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May 2022

California Trial Courts Strike Down State’s Board Diversity Laws

On May 13, 2022, a Los Angeles Superior Court judge struck down California’s Women on Boards law, finding that the law violated the California Constitution’s Equal Protection Clause. Judge Maureen Duffy-Lewis reached her decision following a bench trial in a challenge to the 2018 law.

In 2018, Governor Jerry Brown signed SB 826 into law. Referred to as the Women on Boards law, this first-in-the-nation law required all publicly held corporations whose principal executive offices are located in California to have at least one female director on their boards by December 31, 2019. By December 31, 2021, such corporations were required to have a minimum number of female directors on their boards based on the total size of the corporation’s board. Corporations that failed to comply with the law faced a penalty of up to $300,000 per violation.

Three plaintiffs brought a taxpayer challenge to the law, asserting that the law was unconstitutional, and thus any attempt to enforce it would result in an illegal expenditure of public funds. The court agreed, finding that the law violates California’s Equal Protection Clause. The court found that the law was presumptively unconstitutional because it made express use of a “suspect” classification (gender). The burden shifted to the State to prove (1) a compelling state interest, (2) that the law was necessary, and (3) that the law was narrowly tailored.

The court first concluded that there was no compelling state interest, finding that the State had not put forth evidence to establish constitutional or statutory violations by the targeted corporations. The court also found that SB 826 failed to limit its remedial scheme to those who had suffered specific, purposeful, or intentional unlawful discrimination. This was fatal to the first prong of the court’s analysis.

The court also found that the State failed to prove that the law was necessary. Instead, the court determined that the Legislature’s actual purpose in passing the law was gender-balancing, not remedying discrimination. The court noted that the text of the law does not reference discrimination or remedying discrimination. Furthermore, the law’s focus on having a “critical mass” of women on boards was unrelated to remedying any injury that an actual victim of discrimination may have suffered.

Finally, the court found that the State did not meet its burden to show that the law was narrowly tailored. The State failed to show that the Legislature considered gender-neutral alternatives to remedy discrimination or that gender-neutral alternatives were not available. Nor did it consider amending existing anti-discrimination laws or enacting a new anti-discrimination law focused on the board selection process.

Thus, because the State failed to meet its burden, the court found that the law violates California’s Equal Protection Clause and enjoined enforcement of the law.

Similarly, on April 1, 2022, Judge Terry Green of the Los Angeles Superior Court struck down California’s AB 979 on a Motion for Summary Judgment. California’s Board Diversity Law (AB 979) was signed into law by Gov. Gavin Newsom on September 30, 2020. That law required boards to diversify their boards of directors with directors from historically underrepresented communities by December 31, 2021. For reasons similar to those above, Judge Green found that AB 979 violated California’s Equal Protection Clause.

The State has not yet appealed either ruling. Whether or not the State appeals the rulings, California corporations can expect that the State’s push to diversify boards will not end with these two laws. This may include, as the trial court suggested, enacting anti-discrimination laws that focus on the board selection process.

Gordon & Rees will continue to monitor California’s efforts to appeal these two decisions and the Legislature’s efforts to enact anti-discrimination laws related to board composition and selection.

Employment Law

Shannon M. Benbow
Debra Ellwood Meppen
Brandon D. Saxon

Employment Law