Publication Details

Special Alert: California Supreme Court Says Business-Entity Agents Can Be Directly Liable for FEHA Violations

Aug 23, 2023 | Related Attorneys Patricia L. Clark, Katherine M. McCray, Michael S. Kalt | Topic: Employment

On August 21, 2023, the California Supreme Court clarified the meaning of the term "employer" in California's Fair Employment and Housing Act (“FEHA”) as it relates to business-entity agents. In Raines v. U.S. Healthworks Medical Group, the Court answered a certified question from the United States Court of Appeals for the Ninth Circuit and held that business-entity agents with at least five employees who carry out FEHA-regulated activities on behalf of an employer fall within the definition of “employer” and can be held directly liable for employment discrimination claims in appropriate circumstances.


The FEHA prohibits California employers from engaging in unlawful discrimination, harassment, and retaliation based on protected characteristics specified in the statute. The statute defines “employer” to include “any person acting as an agent of an employer, directly or indirectly.” The California Supreme Court previously held that individual supervisory employees acting as agents of their employer cannot be held directly liable under the FEHA for discriminatory or retaliatory conduct (although they can be held directly liable for harassment under certain circumstances). However, the Court had not previously addressed the question of whether business-entity agents acting on behalf of an employer can be directly liable for violations of the FEHA.

In Raines, the defendant U.S. Healthworks Medical Group contracted with numerous employers to conduct pre-employment medical screenings. The plaintiffs – applicants for jobs with an employer who contracted with U.S. Healthworks – alleged that U.S. Healthworks asked them inappropriate questions in connection with a pre-employment health screening, in violation of the FEHA. A federal trial judge dismissed the lawsuit in 2021, finding the FEHA does not impose direct liability on third parties that act as employers' agents. The plaintiffs subsequently appealed, but the Ninth Circuit held off on deciding the issue and asked the California Supreme Court to clarify whether the state law allowed a third party acting on behalf of an employer to be held directly liable for FEHA violations.

The Court’s Holdings:

The California Supreme Court concluded that business-entity agents who carry out FEHA-regulated activities on behalf of an employer can be held directly liable under the FEHA for employment discrimination in appropriate circumstances. Third party agents could fall within this defined scope if they oversee the hiring, firing and/or supervision of employees; make employee benefits decisions; administer employee benefits on behalf of employers, or carry out any of the other types of activities that are regulated under the FEHA. Thus, in appropriate circumstances, employees can directly sue business-entity agents for employment discrimination and can recover damages from those business-entity agents. Notably, the Court declined to identify the specific “appropriate circumstances” in which a business-entity agent may be subject to direct liability and declined to express a view on the significance, if any, of employer control over the agent’s actions.

The Court explained that business-entity agents, given their field expertise, are in the best position to implement industry-wide policies that will avoid FEHA violations. The Court also addressed the potential conflict of interest between the business-entity agent and the employer, pointing out that the agent’s interest in minimizing its own liability might sometimes conflict with the interests of the employer that hired it. However, the Court observed that business-entity agents, unlike employee agents, have comparable bargaining power to employers, and the parties can negotiate and contractually address such issues. The Court specifically noted that the parties may contract for indemnification regarding any potential violations of the FEHA. In addition, the Court made clear that this ruling will not lead to a double recovery for the plaintiff but instead would increase the number of defendants that might share liability for plaintiff’s damages.

Notably, the Court did not address the specific facts of the Raines case or apply its holding to any factual circumstances. Thus, there is sure to be litigation in the coming months and years to more precisely define the “appropriate circumstances” in which business-entity agents might be liable, the potential scope of an agent’s class liability for FEHA violations, the allocation of liability between an employer and agent in the case of a FEHA violation, and the significance/enforceability of those parties’ contractual agreements.

What this means for California Employers:

This ruling will have a significant impact on California employers and business-entity agents alike.

Companies that act as business-entity agents, conducting FEHA-regulated activities, should consider closely scrutinizing their practices and procedures to ensure they are FEHA compliant and may wish to consider the extent of their insurance coverage for FEHA-related claims.

Furthermore, both business-entity agents and the companies who hire business-entity agents should consider reviewing their contracts to assess, among other things, how responsibility and control are defined, and whether to add or revise indemnification provisions. Companies are encouraged to consult with counsel for assistance.

If you have questions about how this new case will affect your business or advice about how to proceed, please contact us.

Wilson Turner Kosmo’s Special Alerts are intended to update our valued clients on significant employment law developments as they occur. This should not be considered legal advice.