California’s Fair Employment and Housing Act (FEHA) includes our state’s laws prohibiting discrimination, retaliation, and harassment in the workplace. On August 21, 2023, the California Supreme Court answered a question from the Ninth Circuit Court of Appeals regarding the meaning of the term “employer” as used in the FEHA. The question was “[d]oes California’s [FEHA], which defines ‘employer’ to include ‘any person acting as an agent of an employer’…permit a business entity acting as an agent of an employer to be held directly liable for employment discrimination?”

Before answering the question, California’s high court reviewed prior decisions that addressed the more general issue of who is considered an employer under the FEHA. First, the court previously held that supervisory employees cannot be considered employers for purposes of liability for discrimination. The court subsequently concluded that the same rule applies for retaliation. In both cases, the court reasoned that the legislature’s decision to exempt employers with four or fewer employees from coverage by the FEHA’s discrimination and retaliation provisions shows the intent to also exclude individuals from liability. The court also noted that in its prior decisions it had not addressed the question of whether a business entity could be held liable as an “agent.” The court also observed that the law regarding harassment is different because it expressly imposes liability on the employees who are responsible for the harassment (as well as employers with one or more employees).

Turning to the question at hand, the California Supreme Court determined that the statutory language was capable of two different interpretation: “agent” could mean the common law principle of respondeat superior, i.e., only the entity employer is liable for its agents’ conduct; or the agents themselves could be liable for FEHA violations. Therefore, it proceeded to review the legislative history and federal case law regarding analogous statutes, as well as discuss the public policy underlying the FEHA. Ultimately, the high court held that business-entity agents may be held directly liable for FEHA violations in appropriate circumstances. One such circumstance is where the entity has at least five employees and carries out FEHA-regulated activities on behalf of an employer. Such activities may include establishing a pay or other type of compensation or benefits plan; formulating minimum standard for jobs; evaluating employees; and transferring, promoting, or demoting employees. The activity at issue in the Ninth Circuit case is conducting preemployment medical screenings for the employer of the plaintiffs.

The takeaway from this decision is that a business entity that is large enough to come under FEHA’s coverage can be held liable for discrimination or retaliation even if it does not employ the employee who files a FEHA claim. If the entity is carrying out a traditional employment function that affects a third-party’s employee, it must ensure that it does so in a non-discriminatory and non-retaliatory manner.