"Worthy Question --
California Supreme Court Should Decide Applicability of Federal Defense"
by Richard S. Rosenberg and John J. Manier

California courts have been wrestling with whether to adopt the federal rule on vicarious liability in sex harassment cases. A petition for review recently filed with the state Supreme Court in Department of Health Services v. Superior Court, 94 Cal. App. 4th 14 (2001) may give a final answer to this question. In Department of Health Services, the Court of Appeal ruled that an important defense available to employers in sex harassment cases filed under the federal job bias law is not available under the California Fair Employment and Housing Act, Government Code Section 12900 et seq. The so-called "Faragher/Ellerth" defense was originally created by the U.S. Supreme Court in a pair of sex harassment cases decided under Title VII of the Civil Rights Act of 1964, 42 U.S.C. Section 2000e et seq. Faragher v. City of Boca Raton, 524 U.S. 775 (1998); Burlington Industries v. Ellerth, 524 U.S. 742 (1998). Positive action on the petition in Department of Health Services will allow the California Supreme Court to resolve a split of authority on whether the Faragher/Ellerth defense also is available under California law.

Under Faragher and Ellerth, the employer has a complete defense to liability for a supervisor's sexually harassing conduct toward a subordinate if the employer can prove that: (1) it exercised reasonable care to prevent and promptly correct harassment; and (2) the employee unreasonably failed to take advantage of the corrective or preventive opportunities which the employer provided, or to avoid harm otherwise. However, the U.S. Supreme Court made clear that the defense is only available in cases where the harassment did not culminate in a tangible adverse employment action, such as termination or demotion. If it does, then the employer's corrective or preventive actions does not preclude vicarious liability for the supervisor's conduct. However, such measures may certainly minimize the potential for an award of punitive damages based on the supervisor's behavior. See Kolstad v. American Dental Ass'n, 527 U.S. 526 (1999).

Prior to Faragher and Ellerth, the California Court of Appeal had held that an employer is "strictly liable" under the Fair Employment and Housing Act for harassment committed by a supervisor. See, e.g., Doe v. Capital Cities, 50 Cal. App. 4th 1038 (1996); Kelly-Zurian v. Wohl Shore Co., 22 Cal. App. 4th 397 (1994). The state Supreme Court made similar statements, albeit in dicta, in Carrisales v. Department of Corrections, 21 Cal. 4th 1132 (1999). However, these decisions did not squarely address whether an affirmative defense to strict liability based on the employer's corrective and preventive measures is available under state law.

In April 2001, the Ninth Circuit issued a decision in which it predicted that the California Supreme Court most likely would adopt the Faragher/Ellerth defense. Kohler v. Inter-Tel Technologies, 244 F.3d 1167 (9th Cir. 2001). In Department of Health Services, however, the state Court of Appeal rejected Kohler and squarely held that the Faragher/Ellerth defense is simply not available in claims brought under the FEHA.

As a result, the availability of the defense under state law likely will turn on where the case is litigated, i.e., state or federal court. State trial courts are required to follow Court of Appeal precedent in the absence of a split among the state appellate courts. Auto Equity Sales v. Superior Court, 57 Cal. 2d 450 (1962). Unless Department of Health Services is depublished, the case must be followed by state trial courts until another Court of Appeal rules otherwise. In contrast, federal courts construing state law are only bound by decisions of the state's highest court. Thus, absent such binding authority, federal courts may rule based on their prediction of how the state's highest court would rule. See, e.g., Kohler. Moreover, the Ninth Circuit typically defers to its own previous rulings on state-law issues, even if they are contrary to decisions of the state's intermediate appellate courts. See, e.g., General Commercial Packaging v. TPS Package Engineering, 126 F.3d 1131 (9th Cir. 1997). Thus, it is likely that federal courts will opt to follow Kohler rather than Department of Health Services, unless and until the California Supreme Court steps in to resolve this important issue.

It is far from clear how the state Supreme Court will ultimately decide the Faragher/Ellerth issue - assuming it decides to address it at all. However, there is some language in the court's most recent harassment decision - Richards v. CH2M Hill, 26 Cal. 4th 798 (2001) - which suggests the Supreme Court may be receptive to adopting the Faragher/Ellerth defense. In Richards, the court adopted a relatively broad version of the "continuing violation" exception to the one-year statute of limitations under the FEHA. A primary rationale underlying the Richards decision was the court's desire to encourage employees to seek informal conciliation of harassment, discrimination and disability accommodation claims, rather than prematurely ceasing such efforts in order to pursue litigation. If the Faragher/Ellerth defense is not adopted, this incentive would be largely negated because employees would have a clear financial motive to keep quiet about alleged supervisory harassment until the conduct becomes sufficiently "severe and pervasive" to be actionable. See Aguilar v. Avis Rent-A-Car System, 21 Cal. 4th 121 (1999) (discussing "severe and pervasive" standard). At that point, it would be too late for the employer to avoid liability for the supervisor's misfeasance - even if no tangible employment action has been taken, and regardless of the employer's corrective and preventive measures.

The state Supreme Court could spare employers from this "double-whammy" by adopting the Faragher/Ellerth defense as a counterweight to the "continuing violation" doctrine. Doing so would encourage employees to raise harassment allegations at the earliest possible stage and employers would have a financial incentive to resolve the offending behavior before it becomes legally actionable.

The Court of Appeal in Department of Health Services noted that "strong policy considerations may exist" for the state courts to adopt the Faragher/Ellerth defense, but dismissed those considerations without fully discussing them. Nor did the court cite or discuss Richards, a decision which rests on policy considerations quite similar to those which underlie Faragher and Ellerth. The court ultimately stated that final resolution of the Faragher/Ellerth issue "is best left to the Legislature, not the courts." However, the same could be just as easily said of the "continuing violation" doctrine, which likewise was created by the judiciary.

In Department of Health Services, the Court justified its ruling on a distinction in the two laws. The FEHA expressly limits employer liability for non-supervisor harassment to cases where the employer "knows or should have known of this conduct and fails to take immediate and appropriate corrective action," while no such limitation exists for liability for supervisory harassment. Gov't Code section 12940(j)(1). The Court read this as an implicit legislative intent that employers are always liable for supervisory behavior. While this language undoubtedly supports the conclusion that employers could be vicariously liable for a supervisor's harassing behavior, it does not compel the conclusion that strict liability applies. Nor does it negate the possibility for an affirmative defense based on the employer's good faith effort to create a professional work environment and fix problems when they are brought to the company's attention. It is unrealistic to suggest that an employer can always control the behavior of every supervisory employee, especially where the behavior often occurs after hours and off work premises.

To be sure, the applicability of the Faragher/Ellerth defense under California law is an important issue worthy of Supreme Court's attention. The petition for review in Department of Health Services gives the court the opportunity to resolve this question once and for all.