The Supreme Court of California recently considered the meaning of the term “employer” in Raines v. Healthworks Medical Group, (9th Cir. 2022) 28 F.4th 968, 969. It found that business-entity agents engaged in certain aspects of the hiring process may be directly liable for violations of anti-discrimination laws. This outcome is significant because the decision effectively enlarged the potential scope of liability under the Fair Employment and Housing Act (FEHA) by including employer’s agents who employ five or more employees within the definition of “employer.”
Question for the Court
The United States Court of Appeals for the Ninth Circuit asked this 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?” The high court’s answer was yes.
Background of the Case
Kristina Raines and Darrick Figg alleged on behalf of themselves as well as a putative class, that their offers of employment were conditioned on medical screens completed by U.S. Healthworks Medical Group (USHW). USHW conducted these health screenings on behalf of various employers. The plaintiffs claimed that they required applicants to complete a health history questionnaire as part of the screening and asserted that many of the questions had no bearing on the plaintiff’s ability to perform the position they were applying for. For example, some of the questions included whether the applicant had previously had cancer, mental illness, issues with menstrual periods, hair loss, and more. The screening also inquired whether the applicant was pregnant, what medications the applicant took and whether they had suffered prior job-related injuries and illnesses.
Kristina Raines was offered a position as a food service aide with Front Porch Communities and Services, but the offer was conditioned on her passing the medical screening given by USHW. Raines complied and responded to many of the questions, but refused to answer when her last menstrual period took place. Raines claimed that the screening was terminated after she refused to answer and her offer of employment from Front Porch was rescinded. Plaintiff Darrick Figg was offered the opportunity to serve as a member of the volunteer communication reserve with the San Ramon Valley Fire Protection District, but had to pass USHW’s medical screening as a condition of working there. Figg answered all of the questions and passed the screening. He was hired as promised.
Raines brought a suit against Front Porch and USHW. Soon after she filed a first amended complaint and added additional defendants and class claims. The defendants successfully removed the case to federal court, where Raines amended the complaint a third time adding Figg as a plaintiff and dismissing Front Porch after a settlement was reached. The third amended complaint alleged claims under the Fair Employment and Housing Act (FEHA), the Unruh Civil Rights Act (Civ. Code §51 et. seq.), unfair competition law (Bus. & Prof. Code §17200 et.seq.), and the common law right of privacy. USHW filed a motion to dismiss, which the district court granted as to all claims except the unfair competition law claim. As to the FEHA claim and at issue here, the district court dismissed based on its determination that the FEHA does not impose liability on the agents of a plaintiff’s employer. The plaintiffs appealed.
Who Falls Under the Umbrella of the Term Employer?
California Labor Code §1296, subdivision(d) defines employer as, “any person regularly employing five or more persons, or any person acting as an agent of the employer, directly or indirectly…” Although the court did note that the most “natural reading” of the statute is to include business-entity agents under the umbrella of the definition of “employer”, it also reasoned that the statute encouraged some degree of ambiguity. As a result, it spent a considerable amount of time in its decision reviewing the legislative history, public policy, federal laws and case law related to this question.
The FEHA was enacted in 1980 and adopted its definition of employer from the Fair Employment Practice Act, which was passed in 1959. The FEPA defined employer as, “Any person regularly employing five or more persons, or any person acting as an agent of the employer, directly or indirectly.” Lab. Code, former §1413, subd.(d). The history can be traced even further back as the drafters of the FEPA looked to language in the National Labor Relations Act (NLRA) 29 U.S.C.§151 et seq. This is a federal law that also requires fair labor practices. The NLRA stated that an employer includes, “any person acting as an agent of an employer, directly or indirectly.”
The Legislature did not specifically refer to the NLRA in its drafting of the FEPA, but case law has interpreted these statutes to conclude that, “the Legislature intended the FEPA’s agent-inclusive language to permit direct liability for the agents of an employer on in appropriate circumstances.” Cf. Yamaha Corp. of America v. State Bd. Of Equalization (1999) 73 Cal.App.4th 338. The court here reasoned that the Legislature adopted the language from the FEHA into section 1296 because it intended for it to retain a similar meaning.
Public policy also supports a reading of the statute that holds agents of employers responsible and accountable for violations of the labor law. On this front, the court found that, “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, causing injury to the employer’s employees, 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.” It concluded that underlying public policy seeks to avoid violations of the Labor Code and hold employers as well as their agents liable when they do so.
State & Federal Case Law Considerations
The court focused on a few key cases in its analysis that fell on both sides of finding liability. The California case, Reno v. Baird (1998) 18 Cal.4th 640 held that the “agent-inclusive language of section 12926, subdivision(d) does not impose liability on all agents, including individual employees of the same employer, and adopting that interpretation of section 12926, subdivision (d) would be inconsistent with the provision’s express exemption for employers with fewer than five employees.” The court in Reno reasoned that the Legislature intended to protect employers with less than five employees and it would not make sense to then subject non-employers to the difficulties that come with the litigation of discrimination claims.
The court was also concerned that imposing personal liability on supervisory employees would chill their ability to perform effectively with the possibility of personal financial liability hanging over their heads. Further, decisions made within a business are often made as a collective and assigning individual blame would only serve to incite division in corporate operations. Id. at 662. Lastly, the court noted that individual employees who were forced to defend themselves in court would incur those costs individually. Even if the lawsuit is without merit, an individual supervisory employee cannot be expected to defend themselves in court after each personnel decision is made. Reno at 663.
Therefore, according to the guidance in Reno, the court in the current case concluded that, “Notwithstanding the agent-inclusive language of section 12926, subdivision(d), individuals who do not themselves qualify as employers may not be sued under the FEHA for alleged discriminatory acts.” Reno, however, did not address the question of whether agents of an employer acting as independent contractors with more than five employees may be held liable, which is the primary question at issue here.
Federal courts decisions on this topic have landed on a variety of conclusions. Some have determined that “agent-inclusive language merely incorporates respondeat superior into the relevant statutory scheme.” Birkbeck v. Marvel Lighting Corp. (4th Cir. 1994) 30 F.3d 507. Most decisions falling on this end of the spectrum, however, dealt with holding individual employee agents responsible and followed more closely the fact pattern in Reno, which does not entirely address the issue here.
Other federal decisions that involved a business-entity agent rather than an individual employee of an agent did impose at least some liability on the business-entity agent. The primary case on this point is Los Angeles Dept. of Water & Power v. Manhart (1978) 435 U.S. 702, wherein the court stated, “We do not suggest, of course, that an employer can avoid his responsibilities by delegating discriminatory programs to corporate shells. Title VII applies to any agent of a covered employer.” Thus, federal courts generally have held that if the agent is responsible for the civil rights violation at issue, it may be held directly liable under federal anti-discrimination laws.
Based on this case law as well as the legislative history and public policy considerations, the court in the current case concluded that business entities with more than five employees that are involved in activities that involve FEHA-related activities on the employer’s behalf, may be held directly liable for violations of discrimination laws. Therefore, an employer’s business entity agents, such as Healthworks, can be held directly liable under the FEHA for employment discrimination in appropriate circumstances when the business entity agent has at least five employees and carries out FEHA regulated activities on behalf of an employer.
Employers and third party entities who assist in the hiring process or other human resources functions of a business should revisit their hiring process including policies on health screenings and background checks in light of this decision.