California Supreme Court Expands FEHA’s Definition of “Employer” to Include Business-Entity Agents

The Fair Employment and Housing Act (the “FEHA”) bars “employers” from discriminating against applicants and employees because of protected characteristics.  Under the FEHA, “‘Employer’ includes any person regularly employing five or more persons, or any person acting as an agent of an employer, directly or indirectly….”  (Gov. Code § 12926(d).)  Recently, in Raines v. U.S. Healthworks Medical Group, the California Supreme Court held that a business-entity agent of an employer can be liable for employment discrimination under the FEHA when the business-entity agent has at least five employees and carries out FEHA-regulated activities on behalf of an employer.  Below is a summary of Raines and its impact on employers and their business-entity agents.

Factual Background

Plaintiffs Kristina Raines and Darrick Figg filed a putative class action lawsuit alleging that they received offers of employment conditioned on successful completion of pre-employment medical screenings conducted by defendant U.S. Healthworks Medical Group (“USHW”), who was acting as an agent of plaintiffs’ prospective employers.  Plaintiffs alleged that as part of its medical screenings, USHW required job applicants to complete a written health history questionnaire that included numerous questions having no bearing on the applicant’s ability to perform job-related functions.  In addition, the questionnaire asked whether the job applicant was pregnant, sought information regarding medications, and required the job applicant to disclose prior job-related injuries and illnesses.

Raines received an offer of employment as a food service aide from Front Porch Communities and Services (“Front Porch”) conditioned on her passing a pre-employment medical screening conducted by USHW.  Raines alleged that after she declined to answer the question about the date of her last menstrual period, USHW terminated the exam, and Front Porch subsequently revoked its offer of employment.  Figg claimed that he received an offer from the San Ramon Valley Fire Protection District conditioned on his passing the pre-employment medical screening conducted by USHW.  Unlike Raines, Figg answered all the questions, successfully passed the screening, and was hired for the position.

Procedural Background

Plaintiffs’ class action lawsuit was originally filed in state court, but later removed by the defendants to federal court.  The federal district court dismissed USHW from the lawsuit on the ground that, as an agent of plaintiffs’ employers, it could not be held directly liable for plaintiffs’ alleged FEHA violations.  Plaintiffs appealed the dismissal, and the United States Court of Appeals for the Ninth Circuit asked the California Supreme Court to answer the following question:

“Does California’s Fair Employment and Housing Act, which defines ‘employer’ to include ‘any person acting as an agent of an employer,’ Cal. Gov’t Code § 12926(d), permit a business entity acting as an agent of an employer to be held directly liable for employment discrimination?”

California Supreme Court Decision

In Raines, the California Supreme Court found that the plain meaning and legislative history of Section 12926(d), as well as federal anti-discrimination laws and public policy considerations, support its conclusion that the FEHA can impose direct liability on a business-entity agent of an employer for FEHA-regulated activities taken against the employer’s employees.

First, the Court found that the natural reading of Section 12926(d) requires that a “person acting as an agent of an employer” is itself an employer for purposes of the FEHA, since the word “includes” must be intended to broaden the scope of the term “employer.”  This interpretation is also supported by the fact that partnerships, associations, corporations, and limited liability companies are included within the FEHA’s definition of “person.”  (See Gov. Code § 12925(d).)

Second, the Court determined that the legislative history behind Section 12926(d) supports direct liability against business-entity agents.  When the California Legislature enacted the FEHA in 1980, they combined the Fair Employment Practices Act (the “FEPA”) with the Rumford Fair Housing Act.  The FEHA’s definition of “employer” came directly from its predecessor, the FEPA, and the FEPA borrowed that language from the federal National Labor Relations Act’s (the “NLRA”) definition of “employer” (i.e., “includes any person acting as an agent of an employer, directly or indirectly”).  Although the legislative history for the FEPA did not reference any decisions on the NLRA definition of “employer,” the Supreme Court found that those decisions are consistent with their conclusion that the Legislature intended the FEPA, and subsequently the FEHA, to hold certain agents of an employer directly liable for discrimination in appropriate circumstances.

Third, when interpreting the FEHA, California courts often look for guidance to decisions construing federal anti-discrimination laws.  Here, the Court found that Title VII of the Civil Rights Act, the Americans with Disabilities Act, and the Age Discrimination in Employment Act define “employer” in similar terms as Section 12926(d) of the FEHA.  Cases interpreting these federal laws establish that an employer’s agent can, under certain circumstances, bear direct liability for discrimination.  Therefore, the Supreme Court found that these cases also support its conclusion that a business-entity agent of an employer can fall within the FEHA’s definition of employer and may be directly liable for FEHA violations when it carries out FEHA-regulated activities on behalf of an employer.

Finally, the Court found that public policy considerations further support its holding by extending liability “to the entity that is most directly responsible for the FEHA violation” and best positioned to avoid those violations given its presumed “expertise in its field.”  The Court also reiterated the mandate from the Legislature that the FEHA “be construed liberally” in furtherance of its remedial purposes.

Conclusion

“If a business entity contracts with an employer to provide services that will affect that employer’s employees, and if, in providing those services, the business-entity agent violates FEHA’s antidiscrimination policies…, it is consistent with sound public policy to treat the business entity as an employer of the injured employees for purposes of applying the FEHA.”  Accordingly, as the Court acknowledged, this ruling “increases the number of defendants that might share liability for the plaintiff’s damages” under the FEHA.  Companies, therefore, that are contracted to perform employment-related functions for employers should review their practices to ensure compliance with the FEHA.  Likewise, California employers should be mindful of their existing relationships, including whether to utilize agreements for indemnification, with third-party business agents who provide employment-related functions such as pre-employment screening, employee benefits administration, and human resources functions.

Finally, it is important to note that the Court limited its ruling to the specific question posed by the Ninth Circuit.  Thus, the Court holds only that business-entity agents “can” be held directly liable under “appropriate circumstances.”  The Court did not identify what those specific circumstances might be, such as the impact, if any, of an employer’s control over the conduct of a business-entity agent.  Future case law will likely result in further developments on this issue.

Boutin Jones Inc.’s Employment Law Group attorneys are available to assist employers and business-entity agents, provide legal advice on the implications of this recent case, and to answer any other questions you might have regarding the FEHA.