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FEHA’S “Ghost Employee” Loophole

How Companies Secretly Allow Discrimination in the Workplace

Chances are you say “hello” to the security guard standing at the entrance of your office building.  Positioned at a desk in the lobby, he does more than secure the building; he is the face of your company when clients arrive.  He helps solve little day-to-day issues, from elevator problems to coffee spills.  You even get him a Christmas card every year. But what happens if he is subjected to racial slurs by one of the building’s employees? You’d expect the building’s Human Resources department to immediately address it, but the majority of the time there’s no investigation. There’s no company-wide memo about treating people with respect.  Instead, your friendly guard is transferred away, and the harasser keeps their job.  “Why does this happen so often?” you may ask.

Although California has robust laws against harassment in the workplace, there are loopholes in those laws that can be exploited by employers in certain circumstances.  Case in point:  chances are your security guard was an employee of a private security company rather than an employee of your office building.  The guard was a vendor, and your building was, essentially, your security guard’s client, not his employer.  Unfortunately, this three-way relationship creates a loophole that allows both the security company and the building to avoid the full extent of discrimination laws.  In short, the guard is a “ghost employee” whose legal remedies are greatly reduced in a wrongful termination lawsuit.   

Vendor/client relationships have their benefits.  Using vendors is a good way to reduce costs.  It’s also a good way to avoid the legal responsibilities inherent in having an in-house maintenance, housekeeping, or security department.  

California’s Fair Employment and Housing Act (“FEHA”) was created in part to address harassment by and between employees.  Among other things, FEHA requires that California employers prevent their employees from being harassed and take corrective action when harassment occurs.  Oftentimes, “corrective action” includes a thorough investigation into the harassment, followed by the discipline and/or termination of the harasser.  

There are limits to what businesses are required to do.  FEHA only obligates businesses to protect their employees from harassment.  The regulations interpreting FEHA define “employee” as any individual “under the direction and control of an employer under any appointment or contract of hire or apprenticeship, express or implied, oral or written.” Cal. Code of Regs., Title 2, §11008, subd. (c).  

So where does that leave the security guard?  If he accepts the notion that he is only the employee of his security company and not the building where he works, he’s in limbo.  After he reports the harassment to both the building and his security company, both companies will claim they have little ability or obligation to do much.  The building will claim that because the security guard isn’t their employee they don’t owe him any protection under FEHA. Any because they have no legal exposure under FEHA, they have little incentive to investigate and/or discipline the harasser.  They may even call the security company and have him replaced.

Unfortunately, he won’t fare much better with his “actual” employer, the security guard company.  The security guard company, like the building, has little incentive and/or obligation to perform a full-scale investigation to address the harassment.  They’ll claim that they have no authority to investigate non-employees, and they certainly can’t discipline or terminate people that don’t work for them.   At most, they may offer to transfer the guard to another location, claiming that a transfer would solve the guard’s problem.  In reality, they want the guard moved anyway; after all, why run the risk of future problems?

This legal loophole in California law has created two side effects.  First, a significant number of security, housekeeping, landscaping, parking, and maintenance workers are being denied the full protection of FEHA.  Second, companies providing these services, as well as those utilizing the services, are enjoying a significant windfall simply by being able to avoid the costs of workplace investigations and victim compensation.    

Fortunately, the courts are slowly closing this legal loophole by re-examining the definition of “employee.” Of particular interest has been the plight of “temp” workers.  Acknowledging that temporary workers often perform the same duties and responsibilities as an “actual” employee, courts are looking beyond the company payroll to determine employment status.  If a temp worker assigned to a company is under sufficient direction and control of that company the worker may be considered an employee of that company for purposes of FEHA, regardless of how the temp agency and/or company characterize the employee.  See Mathieu v. Norrell Corp. (2004) 115 Cal.App.4th 1174; see also Jiminez v. U.S. Continental Marketing, Inc. (2019) 41 Cal.App.5th 189.   

 In order to determine whether a sufficient amount of direction and control exists, the court’s examine a number of factors, including the manner in which the worker is paid, the ownership of the equipment used by the worker, whether the worker works on the employer’s premises, whether the employer trains the worker, whether the employer has the authority to promote or discharge the employee, and whether the employer has the power to determine the schedule, assignment and amount of the worker’s compensation.  See, Vernon v. State of Calif. (2004) 116 CA4th 114.  

Determining whether a worker is an “employee” under FEHA is a hard-fought battle in any harassment lawsuit involving a vendor or temp agency employee.  The result can determine whether a case proceeds or is thrown out.  Yes, the battle is arduous; however each loss and victory helps further define the law and, hopefully, will one day close the “ghost employee” loophole.