Lana Pallas v. Pacific Bell Pacific Telesis

940 F.2d 1324, 91 Cal. Daily Op. Serv. 6696, 91 Daily Journal DAR 9811, 14 Employee Benefits Cas. (BNA) 1057, 1991 U.S. App. LEXIS 18093, 57 Empl. Prac. Dec. (CCH) 40,917, 56 Fair Empl. Prac. Cas. (BNA) 1022, 1991 WL 150085

• Court: Court of Appeals for the Ninth Circuit
• Decided: August 12, 1991
• Docket: 90-15559
• Status: Published

Opinions

SCHROEDER, Circuit Judge:

Lana Pallas filed this suit against her employer, Pacific Bell, and its predecessor companies (collectively “Pacific Bell”), claiming that the company has discriminated against her on the basis of gender and pregnancy. Pacific Bell denied her retirement benefits in 1987 based on a method of calculating employee service time that does not credit pregnancy leaves taken prior to 1979 but credits temporary disability leaves taken during the same period. Pallas brought this action under the Pregnancy Discrimination Act provisions of Title VII, 42 U.S.C. §§ 2000e et seq.; ERISA, 29 U.S.C. §§ 1001 et seq.; and the California Fair Employment and Housing Act, Cal.Gov’t Code §§ 12900 et seq.

The district court interpreted Pallas’s complaint to allege only that discrimination occurred prior to 1979, when the law did not require employers to treat pregnant women like temporarily disabled men. See General Electric Co. v. Gilbert, 429 U.S. 125, 97 S.Ct. 401, 50 L.Ed.2d 343 (1976). Thus, the district court dismissed the complaint for failure to state a federal claim. Because we hold that the complaint states a claim for discrimination occurring in 1987 when Pacific Bell denied Pallas retirement benefits, we reverse. See Bazemore v. Friday, 478 U.S. 385, 106 S.Ct. 3000, 92 L.Ed.2d 315 (1986).

FACTS

In 1987, Pacific Bell instituted a new retirement benefit for management employees called the “Early Retirement Opportunity.” To qualify for the benefit, an eligible employee must have accrued twenty years of service. The company measures an employee’s length of service by a “net credited service” system. Under this system, an employee receives credit for time during which the employee is absent due to a temporary disability, but does not receive credit for time spent on personal leave. Prior to enactment of the Pregnancy Discrimination Act, Pacific Bell required employees disabled by pregnancy to take personal leaves. After 1979, Pacific Bell changed its policy to allow employees with pregnancy-related disabilities to take disability leaves. Under the current “net credited service” system, employees disabled by pregnancy prior to 1979 do not receive service credit for their pregnancy-related leaves.

Pallas, who had been employed by Pacific Bell and its predecessor companies since 1967, applied for the Early Retirement Opportunity. By letter dated October 11, 1988, the company informed her that she was not eligible for the benefit because, as a result of a pregnancy-related leave she took in 1972, she was three to four days short of the necessary amount of service credit. This suit followed.

DISCUSSION

The Pregnancy Discrimination Act amended Title VII to redress discrimination based on a woman’s pregnancy. See 42 U.S.C. § 2000e(k); Newport News Shipbuilding & Dry Dock Co. v. EEOC, 462 U.S. 669, 684, 103 S.Ct. 2622, 2631, 77 L.Ed.2d 89 (1983) (“The Pregnancy Discrimination Act has now made clear that, for all Title VII purposes, discrimination based on a woman’s pregnancy is, on its face, discrimination because of her sex”). The Act requires employers to treat pregnancy disabilities in the same manner as other temporary medical disabilities for “all employment-related purposes, including receipt of benefits under fringe benefit programs.” 42 U.S.C. § 2000e(k).¹

The district court dismissed Pallas’s Title VII claim on the basis of a series of Supreme Court decisions interpreting a special provision of Title VII concerning seniority systems, 42 U.S.C. § 2000e-2(h). See, e.g., Lorance v. AT & T Technologies, Inc., 490 U.S. 900, 109 S.Ct. 2261, 104 L.Ed.2d 961 (1989); United Air Lines, Inc. v. Evans, 431 U.S. 553, 97 S.Ct. 1885, 52 L.Ed.2d 571 (1977). In this line of decisions, the Supreme Court held that disparate impacts resulting from a bona fide seniority system that is facially neutral must be challenged within the statute of limitations from the time the system is adopted; with a facially neutral system, the discriminatory act occurs at the time of adoption and subsequent applications do not constitute continuing violations. See Lorance, 490 U.S. at 911-13, 109 S.Ct. at 2268-69; Evans, 431 U.S. at 557-58, 97 S.Ct. at 1888-89.

The district court erred in relying on Evans and its progeny. These cases are inapposite in two determinative respects. First, the discriminatory program which gave rise to this suit, the Early Retirement Opportunity, was instituted in 1987. This is not a belated attempt to litigate the discriminatory impact of a pre-Pregnancy Discrimination Act program. Pallas challenges the criteria adopted in 1987 to determine eligibility for the new benefit program. The claim could not have been brought earlier. Second, the net credit system used to calculate eligibility under the Early Retirement Opportunity is not facially neutral. The system used to determine eligibility facially discriminates against pregnant women. The system distinguishes between similarly situated employees: female employees who took leave pri- or to 1979 due to a pregnancy-related disability and employees who took leave prior to 1979 for other temporary disabilities.

The controlling Supreme Court precedent is Bazemore v. Friday, 478 U.S. 385, 106 S.Ct. 3000, 92 L.Ed.2d 315 (1986). In Baze-more, the employer had, prior to the enactment of Title VII, maintained two separate, racially segregated work forces and paid whites more than blacks. The Court held that pay disparities which remained after the enactment of Title VII were unlawful. “Each week’s paycheck that delivers less to a black than to a similarly situated white is a wrong actionable under Title VII, regardless of the fact that this pattern was begun prior to the effective date of Title VII.” 478 U.S. at 395-96, 106 S.Ct. at 3006. Although the employer was not liable for acts of discrimination that occurred prior to the enactment of Title VII, the Court held that an employer could be held liable for discrimination perpetuated after the Act took effect. Id. at 395, 106 S.Ct. at 3006.

In 1987, Pacific Bell instituted a program that adopted, and thereby perpetuated, acts of discrimination which occurred prior to enactment of the Pregnancy Discrimination Act. While the act of discriminating against Pallas in 1972 is not, itself, actionable, Pacific Bell is liable for its decision to discriminate against Pallas in 1987 on the basis of pregnancy. Pallas’s complaint states a valid claim under Title VII.

For similar reasons, the district court erred in dismissing Pallas’s claims under the California Fair Employment and Housing Act, Cal.Gov’t. Code §§ 12900 et seq. The FEHA is based on Title VII, making it an unlawful business practice to “refuse to allow a female employee affected by pregnancy, childbirth or related medical conditions ... [t]o receive the same benefits or privileges of employment granted by that employer to other persons not so affected ... including to take disability or sick leave_” Cal.Gov’t Code § 12945(b)(1). Because Pallas has stated a Title VII claim, she has also stated a claim under the FEHA.

Pallas has also stated a claim cognizable under ERISA. Pallas challenges the manner in which the Early Retirement Opportunity program was applied to her. Calculation of the service term for purposes of eligibility in the program is an act subject to review for breach of fiduciary duty. Menhorn v. Firestone Tire & Rubber Co., 738 F.2d 1496, 1502-03 (9th Cir.1984). Pallas alleges that Pacific Bell breached its fiduciary duty by failing to act in the interests of plan participants. Discrimination constitutes a fiduciary breach for purposes of ERISA. See, e.g., Elser v. I.A.M. National Pension Fund, 684 F.2d 648 (9th Cir.1982), cert. denied, 464 U.S. 813, 104 S.Ct. 67, 78 L.Ed.2d 82 (1983). The allegations in the complaint are sufficient to support an ERISA claim.

The judgment of the district court is REVERSED and the case is REMANDED.

1 . Section 703(a) of Title VII provides that it is an "unlawful employment practice" for an employer:

(1) ... to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's race, color, religion, sex, or national origin; or

(2) to limit, segregate, or classify his employees or applicants for employment in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual’s race, color, religion, sex, or national origin.

42 U.S.C. § 2000e-2(a). Congress amended Title VII in 1978 to provide that:

[t]he terms "because of sex” or "on the basis of sex” include, but are not limited to, because of or on the basis of pregnancy, childbirth, or related medical conditions; and women affected by pregnancy, childbirth, or related medical conditions shall be treated 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....

42 U.S.C. § 2000e(k) (Pregnancy Discrimination Act).