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California Supreme Court: Employer’s Third-Party Service Providers May Be Liable for Violations of the Fair Employment & Housing Act

11 Sep


Update Applicable to:

All California employers with 5 or more employees (See Cal. Govt. Code § 12926(d))

What happened?

On August 21, 2023, the California Supreme Court rendered a decision in the case of Raines v. U.S. Healthworks Medical Group. In this ruling, the court established that a business entity, when functioning as an agent for an employer, can incur direct liability under California’s Fair Employment and Housing Act (FEHA) in cases involving allegations of employment discrimination.

What are the details?

The central question addressed by the California Supreme Court revolved around the liability of third-party service providers, including those offering medical screenings, when they act as agents on behalf of employers in relation to violations of the FEHA. The verdict of the California Supreme Court unequivocally affirmed that such providers can indeed be held accountable, answering in the affirmative. The scope of the Raines decision is far broader than the question of whether a screening company can directly violate FEHA—the Court’s opinion makes clear that any business agent with five or more employees engaging in conduct that FEHA covers can be directly liable for employment discrimination.

The California Supreme Court made it clear that its decision was specifically tailored to address the precise query presented by the Ninth Circuit, which focused on whether a business-entity acting as an agent could ever be directly liable under the FEHA. Consequently, the court refrained from delineating specific circumstances where such liability might arise and abstained from determining the significance, if any, of the extent of employer control over the agent’s actions regarding ultimate liability.

The court observed that a substantial business entity acting as an agent, such as the screening providers in question, might possess the bargaining power necessary to either circumvent contractual obligations that would lead to FEHA violations or secure agreements from employers to indemnify them for any FEHA-related liability. Nevertheless, the court did not definitively address whether businesses acting as agents with fewer than five employees could be subject to direct liability for FEHA violations, leaving this matter unresolved.

For more information, please see the links below:

Law Firm Articles w/Summaries: Article 1, Article 2, Article 3, Article 4

Raines v. U.S. Healthworks Medical Group Case

What do employers need to do?

Employers should review the above articles to become aware of the details surrounding the case and how it may apply to their business. Employers should seek legal counsel if they suspect that any of their existing third party agents presents a risk in regard to FEHA violations.

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This communication is intended solely for the purpose of conveying information. The present post might incorporate hyperlinks directing readers to websites managed by third-party entities. The inclusion of any links within this communication is meant to serve as points of reference and could encompass opinion articles from various law firms, articles from HR associations, official websites, news releases, and documents of government agencies, and other relevant third-party sources. Vensure has no authority over these external websites and bears no responsibility for their content. Furthermore, Vensure does not endorse the materials present on these websites. The contents of this communication should not be interpreted as legal advice or as a legal standpoint concerning specific facts or scenarios. Nor should it be deemed an exhaustive compilation of facts potentially pertinent to federal, state, or local laws. It is strongly advised that employers solicit legal guidance from an employment attorney when undertaking actions in response to any legal updates provided. This is due to the possibility of future alterations occurring in federal, state, and local laws, regulations, as well as the directives and guidelines issued by governing agencies. These changes may transpire at any given time, potentially rendering certain portions of the content within this update void or inaccurate.

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