedent by characterizing employees' claims as current violations of Title VII.

The dissent explained that the majority's holding that AT&T's benefits system is facially discriminatory by treating "similarly situated" employees differently "necessarily depends on a retroactive application of the PDA." The dissent reasoned that women who took pre-Pregnancy Discrimination Act maternity leaves were not similarly situated under the law to workers who took leaves at that time. It was only after the Pregnancy Discrimination Act was enacted that pregnancy leave was entitled to similar treatment as other types of temporary disability leave.

AT&T petitioned the Supreme Court to grant a writ of certiorari to consider this case, with firm backing by the U.S. solicitor general, who urged the court to grant AT&T's petition. The court granted certiorari, stating the issue as "[w]hether employers violate Title VII by not fully restoring service credit for pregnancy leaves taken before the 1978 passage of the Pregnancy Discrimination Act."

This case has generated attention from advocates on both sides of the issue, with three amicus curiae briefs, including one from the U.S. solicitor general's office, filed on behalf of AT&T, and four amici groups filing in support of the employees. Writing as an amicus in support of the employees, the AARP urged that the pension benefits of women must be "vigorously protected." AARP also argued AT&T's assertion that a ruling against the company would have "substantial deleterious effect" on the solvency of pension funds is "premature and improper" because this ruling would affect a narrow group of employees (i.e. women taking leave before 1978) and employers (i.e. only those companies who denied service credit to women taking pregnancy leave before 1978). Writing as an amicus for AT&T, the solicitor general advised that AT&T should not be held liable for past lawful conduct that is deemed discriminatory after the fact, especially because AT&T indisputably changed its policy immediately after the Pregnancy Discrimination Act came into effect and there was no continuation of pre-Pregnancy Discrimination Act discriminatory practices.

During oral argument, the court seemed divided on whether Ledbetter or Bazemore should control this case's outcome. AT&T argued that its simple reliance on pre-Pregnancy Discrimination Act calculations, which were lawful at the time they were made, does not violate Title VII, consistent with Ledbetter's recent holding that "current effects alone cannot breathe new life into prior uncharged discrimination."

The employees urged the court to affirm the en banc 9th Circuit's decision that AT&T's post-Pregnancy Discrimination Act denial of benefits under the retirement plan in 1994 was a discriminatory employment practice in violation of Title VII in 1994. Citing Bazemore as the controlling decision, the employees maintained that the denial of benefits after Pregnancy Discrimination Act enactment constituted discrimination, regardless of whether those benefits were lawfully calculated before the Pregnancy Discrimination Act. As expected of the current court on severely divided cases, it is widely predicted that Justice Anthony Kennedy may serve as the indeterminate swing vote here, with Chief Justice John Roberts and Justices Antonin Scalia, Clarence Thomas and Samuel Alito expected to vote for AT&T, and Justices John Paul Stevens, Stephen Breyer, Ruth Bader Ginsburg, and David Souter expected to vote to affirm the en banc 9th Circuit decision.

In Ledbetter, the court was similarly divided, ruling 5-4 in favor of the employer with Kennedy's vote sealing Alito's opinion as the majority opinion. Ledbetter simply held that a discrete and intentional discriminatory act by the employer must occur within Title VII's statute of limitations period in order for employees to have filed a timely claim. Here, Kennedy may swing in the other direction in favor of the employees, depending on whether he deems AT&T's post-1978 reliance on its earlier treatment of pregnancy leave constitutes a "discrete and intentional discriminatory act" by AT&T.

This case has potentially far-reaching ramifications for employers who rely on pre-Pregnancy Discrimination Act computations of benefits for granting current service credits. There are several sub-issues the court will likely examine, which may include: when a Title VII violation occurs; when an employee's Title VII claim is considered timely; whether an employer continues to violate Title VII by relying on previously determined benefits; and whether Congress intended the Pregnancy Discrimination Act to be retroactively applied, and if so, how the lower courts may determine Congress' intent for retroactivity. Answers to any of these questions would clarify an employer's duties for handling pre-Pregnancy Discrimination Act leaves because the law currently remains unclear as to whether employers are violating Title VII when they rely on pre-Pregnancy Discrimination Act calculations of employee benefits.

If the court finds in favor of the employees, employers may be charged for discrimination for failing to readjust credit for pregnancy leaves taken before Pregnancy Discrimination Act enactment, even where credits were lawfully granted at the time the employees took the pregnancy leaves. Employers would thus have a duty to readjust their current benefit systems for all pregnancy leaves taken before 1978, or else face potential liability for a Title VII violation.

Elizabeth A. Avedikian is an associate in Liebert Cassidy Whitmore's Fresno office. The firm specializes in public sector labor and employment law.