Challenges to California’s Board Diversity Statutes
Building on board gender diversity requirements, California passed Assembly Bill (AB) 979 in 2020. This statute requires publicly held corporations headquartered in California to diversify their boards of directors with directors from “underrepresented communities,” specifically those individuals who self-identify 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. AB 979 required boards to diversify by December 31, 2021.
Starting this year in March, the California Secretary of State will publish annual reports on its website documenting compliance with these diversification requirements. Companies that fail to timely comply will be fined $100,000 for the first violation and $300,000 for subsequent violations.
AB 979 has faced several legal challenges, similar to Senate Bill (SB) 826, which required gender diversity on boards of directors. The State of California is currently defending four different actions involving these bills. Crest v. Padilla I (Crest I) is a taxpayer lawsuit challenging the use of state taxes to enforce the requirements under SB 826. Crest I is currently pending a verdict in the trial court. A taxpayer challenge to AB 979 was brought by the same parties (Crest v. Padilla II) and is scheduled for trial in May of this year.
Meland v. Weber is an action seeking to enjoin enforcement of SB 826 is pending appeal in the 9th circuit after a denial of a preliminary injunction in that action.
And finally, an action was brought by Alliance for Fair Board Recruitment against the California Secretary of State challenging both SB 826 and AB 979 on equal protection grounds. The State of California recently filed a motion to stay the action pending outcomes of the trials in Crest I and II and the appeal in Meland.