Women on CA Boards Act ruled unconstitutional
Last Friday, the Los Angeles Superior Court in Crest et al. v.Padille (“Crete”) ruled that Senate Bill 826 (“SB 826”), also known as the “Women on Boards” Act, is unconstitutional. The lawsuit challenging the law was filed by Judicial Watch, a DC-based nonprofit, on behalf of California taxpayers. Earlier this week, the state announced it would appeal the decision.
SB 826, which Governor Jerry Brown signed in 2018, stipulates that public companies headquartered in California (even if incorporated elsewhere) have a minimum number of women directors on their boards, with at least three female directors if the company has at least six directors in total. While violations of this law are subject to fines of up to $300,000, the state has not fined any company under this law.
In Crete, the Court found that SB 826 violates the Equal Protection Clause of the state constitution by treating groups of people differently based on gender. Since the California state constitution requires laws that discriminate on the basis of sex to survive “rigorous scrutiny,” the challenged law must not only serve a compelling governmental interest, but also be “narrowly tailored” to that purpose. interest. This means that the state must show that there is no way to achieve its stated goals without differentiating according to suspect classifications.
The Court found that the state’s justifications for the law were unconvincing, including the state’s reliance on studies showing that more women on boards improves corporate performance. businesses and boosts the state’s economy. The Court noted alternative measures the state could take to improve the state’s economy without discrimination based on gender, and thus SB 826 could not be narrowly tailored for this purpose.
This decision follows a California court ruling fell as unconstitutional under the Equal Protection Clause, a similar law that required companies headquartered in California to have at least one minority or LGBTQ+ director on their board.
The move may also impact judicial review of a Nasdaq rule, approved by the Securities and Exchange Commission, that will require Nasdaq-listed companies to have at least one female director and at least one director “who identifies as one or more of the following: Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, or Two or more races or ethnicities” or as LGBTQ+, or explain why they don’t.The Nasdaq rule is currently facing a legal challenge in the Fifth Circuit in the form of a review petition filed by the Alliance for Fair Board Recruitment.
We will continue to monitor the Crete decision and provide any relevant updates.
© 2022 Proskauer Rose LLP. National Law Review, Volume XII, Number 140