Weekly Law Resume - November 1, 2012: Will The Weight of Senate Bill 1038 Fall On The Shoulders of Employers?

by Low, Ball & Lynch

[authors: Steven D. Werth, Mandy M. Arjmand]

On June 27, 2012, Governor Jerry Brown signed Senate Bill 1038 (“SB 1038”), which eliminates the California Fair Employment and Housing Commission (“FEHC”) and transfers its duties to the Department of Fair Employment and Housing (“DFEH”). Spurred by California’s current budget crisis, the Bill’s focus was on cutting spending and avoiding procedural duplicity. The new law takes effect on January 1, 2013.

Established in 1959, the FEHC’s function has been twofold: (1) to adjudicate discrimination complaints prosecuted by the DFEH; and (2) to promulgate regulations and define and interpret the Fair Employment and Housing Act. Essentially, the DFEH has the power to receive, investigate and conciliate claims of employment and housing discrimination, while the FEHC conducts hearings on these claims and can subpoena witnesses, publish opinions and publications and conduct mediations at the DFEH’s request.

With the new Bill, these FEHC functions will be assigned to the DFEH. Mechanically, the Bill creates a Fair Employment and Housing Council within the DFEH which will assume the FEHC’s former powers and duties. There will no longer be an administrative body designated to decide DFEH-prosecuted complaints. Consisting of seven members appointed by the Governor, the Council will decide which cases will be prosecuted and which will not. Should the DFEH decide to prosecute a complaint, the venue in California will now be civil court. Part of the rationale behind the switch to civil court is that most key changes in employment law are made in the courtroom, and not before administrative bodies.

This administrative change will dramatically shift the cost burden in employee/employer disputes. While the FEHC is an employee-friendly forum, it still provides employers with a lower-cost alternative to litigation. In cases adjudicated under the FEHC, emotional distress damages and administrative fines are limited to $150,000. Thus, employers enjoyed the benefit of a “cap” on damages. Additionally, monetary awards by the FEHC have often been significantly less than awards by juries.

With the entrance of the DFEH into the state civil court system, civil procedure and court rules will now apply, exposing employers to possible attorneys’ fees (currently set at $170 per hour); expert witness fees; and unlimited damages. Thus, a question is naturally raised: will this new provision of costs and fees incentivize the DFEH to prosecute more cases? The DFEH has responded by stating that the new criteria will not affect its decisions in selecting cases to prosecute, and that the current scheme is not a “money-making” one.

SB 1038 makes changes to actions that the DFEH does decide to prosecute: it requires free mandatory mediation with DFEH mediators before the DFEH can file suit in civil court. Should the mandatory mediation not result in a resolution, any DFEH attorney involved in the initial investigation or mediation will be barred from the civil suit. The good news for employers is that the DFEH boasts an 80% success rate in its mediation program. The downside may be that the possibility of facing higher in-court fees will incentivize employers to settle more often and for larger amounts.


The operative effects of SB 1038 are yet to be seen. As the DFEH will now be entering the civil courtroom, employment litigation in California will change significantly. Employers are encouraged to take advantage of the mandatory, free mediation program that SB 1038 puts into place as an alternative to litigation. With a high success rate, the DFEH mediation program might save trial costs and prevent many disputes from going to verdict.

For a copy of the complete decision see:




DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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