California Supreme Court Holds Business Entity Agents Directly Liable for Discrimination

On August 21, 2023, the California Supreme Court unanimously held a business-entity, acting as an agent for an employer, is directly liable for discrimination under the Fair Employment and Housing Act (FEHA). The case, Raines v. U.S. Health Works Medical Group, involved applicants who were given conditional offers of employment. They were then referred to U.S. Health Works to complete an occupational health screening. During the screening, the applicants alleged they were asked questions related to HIV and cancer.

The trial court had dismissed the complaint, finding that the Fair Employment and Housing Act applied only to “employers” and the applicants were not “employed” by U.S. Health Works. The Ninth Circuit Court of Appeals referred to the California Supreme Court the question of whether a business-entity agent for an employer could have direct exposure for discriminatory acts. The Supreme Court held the nature of a business-entity agent performing specific tasks, such as medical screenings, was such that the agent could bear the cost to ensure their policies and methods comply with anti-bias law, and that the business-agent had the ability to negotiate protective indemnification and other contractual protections as part of the business relationship with the employer. The Court specifically did not decide the significance, if any, of employer control over the acts of the agent that could give rise to a violation, which could now lead to joint liability.

This decision will affect California employers who make conditional offers, then refer applicants for health, fitness, or background screenings. And for business-entity agents who have relied on the previously clear language of the Act defining “employer” and “employee,” the relied-upon exclusion has been eliminated. Considering this decision, indemnification and insurance requirements in contracts for services should be carefully reviewed.

Leech Tishman will be hosting a Fall 2023 presentation on the workplace impact of recent Supreme Court and NLRB decisions. Stayed tuned for more information.

If you have any questions about the California Supreme Court’s ruling and how it may affect you as an employer, please contact Philip A. Toomey, the National Chair of Leech Tishman’s Employment & Labor Practice Group. Philip can be reached at 424.738.4400 or ptoomey@leechtishman.com.

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Leech Tishman Fuscaldo & Lampl, Inc. is a national, full-service law firm dedicated to assisting individuals, businesses, and institutions. Leech Tishman offers legal services in business restructuring & insolvency, construction, corporate matters, employment & labor, estates & trusts, intellectual property, litigation & alternative dispute resolution, and real estate. In addition, the firm offers a wide range of legal services to clients in the aviation & aerospace, cannabis, emerging cyber technologies, energy & natural resources, entertainment & sports, healthcare, hospitality, and life sciences industries. With offices in Los Angeles, Leech Tishman also has offices in Chicago, Philadelphia, Pittsburgh, Sarasota, Washington, D.C., and Wilmington, DE.