This decision is welcome news for employers that maintain pension plans originally adopted over thirty years ago.  But, it is unclear what impact the decision will have on employers in California, which has its own set of laws against sex and pregnancy discrimination.

AT&T Corporation's pension plan dates back to 1914.  The plan is based on a seniority system that gives credit for employees' length of service at AT&T, minus uncredited leave time.  Starting in the 1960s, AT&T employees were given full service credit for all time spent on "disability" leave, but only a maximum of 30 days' credit for "personal" leave, which included pregnancy leave.  In 1977, AT&T extended the cap on pregnancy leave credit to six weeks.

In the 1976 case of General Electric Co. v. Gilbert, the Supreme Court ruled that a disability benefit plan excluding pregnancy-related disabilities was not sex-based discrimination in violation of federal law.  Two years later, Congress responded to the General Electric decision by passing the Pregnancy Discrimination Act, which made it illegal to treat pregnancy-related conditions less favorably than other medical conditions.

On April 29, 1979 - the same day the Pregnancy Discrimination Act took effect - AT&T revised its pension plan and began providing service credit for pregnancy leave on the same basis as other types of temporary disability leave.  But, AT&T did not retroactively adjust the service credit calculations of women who were subject to the company's earlier policies.

 
Four long-term female employees filed a class-action lawsuit against AT&T in a federal court in Northern California.  The plaintiffs claimed discrimination based on sex and pregnancy because the AT&T pension plan had reduced their service credit - resulting in reduced pension benefits - for pregnancy leave taken before April 29, 1979.  The Plaintiffs asserted that this amounted to illegal pregnancy discrimination.

The trial court and the Ninth Circuit U.S. Court of Appeals both ruled in favor of the plaintiffs, but the Supreme Court reversed those decisions by a 7-2 vote.

The High Court acknowledged that it is now illegal for an employer to adopt a service credit rule unfavorable to those out on pregnancy leave.  But the Court ruled a seniority system "does not necessarily violate" the law by giving current effect to such rules that operated before the Pregnancy Discrimination Act took effect.  The Court noted seniority systems are given "special treatment" under federal job bias law, and differentials in pension benefits that result from a bona fide seniority system are lawful, unless they result from intentional discrimination.

 
The Court found AT&T's seniority system is bona fide because "it has no discriminatory terms."  In addition, AT&T had no intention to discriminate, because pre-1979 law allowed AT&T to limit seniority credit for time taken for pregnancy leave.  AT&T changed this policy on the very same day the Pregnancy Discrimination Act took effect.

The Court also found the Pregnancy Discrimination Act was not retroactive.  Although the Act required employers to change their policies on a going-forward basis, it did not require them to recalculate seniority credit or pension benefits in connection with pregnancy leave taken before April 1979.

The Court briefly addressed the possible effect on this case of the recently-passed Lilly Ledbetter Fair Pay Act of 2009. That law, which President Obama signed shortly after being sworn in, extends the time for an employee to file a claim for illegal pay discrimination. The new law states that the claims filing period begins anew every time an individual receives a distribution of benefits or other form of payment.  Significantly, the Supreme Court ruled that this new law did not apply to the case against AT&T, because AT&T's decision to limit employees' service credit for pre-1979 pregnancy leave was not discriminatory under then-existing law.

 
The impact of the AT&T decision on California employers is far from clear.  Like Congress, the California Legislature responded to the Supreme Court's General Electric decision in 1978 by explicitly outlawing pregnancy discrimination in employment.  But, no court has decided whether pregnancy discrimination violated California's job bias statute before 1978, when state law prohibited sex discrimination in general without specifically mentioning pregnancy.

Employers also should note that AT&T does not apply at all to seniority credits for pregnancy leave taken on or after April 29, 1979.  Instead, all pregnancy leave taken in the last thirty years must be treated exactly the same as other forms of disability leave for all purposes, including calculation of pension benefits.

Your contact at the Firm is ready to assist you if you have any questions about this topic, or wish to arrange for a review of pension plans or other policies that are likely to engender discrimination complaints.