California Supreme Court Holds that a Third-Party Agent Can Be a FEHA “Employer”

California Supreme Court Holds that a Third-Party Agent Can Be a FEHA “Employer”

Recently, in Raines v. U.S. Healthworks Medical Group, the Supreme Court of California held that the Fair Employment and Housing Act (FEHA)’s definition of “employer” may include third-party business agents, such as screening firms that vet out job applicants for employers. This is a significant win for workers’ rights, removing a hurdle to holding these business agents directly liable for their discriminatory actions.

In Raines (S273630, Aug. 21, 2023), the plaintiffs were two job applicants who received offers of employment that were conditioned on their successful completion of certain pre-employment medical screenings. The screenings were conducted by U.S. Healthworks Medical Group (USHW), who was acting on behalf of the plaintiffs’ prospective employers. As part of these screenings, USHW required plaintiffs to answer a medical questionnaire that asked intrusive questions about their health history but had no bearing on their job performance. One of the plaintiffs refused to answer a question about her menstrual periods, leading to her medical exam being canceled and then her job offer getting revoked. In their complaint, the plaintiffs raised claims under FEHA, among others.

FEHA authorizes plaintiffs to sue employers when the employer engages in an adverse employment action, based on a protected characteristic, such as the plaintiff’s race, sex, gender, medical condition, or disability. Under FEHA, the definition of “employer” includes “any person regularly employing five or more persons, or any person acting as an agent of the employer, directly or indirectly.” Despite the agent-inclusive language in this provision, some employers’ agents have argued that they cannot be liable under FEHA. The Raines decision is clear: this argument fails.

Prior to Raines, the California Supreme Court explored this question in two cases: Reno v. Baird (1998) 18 Cal.4th 640, and Jones v. Lodge at Torrey Pines (2008) 42 Cal.4th 1158. In Reno, the issue was whether an employer’s individual, supervisory employees could be held personally liable under FEHA for employment discrimination. The plaintiffs in that case alleged discrimination and wrongful discharge claims not only against their employer, but also against their individual supervisors. The plaintiffs argued that their individual supervisors, as agents of their employer, could be held personally liable under FEHA. They interpreted the agent-inclusive language in FEHA’s definition of “employer” to mean that any person acting as an agent of the employer was an employer for FEHA purposes and could thus be held directly liable.

The Court disagreed in Reno. It held that the agent-inclusive language in FEHA’s definition of “employer” did not impose liability on all agents, such as the individual supervisory employees of an employer. The Court highlighted that the plaintiffs’ proposed interpretation for FEHA employers would be inconsistent with FEHA’s express exemption for employers with less than five employees. For the Court, it would be incongruent for small employers to be exempt from FEHA liability, while individual employee-agents were at risk of personal liability. The Court also believed that imposing personal liability on supervisory employees would undermine their independent supervisory judgment, because they would fear personal financial ruin for their workplace decisions.

Jones was an extension of Reno to FEHA retaliation claims. The Court held that supervisors are not directly liable for FEHA retaliation claims, because of the same considerations that informed the Reno decision – i.e., incongruency, avoiding the chilling of effective management.

The Supreme Court distinguished Reno and Jones in holding that USHW was subject to FEHA liability. Unlike the individual supervisory employees in Reno and Jones, USHW was a third-party business entity in Raines, acting as an agent for other employers. In the Court’s view, the considerations that motivated Reno and Jones did not apply in this case, since business agents like USHW had more resources and negotiating power with employers compared to individual supervisory employees.

To arrive at its holding that business-entity agents like USHW fell within FEHA’s definition of employer, the Court looked at the provision’s plain meaning, FEHA’s legislative history, and public policy considerations. A plain reading of FEHA’s definition of employer supports including business-entity agents, because of the inclusive language in the provision and because other business entities like corporations and partnerships are already recognized as employers. FEHA’s legislative history also supported this interpretation, because the statutes that preceded FEHA, particularly the Fair Employment Practices Act (FEPA) and the National Labor Relations Act (NLRA), had definitions of “employer” that were interpreted to impose employer status on certain business agents.

The Court also found that subjecting business entity agents to FEHA liability was consistent with public policy underlying FEHA. Considering FEHA’s remedial purposes of “provid[ing] effective remedies that will both prevent and deter unlawful employment practices,” the Court found it “consistent with public policy” to treat business entity agents as employers when their services violate the FEHA and injure employees. To the Court, this interpretation “imposes FEHA liability not only on the employer, but also extends it to the entity that is most directly responsible for the FEHA violation.” Since these business agents often contract with multiple employers to do one specific employment service, extending FEHA liability to these entities also provides an effective way to implement industry-wide policies to prevent further FEHA violations.

To support its holding, the Court also analyzed federal anti-discrimination case law. The Court’s synthesis of these cases may provide insight into the full scope of business agents that may be subject to FEHA liability. The federal cases the Court analyzed, such as Carparts Distribution Center v. Automotive Wholesalers (1st Cir. 1994) 37 F.3d 12 and Williams v. City of Montgomery (11th Cir. 1984) 742 F.2d 586, established that business agents of an employer can be held liable under federal anti-discrimination laws when they “exercise an administrative function traditionally exercised by the employer.” Examples of such administrative functions include: (i) determining access to employment opportunities; (ii) providing employee benefits; (iii) establishing pay plans; (iv) formulating minimum standards for jobs; (v) evaluating employees; (vi) transferring, promoting, or demoting employees; and (vii) terminating employees.

The Raines decision is a significant victory for employees’ rights, as this holding extends the scope of FEHA liability to business agents that participate in discriminatory actions. If an entity like a company is involved in perpetuating discrimination, it can be held accountable under FEHA. If you believe that you have faced discrimination from an employer or one of its business agents, please contact Bryan Schwartz Law, P.C..