California Supreme Court Holds That Third-Party Agents of Employers Can Be Directly Liable to Employees for Violating the Fair Employment and Housing Act

Posted by Kent F. LowryAug 22, 2023

California's Fair Employment and Housing Act (the FEHA) is a state anti-discrimination law. It protects California employees from discrimination, harassment, and retaliation in the workplace on the basis of sex, sexual orientation, race, age, religion, and several other bases.

The FEHA does not apply to all California employers, as evidenced by its definition of “employer” in Government Code section 12926(d): “‘Employer' includes any person regularly employing five or more persons, or any person acting as an agent of an employer, directly or indirectly, the state or any political or civil subdivision of the state, and cities, except as follows: ‘Employer' does not include a religious association or corporation not organized for private profit.”

The federal United States Court of Appeals for the Ninth Circuit recently asked the California Supreme Court whether a business entity acting as an agent of an employer could be held directly liable for employment discrimination in light of the FEHA's definition of “employer” in section 12926(d).

The plaintiffs in the case applied for jobs with two different employers, each of which conditioned their employment offers on the plaintiffs' successful completion of pre-employment medical screenings with U.S. Healthworks Medical Group, which was acting as the employers' agent in conducting the screenings.

As part of the screenings, the plaintiffs were asked to complete written health history questionnaires that included questions having no bearing on their ability to perform job functions, including questions about medical conditions such as sexually transmitted diseases, vaginal and penile discharge, cancer, hair loss, hemorrhoids, diarrhea, mental illness, pregnancy, and others.

The plaintiffs filed suit in state court, alleging violations of the FEHA, the Unruh Civil Rights Act, California's unfair competition law, and the common law right to privacy. The defendants removed the case to federal district court, after which they moved to dismiss all the claims. The federal district court granted the motion to dismiss. In dismissing the FEHA claims, the federal district court found that the FEHA “does not impose liability on the agents of a plaintiff's employer.” The plaintiffs appealed to the United States Court of Appeals for the Ninth Circuit, which then asked the California Supreme Court to intervene and clarify the meaning of “employer” in the FEHA.

The Supreme Court discussed prior cases interpreting section 12926(d); examined the text of the statute itself and its legislative history; reviewed the interpretation that federal courts have given to federal anti-discrimination statutes that use similar language; and discussed public policy considerations. In conclusion, the court held that a business entity acting as an agent of an employer can be held directly liable as an employer for employment discrimination in violation of the FEHA if the business entity has at least five employees and is carrying out FEHA-related activities on behalf of an employer.

The Supreme Court clarified that it was not deciding the significance, if any, of the employer's control over the agent's acts, nor whether its conclusion extends to business-entity agents that have fewer than five employees. Further, it also clarified that it was not expressing any view of a business-entity agent's liability under the FEHA's aider and abettor provision, codified in Government Code section 12940(i).

In enacting the FEHA, the Legislature stated that its provisions should be liberally construed to achieves its purpose. The Supreme Court concluded that its decision is consistent with the required liberal construction. The result in this case enables employees to seek recovery from an additional defendant in certain FEHA lawsuits. It is employee-friendly in that respect. The decision will likely change the way the third-party agents do business with employers in California.

Although this case involved pre-employment screening activities, one can easily imagine third-party (or “outside”) workplace investigators (who have at least five employees) now being named as defendants in FEHA cases, especially if they are repeatedly retained by the employer; conduct investigations that appear to be biased and are not thorough; and always or very frequently find that there was no discrimination, harassment, or retaliation. This decision thus provides added incentive for workplace investigators to be unbiased and thorough in their investigations.    

The case is Raines v. U.S. Healthworks Medical Group et al., decided August 21, 2023. The full opinion case be found here.