Written by Kathleen A. Brewer*
In 2023, the California Supreme Court and several courts of appeal, including the Ninth Circuit, navigated definitional waters to clarify key questions about the meaning of "employer" and "employee" for purposes of liability and protection under various employment laws. This article analyzes three of those cases, which both expand and narrow the definitions and should become part of every employment practitioner's lexicon.
Raines v. U.S. Healthworks Medical Group
California's Fair Employment and Housing Act1 protects employees and applicants from various types of discriminatory acts by "employers." The statute tautologically defines employer as "any person regularly employing five or more persons, or any person acting as an agent of an employer, directly or indirectly. . . ."2 Questions about the liability of agents as employers under FEHA peppered the early case law. The issue usually involved imputing liability to supervisory employees—agents under ordinary agency principles—for their discriminatory employment decisions.3 Interplay among the obvious meaning of the words, traditional agency law and canons of statutory construction unfolded case by case.4 In 1998, the California Supreme Court in Reno v. Baird5 reasoned against applying agency law to unpack the meaning of "any person acting as an agent of an employer" where the agent is an individual supervisor. Relying instead on legislative intent and policy considerations, the court determined that individual supervisors are not "employers" under the statutory definition and cannot be sued for their discriminatory acts.6 The "agent language" simply ensures that employers will be liable for the wrongful acts of their supervisory employees and does not suggest that such employees, by virtue of being agents, are in fact statutory "employers."7 The agency issue with respect to individual supervisors has thus been long settled.8
Who, then, serving as "an agent of an employer," can be liable for acts that violate FEHA? The California Supreme Court partially answered that question in Raines v.
[Page 54]
U.S. Healthworks Medical Group.9 The agent in Raines was U.S. Healthworks Medical Group (USHW), an entity10 contracted by various employers to provide pre-employment screening services The job-applicant plaintiffs sued USHW for violating the medical privacy provisions of FEHA. As part of FEHA's broad protections against disability discrimination, the act forbids pre-offer medical examinations and medical or disability-related inquiries by employers.12 Absent bona fide business and job-related reasons, such examinations and inquiries are also prohibited post-offer or during employment.13 According to the plaintiffs in Raines, USHW violated these provisions by probing deeply into their health histories and making employment recommendations based on answers to, or failures to answer, medical questions. The issue in Raines, on a certified question from the Ninth Circuit, was whether an entity like USHW could meet the statutory definition of "employer" based on its function as an employer's agent. A unanimous court answered yes.
The defendant in Raines considered the agency question foreclosed by Reno.14 If, as Reno suggests, the agent language is present in the statutory definition of employer only to ensure respondeat superior liability when an employee-agent violates the act, then, as USHW asserted, the agent language does not sweep agents into the definition of employer. Under that reading, agents cannot be subject to FEHA as "employers." Agents of employers, even those who handle personnel matters, could engage in discriminatory practices toward their principals' employees without fear of incurring FEHA liability Not so fast, according to the Raines court. Reno did not nullify the agent language or strip the definitional section of its plain meaning. Reno simply refused to create a legislative absurdity by applying the agent language literally, without regard to context.15 A natural reading of the statute remains the proper place to begin the analysis. And "[t]he most natural reading of this [statute] is that a 'person acting as an agent of the employer' is itself an employer for purposes of the FEHA."16
Raines also limited, perhaps even eliminated, the role of common agency law in the inquiry Agency law generally holds principals responsible for the acts of their agents, while absolving agents of liability unless they acted beyond their principal's control or breached a duty owed to a third party17 Under traditional agency law, USHW and similar employer-agents could avoid liability by drawing the factfinder deep into control and duty issues.18 But deciphering "the scope of statutory language referencing agent liability" is not determined under the lens of agency law.19 The statute's plain language, its legislative history and its underlying policies make business-entity agents of an employer responsible for complying with FEHA obligations and independently liable for their own violations.20 The same considerations also support limiting agent liability to "large enterprises with more than five employees" who handle "FEHA-regulated activities on behalf of an employer."21
Between Reno in 1998 and Raines in 2023, the concept of agent-as-employer under FEHA was, apparently, a sleeping giant The agent language in the definition of employer seemed to do nothing more than "incorporate[e] the common law principle of respondeat superior, or some variant thereof, into the FEHA's statutory liability."22 Under that view, agents of employers could rest on the assurance that FEHA, as a matter of law, "does not impose direct liability on agents."23 But Raines revived the agency language with a roar: that language is powerful enough to make "employers" of those agents. Vendors (with five or more employees) who provide employment-related services as agents of employers must take care to ensure FEHA compliance as they handle personnel matters outsourced to them. Such entities are now responsible—as employers—to the employees and job applicants of the businesses they serve.
Morales-Garcia v. Better Produce, Inc.
Labor Code section 2810 3 imposes wage liability on "client employers"—entities that subcontract
[Page 55]
labor to perform work within their usual course of business.24 The Legislature enacted section 2810.3 (AB 1897) in 2014 to address the expanding practice of outsourcing employer responsibility by subcontracting with labor suppliers.25 Certainly, the practice was not new in 2014. The garment and agriculture industries had long relied on outsourced labor to reduce employment-related burdens, establishing what is "'commonly known as 'the sweating system.'"26 In the 21st century, workplaces and employment practices have become increasingly "fissured" by contrivances designed to alleviate the burdens of being an employer.27 "'Labor contracting, temp agencies, employee leasing, misclassifying employees as 'independent contractors,' outsourcing and other methods of 'sweating a profit' out of workers through labor intermediaries are prevalent.'"28
Labor contracting and similar practices, while not inherently improper, often leave contracted workers unpaid and without remedy When the official employer who signs the paychecks and issues the W-2s, usually the labor contractor, stops making payroll, who should pay the workers? When debating AB 1897, the Legislature considered the gaping lack of statutory protection for earned wages that fall victim to a labor contractor's insolvency.29 Lawmakers also analyzed the existing common law protections, which required proof of "joint employer" status under the IWC wage orders.30 Such proof must establish, as the California Supreme Court held in the 2010 case, Martinez v. Combs,31 that the end-user exercised control over various aspects of the workers' employment.32 Enactment of section 2810.3 dramatically changed this landscape by "hold[ing] the end-user liable for the worker's unpaid wages, contributions, and withholdings without that party having any control over the worker's payments or performance of services, [or] having any knowledge of the worker's presence on job . . . ."33
This backdrop is important to analyzing the Ninth Circuit's construction of client employer liability in Morales-Garcia v. Better Produce, Inc.34 Morales-Garcia involved farmers engaged in the business of growing and selling strawberries. The farmers formed various entities through which to conduct their berry business, including entities licensed as "commission merchants" responsible for marketing and selling the berries.35 The commission merchants, or Marketers, held master leases to the farmland that produced the berries they sold. In 2016 and 2017, the Marketers outsourced their farm labor by subleasing part of their farmland to entities that would supply workers and handle the growing and harvesting operations (the Growers).
Under this tenant-farmer...
