Last week, the California Supreme Court unanimously held that California's Fair Employment and Housing Act ("FEHA") applies not only to employers but also to business entities performing services as agents for employers. Specifically, if the employer's agent itself employs at least five (5) employees, the agent can be directly liable for acts proscribed under FEHA.
In Raines v. U.S. Healthworks Medical Group, plaintiffs filed a class action, claiming that they received job offers conditioned on successful completion of preemployment medical screenings conducted by defendant U.S. Healthworks Medical Group (USHW), who was acting as an agent of the plaintiffs' prospective employers. The plaintiffs claimed that as part of the medical screenings, USHW required job applicants to complete written health questionnaires that included numerous health-related questions that had no bearing on the applicant's ability to perform job-related functions.
Originally filed in state court, the lawsuit was removed to federal court where the district court granted the defendant's motion to dismiss the plaintiffs' FEHA-based discrimination claims against USHW on the grounds that FEHA does not impose liability on agents of a plaintiff's employer. Upon appeal, the Ninth Circuit asked the Supreme Court to clarify whether FEHA permitted an employer's agent to be held directly liable for employment discrimination.
California Supreme Court Decision
In its 32-page decision, the California Supreme Court analyzed its own prior decisions, FEHA's text and legislative history, and public policy considerations and concluded that FEHA's definition of employer was intended to include certain agents of an employer in the appropriate circumstances.
FEHA generally precludes "any employer" from making "any medical or psychological inquiry of an applicant." (Gov. Code §12940.) FEHA's definition of employer, found in Government Code §12926(d), "includes any person regularly employing five or more persons, or any person acting as an agent of an employer, directly or indirectly." (Emphasis added.) The Court found that a natural reading of the statutory language, as well as a review of FEHA's legislative history, supported a finding of direct liability for agents of an employer.
Additionally, the Court found persuasive guidance from federal cases interpreting similar agent-inclusive definitions of employer in three federal antidiscrimination laws (the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, and Age Discrimination in Employment Act of 1967) that concluded that employees could sue agents that violated their civil rights while exercising administrative functions (such as hiring and firing) traditionally performed by the employer. Moreover, the Court found that public policy considerations underlying the enactment of FEHA supported a finding that the Act be liberally construed to hold the entities most directly responsible for discriminatory policies accountable, and that this served as further justification of an extension of liability to agents who were providing FEHA-regulated services on behalf of an employer.
Under this new ruling, companies that act as business entity agents for California employers could face exposure to FEHA claims if they employ at least five employees and provide FEHA-regulated services. Such companies are not limited to entities that provide medical screening services for the hiring entity. Depending on the facts, other entity agents performing FEHA-regulated services may well have exposure for violations of FEHA, such as retained recruiting companies, medical providers conducting fitness-for-duty assessments for current employees, and potentially even investigative reporting agencies if they obtain and share information with the hiring entity that identifies information that the hiring entity is prohibited from seeking under FEHA. We suggest that business entities acting as agents for hiring entities review their practices and if in doubt as to the legality of any practice, seek legal counsel.
As always, DWT will continue to monitor these issues and provide updates as needed. In the meantime, if you have any questions about this ruling or your company's compliance, please contact a member of DWT's employment services group.