By Chuck Rice and Kathryn Fleming

The U.S. Supreme Court has agreed to review a Ninth Circuit decision holding that AT&T Corp. is liable under Title VII of the 1964 Civil Rights Act for calculating retirement service credits based in part on pre-Pregnancy Discrimination Act leave policies. AT&T Corp. v. Hulteen, 76 U.S.L.W. 3226 (U.S. Jun. 23, 2008) (No. 07-543).

Prior to the 1978 passage of the Pregnancy Discrimination Act (PDA), which amended Title VII to include pregnancy-based discrimination within the scope of sex discrimination, AT&T’s predecessor, PT&T, denied female employees full retirement service credit for pregnancy leave, but granted it for other types of temporary disability leave. Following the enactment of the PDA, PT&T revised its policy to provide service credit for pregnancy leave on the same terms as other temporary disability leave. PT&T did not, however, adjust the service credits of female employees who had taken pregnancy leave before this change, and this calculation was carried over when PT&T became AT&T. Several female employees and their union brought suit against AT&T in 2001, alleging that AT&T violated Title VII by failing to credit them for time spent on pre-PDA pregnancy leave when calculating employee pension and retirement benefits.

In an 11-4 decision, the U.S. Court of Appeals for the Ninth Circuit held that AT&T’s calculation of service credit excluding time spent on pre-PDA pregnancy leave violated Title VII. Hulteen v. AT&T Corp., 498 F.3d 1001 (9th Cir. 2007), cert. granted, 76 U.S.L.W. 3226 (U.S. Jun. 23, 2008) (No. 07-543). Applying Pallas v. Pacific Bell, 940 F.2d 1324 (9th Cir. 1991), the court held that liability may be imposed for a pre-PDA discriminatory policy to the extent it is perpetuated in post-PDA employment decisions. Hulteen, 498 F.3d at 1006 (citing Pallas, 940 F.2d at 1327). The court found that AT&T violated Title VII when it calculated the benefits owed employees without crediting employees with pre-PDA pregnancy leave. The Ninth Circuit rejected AT&T’s argument that Pallas no longer controls because it is inconsistent with intervening Supreme Court authority governing retroactivity principles.

In petitioning for Supreme Court review, AT&T noted that the Ninth Circuit decision in Hulteen is in direct conflict with the Seventh Circuit’s opinion in Ameritech Benefit Plan Committee v. Communications Workers of America, 220 F.3d 814 (7th Cir. 2000), and the Sixth Circuit’s opinion in Leffman v. Sprint Corp., 481 F.3d 428 (6th Cir. 2007), both holding that seniority systems that give present effect to previously lawful pre-PDA pregnancy leave polices do not give rise to a current claim.

AT&T further argued that the Ninth Circuit misapplied Supreme Court precedent to impermissibly give the PDA retroactive effect. AT&T maintains that United Air Lines, Inc. v. Evans, 431 U.S. 533 (1977), holds that an employer is entitled to treat past acts as lawful if an employee fails to file a timely claim. AT&T argues that, under Evans, its service credit calculations were lawful as they were based on acts that occurred before the passage of the PDA. AT&T also claims that the appeals court failed to distinguish Bazemore v. Friday, 478 U.S. 385 (1986), a case finding that a state committed a current violation of Title VII by continuing racially discriminatory pay disparities after states became covered by Title VII, from the instant case, in which the employer immediately ceased the disparate treatment of pregnancy-related leaves once the PDA took effect.

In opposing Supreme Court review, the AT&T employees argued that the Ninth Circuit correctly applied the distinction between present acts of discrimination and non-discriminatory acts that give present effect to past discrimination that was recently clarified by Ledbetter v. Goodyear Tire & Rubber Co., 127 S. Ct. 2162 (2007). The AT&T employees maintain that under Ledbetter, AT&T committed a present act of discrimination when it gave them smaller pensions because they took pregnancy leave rather than some other type of temporary disability leave. The employees argued that not only might the Sixth and Seventh Circuits reconsider their earlier holdings in Ameritech and Leffman in light of Ledbetter, Supreme Court review of the Ninth Circuit’s decision should be denied because Congress is considering legislation that would allow a discrimination claim to be brought when an individual is affected by a discriminatory compensation decision.

In an amicus brief filed at the invitation of the Supreme Court, former Solicitor General Paul Clement agreed with AT&T that the Ninth Circuit’s decision “gives impermissible retroactive effect to the PDA” and should be reversed. Clement claims that the decision is in direct conflict with Supreme Court precedent holding that only discriminatory acts, not continuing consequences, can be challenged under Title VII. Clement disagreed with the Ninth Circuit’s application of Ledbetter, finding instead that AT&T’s actions did not constitute a present act of discrimination. According to Clement, the AT&T employees “could have, but did not, challenge” the denial of service credit when it occurred and are foreclosed from doing so decades later. Clement also argued that the Sixth and Seventh Circuits have correctly held that employee claims relating to the effect of their pre-PDA pregnancy leaves on their service credits and current benefits are untimely.

_{Much of this blog entry was contributed by Kilpatrick Stockton summer associate Kathryn Fleming.  Ms. Fleming is about to begin her third year at the University of Virgina School of Law.}