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Expansion of Liability Under the FEHA to Business-Entity Agents in California: Foley & Lardner LLP Provides Insights


Sep 6, 2023

On August 21, 2023, the California Supreme Court made a ruling that business-entity agents could be held responsible for violations of the Fair Employment and Housing Act (FEHA) towards individuals who were not their employees. This ruling applies to business-entity agents with at least five employees who engage in FEHA-regulated activities on behalf of an employer.

The case in question involved plaintiffs Kristina Raines and Darrick Figg, who received job offers from different organizations. However, both individuals were required to undergo a preemployment medical screening conducted by U.S. Healthworks Medical Group (USHW), a third party. The medical examinations conducted by USHW included questions that were unrelated to the applicants’ ability to perform job-related functions, as required by FEHA. Raines refused to answer the irrelevant questions and had her job offer rescinded, while Figg answered all the questions and was hired.

The plaintiffs argued that USHW violated FEHA by administering the medical evaluation in this manner. The federal trial court dismissed their FEHA claims, stating that agents of an employer, such as USHW, are not liable under FEHA. The plaintiffs appealed this decision, leading the U.S. Court of Appeals for the Ninth Circuit to ask the California Supreme Court whether business-entity agents can be held directly liable for employment discrimination under FEHA.

Previous cases had established that not all agents of an employer are liable for FEHA violations. The Supreme Court of California had previously ruled in cases like Reno v. Baird (1998) and Jones v. Lodge at Torrey Pines Partnership (2008) that individual supervisory employees cannot be held liable for discriminatory or retaliatory acts under FEHA.

However, in this case, the California Supreme Court determined that a business-entity agent can be held liable for its own FEHA violations. The court differentiated between a business-entity agent and an individual agent, stating that the former can bear the economic burden of liability without creating conflicts with the employer. The court also argued that holding business-entity agents directly responsible aligns with the purpose and language of FEHA and promotes sound public policy.

The court did not provide specific scenarios where business-entity agents could be held liable but stated that a business-entity agent can only be directly liable if they engage in FEHA-regulated activities on behalf of an employer. This ruling does not allow employers to delegate their FEHA obligations to agents but holds agents accountable for their own violations. However, it does not increase the potential recovery for plaintiffs.

The immediate impact of this ruling is that plaintiffs may begin including business-entity agents in FEHA cases if the agent engages in a FEHA-prohibited act. The number of lawsuits may not necessarily increase, but if a business-entity agent is seen as having more resources than the employer, plaintiffs may be more likely to sue the agent.

As contracts are negotiated, business-entity agents may start including indemnity clauses, hold-harmless provisions, or other contractual provisions to protect themselves. Further litigation is expected to define the scope of liability for business-entity agents under FEHA.

Overall, this ruling expands the potential defendants in FEHA cases but does not change the amount of recovery for plaintiffs. The specific implications and extent of liability for business-entity agents are yet to be fully determined.

By Editor

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