FEHA Liability for HR Vendors: Raines and Business-Entity Agents

A vendor that screens, tests, or hires applicants for a California employer can be sued under the Fair Employment and Housing Act alongside the employer. In Raines (2023) 15 Cal.5th 268, the California Supreme Court held that an employer’s business-entity agents can be directly liable under FEHA in appropriate circumstances. The employer’s own liability doesn’t shrink. What changes is who else is in the case, and how the vendor contract allocates the cost of defending it.

What did the court hold in Raines?

That a business with at least five employees, carrying out FEHA-regulated work for an employer, can be liable as an employer.

The case reached the court as a question certified by the Ninth Circuit. FEHA defines “employer” in Government Code section 12926(d) to include “any person acting as an agent of an employer, directly or indirectly.” The Supreme Court read that language to mean an employer’s agents “can be held directly liable under the FEHA for employment discrimination in appropriate circumstances when the business-entity agent has at least five employees and carries out FEHA-regulated activities on behalf of an employer.”

The plaintiffs’ allegations show the kind of work at issue. According to the opinion, the plaintiffs alleged that they received job offers conditioned on passing a medical screening run by an occupational health company acting for their prospective employers, and that the screening questionnaire asked about health history with no bearing on job functions. One plaintiff alleged that she declined to answer a question about her menstrual cycle, the exam ended, and the offer was revoked. Those were allegations, and the Supreme Court answered only the legal question.

Does Raines change the rule that supervisors aren’t personally liable?

No. Individual employees and supervisors still can’t be sued as employers for discrimination or retaliation.

The court distinguished its earlier decisions in Reno v. Baird and Jones v. Lodge at Torrey Pines. As Raines explained, Reno held that “individuals who do not themselves qualify as employers may not be sued under the FEHA for alleged discriminatory acts,” and Jones applied the same rule to retaliation. Those cases rested on concerns about personal financial ruin and conflicts between supervisors and their employers, and the court said its new reading wouldn’t impose liability on individuals.

Harassment is different. Section 12940(j)(3) separately makes an individual employee personally liable for harassment they commit, and Raines didn’t touch that rule. Raines is about business entities doing the employer’s work.

Which vendors does Raines reach?

Any business with five or more employees that performs FEHA-regulated activity for the employer, such as screening, testing, recruiting, or hiring decisions.

The opinion’s own example was preemployment medical screening, which FEHA regulates directly. Section 12940(e) allows a post-offer medical examination or inquiry only if it is “job related and consistent with business necessity” and all entering employees in the same job classification face the same exam or inquiry. A vendor that designs or runs those exams for an employer is doing exactly what the statute regulates. The firm’s post on medical inquiries and fitness-for-duty exams covers those rules.

The same reasoning plausibly reaches recruiting firms that screen candidates, assessment and testing companies, background screening firms that make or recommend eligibility decisions, outsourced HR providers that handle leave or accommodation, and software vendors whose tools rank or reject applicants. The court explained that when the agent “has expertise in its field and has contracted with multiple employers,” liability reaches “the entity that is in the best position to implement industry-wide policies that will avoid FEHA violations,” according to the opinion. For employers adopting automated hiring tools, the firm’s post on California’s rules for automated decision systems covers the separate notice and oversight duties.

Does the employer’s liability go down when a vendor is also liable?

No. The vendor is added, not substituted.

The court was explicit that its reading “imposes FEHA liability not only on the employer but also extends it to the entity that is most directly responsible for the FEHA violation,” Raines said. An employer can’t defend a screening claim by pointing to the vendor that ran the screen. It chose the vendor, received the results, and made or ratified the hiring decision. The court put it directly: the rule “neither delegates the employer’s FEHA obligations nor abrogates the employer’s FEHA liability,” according to the opinion.

What Raines does change is the shape of the litigation. Plaintiffs now name both companies, and the vendor and employer often have different interests. The vendor may say it followed the employer’s specifications. The employer may say it relied on the vendor’s expertise. That kind of finger-pointing helps the plaintiff, and it’s usually worth deciding early, often in a written agreement between the defendants, how the two companies will present a common defense where their interests line up.

What did Raines leave open?

Three questions the court expressly didn’t decide.

The court stated that “We do not decide the significance, if any, of employer control over the act(s) of the agent that gave rise to the FEHA violation, and we also do not decide whether our conclusion extends to business-entity agents that have fewer than five employees,” according to the opinion. It also expressed no view on a business-entity agent’s possible liability as an aider and abettor under section 12940(i).

Those open questions matter to defense strategy. A vendor that worked strictly to the employer’s written specifications has an argument about control that the court left unresolved. A small consultancy with fewer than five employees has a threshold argument. Neither is a sure win, but both are worth raising in the first response rather than conceding.

How should employers handle vendor contracts after Raines?

By treating every vendor that touches hiring, testing, leave, or accommodation as a co-defendant in waiting.

Contracts with those vendors should require compliance with FEHA and the employer’s written criteria, state who drafts and approves screening questions and selection rules, require the vendor to keep records of how each decision was made, and include an indemnity and defense obligation that covers FEHA claims. Insurance is the other half. An employer should ask whether the vendor carries employment practices or professional liability coverage that would respond to a FEHA suit, and whether the employer can be named as an additional insured.

Reviewing the vendor’s actual tools matters as much as the paperwork. A medical questionnaire, a personality test, or a screening algorithm should be read by someone who knows FEHA before it’s used on applicants. The safer course is to approve the specific questions and criteria in writing, rather than accepting a vendor’s standard package sight unseen.

Steps to take after a FEHA claim involving a vendor

1. Preserve the vendor contract, statements of work, the screening questions, test materials, scoring criteria, applicant records, communications with the vendor, and the hiring decision documents, under a litigation hold once a claim arrives, and ask the vendor in writing to do the same.
2. Calendar the response date on the CRD complaint, demand, or summons, check for an EPLI policy with notice requirements and any arbitration agreement the applicant or employee signed, and send a written tender of defense to the vendor under any indemnity clause.
3. Identify the decision makers at both companies, and stop any further action toward the applicant or employee that could look like retaliation.
4. Pull the documents the claim turns on: who wrote the questions or criteria, who applied them, what the employer received, and the reason for the decision.
5. Talk to a lawyer before responding, contacting the applicant or employee or their lawyer, coordinating with the vendor’s counsel, or offering anything to settle.

Claims that involve a screening or staffing vendor are often won or lost on what the contract says and who approved the criteria, and FEHA defense for California employers and their vendors starts by sorting out those roles.

FAQ

Can an applicant sue the employer and its screening vendor in the same case?

Yes. Under Raines, a vendor with at least five employees that carries out FEHA-regulated activity for the employer can be sued as an employer, and the employer remains liable too. Plaintiffs commonly name both. The two defendants then have to decide early whether to coordinate their defense and how any indemnity between them applies.

Are individual recruiters or HR consultants personally liable under Raines?

Not as employers for discrimination or retaliation. Raines left intact the rule from Reno and Jones that individuals who aren’t themselves employers can’t be sued under FEHA for those acts. The court also didn’t decide whether its holding reaches business entities with fewer than five employees, so a very small consulting firm has an open argument on that point.

Does Raines apply to vendors whose software screens applicants?

The opinion didn’t address software specifically, but its reasoning covers any business entity that carries out FEHA-regulated activity, such as applicant screening, on the employer’s behalf. A software provider whose tool ranks or rejects candidates for a California employer should expect plaintiffs to make that argument. Employers using such tools should still assume their own liability is unchanged.

Should vendor contracts include FEHA indemnity?

In most cases, yes. Because Raines makes vendors potential co-defendants, an indemnity and defense clause that expressly covers FEHA claims, backed by insurance the vendor actually carries, gives the employer a way to shift some defense cost. It doesn’t limit the applicant’s claim against the employer, and an indemnity is only as good as the vendor’s ability to pay.

If an applicant has sued your company and its screening vendor

If your company has received a CRD complaint, demand, or lawsuit over a hiring, screening, or testing decision that a vendor carried out, the vendor contract and the record of who approved the criteria usually decide how the defense should be organized. Rosenberger + Kawabata represents employers defending employment lawsuits and claims through its business litigation practice, including FEHA claims involving screening, staffing, and HR vendors. Contact Rosenberger + Kawabata online for a confidential consultation, or call (310) 894-6921.

Sources

Raines v. U.S. Healthworks Medical Group (2023) 15 Cal.5th 268; Government Code sections 12926 and 12940.

This post is general information about California and federal employment law as of November 7, 2026. It is not legal advice, and reading it does not create an attorney-client relationship. Employment statutes, regulations, and court decisions change often, and the outcome of any claim depends on its facts. Past results do not guarantee future outcomes.