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CCH® BENEFITS — 9/14/07

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From Spencer's Benefits Reports: Reversing its original ruling in the case, the Ninth Circuit U.S. Court of Appeals has held that AT&T Corporation violated the Pregnancy Discrimination Act (PDA), when it calculated retirement benefits after the effective date of the PDA by giving service credit for all pre-PDA temporary disability leave taken by employees except leave by reason of pregnancy. The case is Hulteen, et al. v. AT&T Corporation (No. 04-16087).

Noreen Hulteen and the three other plaintiffs in the case were long-time employees of AT&T. AT&T’s retirement plan uses a recordkeeping system called Net Credited Service (NCS) which provides an NCS date for all employees; the NCS date consists of an employee’s original hire date and adjustments for periods during which no service credit is accrued. The NCS date is used to determine benefits for which employees may qualify, including the amount of pension benefits, eligibility for early retirement, and qualification for voluntary termination packages.

The four plaintiffs took pregnancy leaves from AT&T between 1968 and 1976. Before 1977, AT&T treated pregnancy leaves as personal leaves for which the employee was given a maximum of 30 days of service credit; at the same time, employees on disability leave for reasons other than pregnancy received full service credit for the entire period of their absence. In addition, female employees who took a personal leave because of pregnancy and became temporarily disabled while on that leave for reasons unrelated to pregnancy were ineligible for NCS credit in excess of 30 days. In 1977, AT&T adopted a Maternity Payment Plan under which pregnant employees received service credit for up to six weeks of leave. Then, on April 29, 1979, which was the effective date of the PDA, AT&T adopted an Anticipated Disability Plan (ADP), which provided service credit for pregnancy leaves on the same basis as leaves taken for other temporary disabilities. No adjustment was made to the service credit calculations of employees who had been subject to pre-ADP calculations.

In a lawsuit filed in the U.S. District Court for the Northern District of California, the plaintiffs alleged that AT&T’s failure to give employees full service credit for their pre-PDA leaves affected their eligibility for and computation of retirement benefits, and therefore is a present violation of the PDA. The district court agreed and concluded that AT&T’s post-PDA benefits determinations violated the PDA. AT&T appealed, and in its original decision in the case in 2006, a three-judge panel of the Ninth Circuit reversed the district court’s ruling, holding that AT&T’s benefit calculations did not violate the PDA. The plaintiffs then sought a rehearing by a full-judge panel of the Ninth Circuit, and the court reversed its 2006 decision.

Court Cites Its Own Precedent

In its latest decision, the Ninth Circuit initially cited its 1991 ruling in Pallas v. Pacific Bell (940 F.2d 1324), in which it held that Pacific Bell violated the PDA when it calculated retirement benefits after the effective date of the law by giving service credit for all pre-PDA temporary disability leave taken by employees except leave by reason of pregnancy. The court then stated, “The district court correctly held that our decision in Pallas compels the conclusion that AT&T violated Title VII by failing to credit pre-PDA pregnancy leave when it calculated benefits owed Hulteen. A plain reading of Title VII supports the legal conclusion reached in Pallas. By passing the PDA, Congress clarified that discrimination ‘because of sex’ under Title VII included discrimination ‘because of or on the basis of pregnancy, childbirth, or related medical conditions.’ It further added the requirement that employers treat ‘women affected by pregnancy the same for all employment-related purposes, including receipt of benefits under fringe benefit programs, as other persons not so affected but similar in their ability or inability to work.’”

The Ninth Circuit went on to state, “In interpreting this additional requirement, we must begin with the text of the statute. Where congressional intent has been expressed in reasonably plain terms, that language must ordinarily be regarded as conclusive. The ordinary meaning of ‘affected’ is ‘acted upon, influenced, or changed.’ Applying the ordinary meaning of the term ‘affected’ here leads to the conclusion that although Hulteen was affected by pregnancy when she took pregnancy leave, she was again ‘affected by pregnancy’ when AT&T calculated her retirement benefits in 1994, deliberately choosing to use an NCS date that would deprive her of benefits received by those who were not ‘affected by pregnancy’ by excluding her earlier pregnancy leave from the later calculation of benefits. It was well within AT&T’s ability and control to calculate Hulteen’s benefits in 1994 giving her service credit for the time she spent on pregnancy leave, and to thus avoid violating the PDA. AT&T simply chose to continue its systematic discrimination against women, based on pregnancy, even after Congress made it illegal.”

According to the Ninth Circuit, “In 1991, Congress amended the Civil Rights Act to make it clear, if Pallas had not already done so, that an employer who adopts a seniority system for an intentionally discriminatory purpose commits an unlawful employment practice ‘when the seniority system is adopted, when an individual becomes subject to the seniority system, or when a person aggrieved is injured by the application of the seniority system or provision of the system.’ Congress thus clarified that injury occurs at the time that the seniority system is applied to the aggrieved party because that is when the employee is actually harmed by the deprivation of benefits. AT&T applied its discriminatory seniority system to Hulteen in 1994, causing her to be deprived of early retirement benefits and thus injuring her. The district court properly applied our decision in Pallas to conclude that AT&T’s post-PDA benefits calculations violated the PDA. Pallas was, and remains, good law.”

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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