California’s Government Goes to War against Private Business

E yeballing a 2024 run for president and mindful of the possibility that the Supreme Court could soon overturn Roe v. Wade, California governor Gavin Newsom has made a high-profile offer to companies in pro-life states: come to California for the abortions, stay for the weather.

To sweeten the pot, Newsom has backed his invitation with the promise of tax subsidies that would be the envy of companies already operating in the state, which has the highest taxes in the nation. But before business leaders rush to take the governor up on his offer, they may wish to consider the illustrative plight of one such company: Santa Monica-based Activision Blizzard.

Activision is the company behind such blockbuster games as World of Warcraft, Call of Duty, and Overwatch. It is already under fire from a group of blue-state treasurers, including California’s, who have threatened to tank its stock. These days, it also finds itself in the crosshairs of California’s Department of Fair Employment and Housing (DFEH).

The DFEH says it’s committed to creating safe, harassment-free workplaces. But in Activision’s case, it’s the department itself that’s doing the harassing.

The DFEH was established by state lawmakers in 1959 to mediate disagreements between workers and business owners. In those halcyon days before California fell into madness, the state government generally sought to balance the competing interests of business and labor. Today, however, the agency skips investigation and mediation and goes direct to class warfare.

One could almost admire the cleverness of the DFEH’s M.O. if it weren’t so damaging to the state’s economy: The agency hires private law firms to sue California companies and then funds its operations from the resulting multi-million-dollar settlements. In many cases, the DFEH emerges as the only winner: The companies being sued suffer and the plaintiffs are deprived of the money you might suppose they’re entitled to.

All of this is clear in the department’s high-profile, ongoing case against Activision.

The DFEH sued the videogame maker in July over a “pervasive ‘frat boy’ workplace culture” that the agency claims drove female employees to quit. But Activision was already prepared to settle the same issue with the federal Equal Employment Opportunity Commission (EEOC) by agreeing to establish an $18 million fund for the alleged victims, so the EEOC took the DFEH to court and told it to butt out, and a federal judge agreed that it should.

That’s when things got California weird. Instead of heeding the judge’s decision, the state persisted, even as Governor Newsom allegedly backed the federal lawsuit. In an April email to staff, Janette Wipper, the chief counsel for the DFEH, accused Newsom of interfering with the suit and announced that she would step away from it. Newsom’s interests, she said, mirrored “the interests of Activision’s counsel.” Wipper’s deputy resigned in solidarity, also claiming gubernatorial interference. But the DFEH’s case has continued without them.

Why would the DFEH try to hijack the Activision case? Money is the likeliest motive. Unlike its federal counterpart, the DFEH does not pay out all settlement money to the victims of the harassment and discrimination claims it pursues. Instead, it has a history of relying on massive settlements to incentivize private law firms to litigate and help cover its operational costs.

In 2019, the agency tried to block a settlement in a labor complaint brought by employees of Riot Games. Outraged by the DFEH’s interference, the Riot plaintiffs charged that the agency was trying to hijack their deal, delaying by three years payments they had already won.

Similarly, the DFEH sued Tesla in February, alleging systematic racial discrimination and harassment at the automaker. Focusing on the company’s Fremont, Calif., factory, the lawsuit quotes dozens of media stories and administrative complaints. But DFEH officials never independently investigated the claims as they’re required to do, nor did they offer Tesla a chance to correct the alleged problems. Without investigating, the state filed a suit that refers to the factory as “racially segregated” and a “slave ship.” While DFEH investigators never made the two-hour drive to check out the claims against Tesla, thousands of members of the public and even senior government officials have visited the Fremont factory.

Watching a self-declared civil-rights agency block or delay payments to victims would strike most people as bizarre. But the pattern of abuse is unmistakable, and certainly obvious to the federal EEOC in the Activision case. There was a time, early in the investigation, when federal and state regulators worked side-by-side in the case against the California game-maker. They even signed onto a workshare agreement: While the feds reviewed allegations of harassment, state regulators were supposed to review pay-equity and related issues. Significantly, the DFEH specifically agreed that it would not investigate sexual-harassment claims against the company.

The feds say the DFEH broke that agreement, violated its own procedures, and filed a surprise eleventh-hour lawsuit against Activision when it learned that the company was on the verge of settling with the EEOC. The DFEH never completed the independent investigation it started in order to determine the accuracy of the allegations in its lawsuit. And the suit itself concerned sexual-harassment allegations rather than the pay-equity issues that the state was supposed to focus on under its deal with the feds.

On May 1, attorneys for Activision and the federal EEOC linked arms to oppose the DFEH’s sixth attempt to block the federal settlement. A few days later, on May 6, Activision asked a Los Angeles superior court for a summary judgment in the case.

“We are moving to dismiss the DFEH’s Complaint because the agency violated its own rules, acted in bad faith, and undermined its authority to file this lawsuit,” the company’s attorneys said in a press statement. “Our motion comes just days after we joined the EEOC in opposing the sixth attempt by the DFEH to disrupt the federal settlement reached with the EEOC that already is helping Activision build a better and more inclusive workplace and providing relief and closure to current and former employees.”

The California Fair Employment and Housing Act that established the DFEH clearly states that the department shall investigate all claims and mediate disagreements — not proceed immediately to filing lawsuits before it has gathered the facts and sought other paths to correcting the problems at issue. In a 1997 opinion, California supreme court justice Janice Rodgers Brown concluded that the law is clear: The DFEH’s role is to avoid litigation where possible and “protect both the individual’s interest in discrimination-free employment and the broader public interest in vindicating that policy while maintaining a healthy business climate in California.”

Somewhere in its evolution, the DFEH lost sight of the “healthy business climate” part of its mission. Today, the agency is engaged in a war against business — just one cause of the mass exodus of California companies to other states, and a clear warning to companies considering Newsom’s offer to move to the Golden State.