Key Points

  • FEHA strict liability for supervisor harassment applies only when the harasser is the plaintiff's own supervisor, not when the harasser supervises other employees.
  • The court assumed without deciding that the alleged harasser supervised lower-level associates but held this was irrelevant because he had no supervisory authority over the plaintiff.
  • The panel reasoned that applying strict liability based on supervisory authority over other employees would produce arbitrary results untethered to the harasser's relationship with the victim.
  • The plaintiff forfeited her negligence and ratification theories by failing to argue them in the trial court.
  • The decision is the first published California appellate ruling to directly address this question.

A California appeals court ruled Monday that Wells Fargo is not strictly liable under state anti-harassment law for alleged sexual assault by an investment strategist who supervised other employees but not the plaintiff herself, affirming summary judgment for the bank in a case of first impression.

The Second Appellate District held that the Fair Employment and Housing Act's strict-liability rule for supervisor harassment applies only when the harasser is the plaintiff's own supervisor. Where the alleged harasser "is not plaintiff's supervisor and only supervises other employees, strict liability does not apply," Acting Presiding Justice Tamzarian wrote for the unanimous three-judge panel.

The decision resolves a recurring question in California employment law. The court acknowledged that no prior California case had directly addressed whether an employer faces automatic liability for harassment by someone who holds supervisory authority over other workers but not over the victim. The panel looked to Massachusetts and Illinois precedent before rejecting the plaintiff's broader reading of the statute.

Jane Doe, a wealth advisor in Wells Fargo's private bank division, sued the bank after accusing investment strategist Eric Pagel of sexually harassing and assaulting her during a January 2020 business trip to Bakersfield. Doe contended she was too intoxicated to consent to a sexual encounter with Pagel in her hotel room that night; Pagel maintained that she consented. She reported the alleged assault to Wells Fargo's ethics hotline and to law enforcement in November 2020.

Wells Fargo placed Pagel on paid administrative leave and conducted a ten-month investigation, ultimately concluding that Doe's allegations of sexual assault and harassment were unsubstantiated. The bank issued Pagel a "final notice" warning that future policy violations could result in immediate termination.

The central legal question was whether strict liability or negligence governed Wells Fargo's exposure. Under FEHA, employers are strictly liable for harassment by a supervisor but face liability for coworker harassment only if they knew or should have known of the conduct and failed to take immediate corrective action.

Doe conceded that Pagel was not her supervisor. She argued instead that strict liability should apply because Pagel supervised support staff known as associates, who ranked below her in the corporate hierarchy. The court assumed without deciding that Pagel did supervise associates, but held that this was irrelevant to Wells Fargo's liability standard.

The panel reasoned that harassment by the plaintiff's own supervisor is "qualitatively worse" because of the power differential and the potential for abuse. "An employee generally cannot check a supervisor's abusive conduct the same way that she might deal with abuse from a co-worker," the court wrote, quoting the U.S. Supreme Court's 1998 decision in Faragher v. City of Boca Raton.

The court found that Doe's interpretation would produce arbitrary results. It offered a hypothetical: if two coworkers of equal rank, "Pat" and "Morgan," work in the same profession, but Pat's duties include directing subordinates while Morgan's do not, strict liability would apply if Pat harassed Morgan but only negligence would apply if Morgan harassed Pat. "The relationship between Pat and Morgan (coworkers of equal rank) is irrelevant. This is not a reasonable interpretation" of the statute, the court wrote.

Taken to its logical conclusion, Doe's reading would mean an employer is strictly liable when a shop foreman or assistant manager harasses an executive, or when a mid-level manager harasses her own boss, the court observed.

The panel declined to follow two decisions from the Fair Employment and Housing Commission in the 1980s that supported broader liability. Those rulings predated the California Supreme Court's 2003 decision in State Department of Health Services v. Superior Court and came before the Legislature defined "supervisor" in FEHA, the court noted.

Doe also raised a ratification theory for the first time on appeal, arguing that Wells Fargo's response to her complaint effectively ratified Pagel's conduct. The court held she had forfeited that argument by failing to raise it in the trial court and declined to exercise its discretion to consider it.

Neither party recovered costs on appeal.

Lawyers for Doe included Benjamin I. Siminou of Singleton Schreiber. Wells Fargo was represented by Erin J. Cox of Munger, Tolles & Olson.