A number of lawsuits challenging California’s corporate board diversity laws are still working their way through litigation, even years after the legislation went into effect.
Senate Bill 826
In 2018, California enacted Senate Bill 826, requiring California-based publicly held companies to have a minimum number of women on their boards of directors. Such boards needed to have at least one female director by the end of 2019. By the end of 2021, boards needed to have two female directors if the corporation has five directors and three female directors if the corporation has six or more directors. A corporation out of compliance faces a $100,000 fine for the first violation and a $300,000 fine for a violation in any subsequent year.
Assembly Bill 979
Then, in 2019, California enacted Assembly Bill 979, which required certain California corporations to have a minimum of one director from an “underrepresented community” by the end of 2021. The law requires increased minimums by the end of 2022 . Specifically, corporations of more than four but fewer than nine directors must have a minimum of two directors from underrepresented communities and corporations with nine or more directors must have a minimum of three directors from underrepresented communities. A director from an “underrepresented community” includes “an individual who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian or Alaska Native; or who self-identifies as gay, lesbian, bisexual or transgender.” Corporations that do not comply with this law face fines ranging from $100,000 to $300,000 for each violation.
Opponents of both SB 826 and AB 979 challenged these laws in various court actions, arguing that the laws should be overturned on constitutional grounds. The first state court challenge of SB 826 wrapped up trial last month and is pending a decision from the judge. Meantime, summary judgment motions from both sides are being considered in the companion case challenging AB 979. Trial in that case is scheduled to begin later this month.
The decisions from these cases are anticipated to be the first decisions to address the constitutionality of these diversity provisions and should offer some guidance for the companies subject to these laws. In addition, a number of federal court cases are working through similar challenges of the laws.
There have been no decisions so far striking either piece of legislation and thus, these laws remain in effect in the meantime.
Other State Board Diversity Legislation
Though California may have started the trend of passing board diversity legislation, other states have considered similar legislation requiring diverse boards or disclosing board diversity data, including Washington, Illinois, New York, and Maryland.
The trend toward board diversity laws, as well as the related legal challenges, are a reminder of the need to balance diversity, equity and inclusion goals along with efforts to prevent unlawful harassment and discrimination.