The U.S. Supreme Court has held that an employer does not necessarily violate the Pregnancy Discrimination Act (PDA) when it pays pension benefits calculated in part under an accrual rule – applied prior to the PDA’s enactment – that gave less retirement credit for pregnancy than for medical leave generally. The Court in AT&T v. Hulteen (pdf) further held that the benefit calculation rule used by the employer in this case was part of a bona fide seniority system that insulated it from a Title VII challenge.

AT&T Corporation and its affiliates, the petitioner in this case, had calculated an employee’s pension and other benefits based on a seniority system that subtracted uncredited leave time from the employee’s length of service. Employees on disability leave were given full service credit for time off, while those on “personal” leave did not. Prior to 1977, pregnancy leave was considered personal, not disability leave. In 1977, AT&T changed this policy to provide employees who took time off for pregnancy with six weeks of disability benefits and service credit. Any time off taken beyond the allotted six weeks was deemed personal, and no service credit was provided. Following the enactment of the PDA in 1978, which amended Title VII of the Civil Rights Act and made it unlawful to treat pregnancy-related conditions less favorably than other medical conditions, AT&T changed its policy to put pregnancy leave on equal footing with other disability leave for service credit purposes, but did not make service credit calculations retroactive. Therefore, the original plaintiffs in this matter were women who had taken pregnancy leave prior to the policy change, and whose retirement benefits have or would be affected. The plaintiffs’ case was eventually heard by the U.S. Court of Appeals for the Ninth Circuit, which – adhering to precedent – found that applying pre-PDA accrual rules that differentiated on the basis of pregnancy to post-PDA retirement eligibility violated Title VII.

The Supreme Court reversed the judgment of the Ninth Circuit – which conflicted with holdings by the Sixth and Seventh Circuits – noting that there was no doubt that the payment of the pension benefits in this case was the function of a bona fide seniority system, and that such systems are given a certain degree of immunity from Title VII claims. Specifically, section 703(h) stipulates that “it shall not be an unlawful employment practice for an employer to apply different standards of compensation, or different terms, conditions, or privileges of employment pursuant to a bona fide seniority . . system . . provided that such differences are not the result of an intention to discriminate because of race, color, religion, sex, or national origin.. . .” Thus, the Court reasoned, benefit differentials produced by a bona fide seniority-based pension plan are permitted unless they are the results of an intent to discriminate. The Court explained that “[b]ona fide seniority systems allow, among other things, for predictable financial consequences, both for the employer who pays the bill and for the employee who gets the benefit. . . .[a]s § 703(h) demonstrates, Congress recognized the salience of these reliance interests and, where not based upon or resulting from an intention to discriminate, gave them protection.” The Court noted that the company’s seniority system was neither adopted with the intent to discriminate on the basis of sex, nor was it unlawful when adopted.

The respondents, however, argued that the recently-enacted Lilly Ledbetter Fair Pay Act – which states, in relevant part, that “an unlawful employment practice occurs, with respect to discrimination in compensation . . . when an individual is affected by application of a discriminatory compensation decision or other practice, including each time wages, benefits, or other compensation is paid, resulting in whole or in part from such a decision or other practice” – supports their position that the benefits calculation is discriminatory. The Court disagreed, finding that since the company’s pre-PDA decision not to award the employee service credit for pregnancy leave was not discriminatory, the respondents were not therefore “affected by the application of a discriminatory compensation decision or other practice.”

Justice Souter delivered this opinion, which was decided by a vote of 7-2, with Justices Ginsburg and Breyer dissenting.