A California appellate court has narrowed the scope of employer liability in harassment cases, ruling that Wells Fargo cannot be held strictly liable for misconduct by an employee who supervised other staff but not the plaintiff. The decision, issued October 5 by the Second District Court of Appeal, affirms a lower court's summary judgment in favor of Wells Fargo Bank, N.A., in a lawsuit brought under the state's Fair Employment and Housing Act (FEHA).
The case originated from a February 2023 complaint by a wealth advisor in the bank's private bank division, which serves clients with assets in the millions. The advisor alleged that an investment strategist sexually harassed and assaulted her during a January 2020 business trip to Bakersfield. According to the court's account, the advisor said she "blacked out" at a group dinner and later recalled the strategist "barging in" to her hotel room. She contended she was too intoxicated to consent, possibly due to being drugged. The strategist maintained the encounter was consensual and that the advisor had invited him.
The strategist was a top performer, ranking in the top three in sales among more than 200 investment strategists nationally, and held titles of senior vice president and later managing director. However, it was undisputed that Wells Fargo never designated him as a supervisor. He had no authority to hire, fire, approve expenses, or approve time off. He and the support staff who assisted him reported to the same manager.
The advisor conceded that the strategist was not her supervisor but argued that strict liability should apply to any employee who supervises anyone, regardless of their relationship to the plaintiff. The court disagreed. Under FEHA, employers are strictly liable for harassment by a plaintiff's supervisor but face only a negligence standard—liable if they knew or should have known and failed to act—for harassment by coworkers. The court held that when the alleged harasser supervises other employees but not the plaintiff, the two are effectively coworkers, and strict liability does not attach.
The court also noted Wells Fargo's response to the complaint. After the advisor reported the alleged assault to the bank's ethics hotline in November 2020, Wells Fargo flagged the case for expedited investigation within eight days, placed the strategist on paid leave, and assigned an internal investigator who produced a 28-page report over 10 months. The report concluded the allegations were "unsubstantiated." The bank issued the strategist a "final notice" warning that future policy violations could lead to immediate termination.
The advisor also raised negligence and ratification theories of liability, but the court found she forfeited both on appeal. The ruling clarifies that in California, the supervisor status of the harasser relative to the victim is critical for imposing strict liability. This decision could have implications for financial firms where senior producers may have informal influence but lack formal supervisory authority.
For advisors and firms, the case underscores the importance of clear reporting structures and prompt investigation procedures. While the ruling limits liability in some scenarios, it does not absolve employers of their duty to respond to complaints. Wells Fargo's swift action—expedited investigation, paid leave, and a final notice—was a key factor in the court's decision.
The case also highlights ongoing challenges in the wealth management industry, where top producers often wield significant influence. As firms navigate leadership transitions and recruiting moves, ensuring compliance with state harassment laws remains a priority. The ruling may prompt firms to review their internal policies and training to mitigate risks.
