The Definition of “Employer” Is Expanded Under the California Fair Employment and Housing Act

What Does “Employer” Mean in the California Fair Employment and Housing Act?

A recent case tasked the California Supreme Court with clarifying the meaning of the term “employer” as used in the California Fair Employment and Housing Act (FEHA).

Subject to specified exceptions, section 12940 of the FEHA makes it an “unlawful employment practice” for “any employer” “to make any medical or psychological inquiry of an applicant”, and section 12926(d) states that, for purposes of the FEHA, the term “‘[e]mployer’ includes any person regularly employing five or more persons, or any person acting as an agent of an employer, directly or indirectly….”

Background

The plaintiffs, on their own behalf and a class, alleged that they received offers of employment that were conditioned on successful completion of preemployment medical screenings to be conducted by defendant U.S. Healthworks Medical Group (USHW), who was acting as an agent of plaintiffs' prospective employers.

They claimed that as part of its medical screenings, USHW required job applicants to complete a written health history questionnaire that included numerous health-related questions that had no bearing on the applicant's ability to perform job-related functions. The questionnaire also asked whether the job applicant was pregnant, sought information regarding medications taken, and required the job applicant to disclose prior job-related injuries and illnesses.

The plaintiffs filed an action, and the defendant moved to dismiss. The district court granted the motion with prejudice as to all claims except the plaintiffs' unfair competition law claim. In dismissing the plaintiffs' FEHA claim, the district court concluded that the FEHA doesn’t impose liability on the agents of an employer.

The plaintiffs appealed the dismissal of their other claims. After holding oral argument, the United States Court of Appeals for the Ninth Circuit asked the California Supreme Court to answer the question as to the proper interpretation of the definition of “‘[e]mployer’” in section 12926(d).

Discussion

California Supreme Court Associate Justice Martin Jenkins wrote in his opinion that imposing personal liability on supervisory employees would severely damage the exercise of supervisory judgment because supervisors would fear that their routine workplace decisions might lead to personal financial ruin. Among other things, this possibility would cause supervisors to have interests in conflict with those of their employers.

Section 12926(d) states that, for purposes of the FEHA, the term “‘[e]mployer’ includes … any person acting as an agent of an employer, directly or indirectly . …” The most natural reading of this language is that a “person acting as an agent of an employer” is itself an employer for purposes of the FEHA. Indeed, this interpretation accounts for and reasonably construes the word “includes,” a word that, in this context, can only be intended to broaden the scope of the term “employer.” In addition, because “partnerships, associations, corporations, [and] limited liability companies” come within the FEHA's definition of the word “‘[p]erson,’” it follows that a business-entity agent of a FEHA plaintiff's employer is, for purposes of the FEHA, an employer of the plaintiff.

The FEHA's definition of employer came directly from the Fair Employment Practices Agencies (FEPA), and therefore its wording dates back to the FEPA's enactment in 1959. At that time, the FEPA defined employer as follows: “‘Employer,’ except as herein provided, includes any person regularly employing five or more persons, or any person acting as an agent of an employer, directly or indirectly; the State or any political or civil subdivision thereof and cities.” As relevant to this inquiry concerning the liability of an agent, the italicized part of the FEPA definition of employer is identical to the FEHA's definition of employer.

Judge Jenkins noted that the FEPA's 1959 definition of employer took its agent-inclusive language from the National Labor Relations Act (NLRA), a federal law that assures fair labor practices and workplace democracy. At that time, and still today, the NLRA provided that “[t]he term ‘employer’ includes any person acting as an agent of an employer, directly or indirectly.” That the FEPA adopted the NLRA's agent-inclusive language informed the Supreme Court’s analysis because the National Labor Relations Board (NLRB) had interpreted the NLRA's definition of employer to impose employer status on certain employer agents. The legislature didn’t make an express reference to these NLRB decisions when, in 1959, the judge noted; it adopted the NLRA's agent-inclusive language into the FEPA, but the decisions are consistent with the conclusion that the Legislature intended the FEPA's agent-inclusive language to permit direct liability for the agents of an employer in appropriate circumstances. In addition, there is a very strong presumption that when, in 1980, the California Legislature adopted that language into the FEHA, the language retained the same meaning.

Thus, the legislative history of the agent-inclusive language of section 12926(d) supports an interpretation of that language as permitting direct FEHA liability on the business-entity agents of an employer.

Also, three federal antidiscrimination laws have definitions of employer that are similar to the definition that appears in section 12926(d). Both title VII of the Civil Rights Act of 1964 and the Americans with Disabilities Act of 1990 (ADA) define “‘employer’” as “a person engaged in an industry affecting commerce who has fifteen or more employees … , and any agent of such a person.” Using nearly identical language, with a minor difference in the minimum number of employees required to come within the ambit of the statute, the Age Discrimination in Employment Act of 1967 (ADEA) defines “‘employer’” as “a person engaged in an industry affecting commerce who has twenty or more employees” and “any agent of such a person.” Like the FEHA, these three federal laws define employer in a way that includes an employer's agents. Therefore, all three federal laws raise a similar issue to the one now before the Court: Does the agent-inclusive language in these definitions mean that plaintiffs may sue the agents of their employers, subjecting the agents to the same liability that the law imposes on the employers?

Judge Jenkins also said that other federal cases hold that under federal civil rights law, aggrieved employees may sue, not only their employer, but also the institutional agents of their employer if those agents engage in an industry affecting commerce and are responsible for the civil rights violation at issue. While the latter condition, that the agent be responsible for the violation, is analyzed in different ways, courts have generally focused on whether the agent exercised an administrative function traditionally exercised by the employer.

Legislative history, analogous federal court decisions, and legislative policy considerations all support the natural reading of section 12926, subdivision (d) advanced here, which permits business-entity agents to be held directly liable for FEHA violations in appropriate circumstances, the judge opined. As such, the Supreme Court was not persuaded by defendants' arguments that business-entity agents with at least five employees are categorically exempt from liability for FEHA violations under section 12926(d).

As a result, the Supreme Court answered the Ninth Circuit's question as follows: The California Fair Employment and Housing Act, which defines “employer” to “include[]” “any person acting as an agent of an employer” (§ 12926(d)), permits a business entity acting as an agent of an employer to be held directly liable as an employer for employment discrimination in violation of the FEHA in appropriate circumstances when the business-entity agent has at least five employees and carries out FEHA-regulated activities on behalf of an employer. Raines v. U.S. Healthworks Medical Group (Cal. Supreme Court, 8/21/23.

Bottom Line

The Supreme Court concluded that an employer's business entity agents 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.

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