California “Women on Boards” Law Ruled Unconstitutional, but California Will Appeal

Final Friday, the Los Angeles Superior Court docket in Crest et al. v. Padilla (“Crest”) held that Senate Invoice 826 (“SB 826”), also called the “Girls on Boards” legislation, is unconstitutional.  The lawsuit difficult the legislation was introduced by DC-based nonprofit Judicial Watch on behalf of California taxpayers.  Earlier this week, the state introduced that it could attraction the choice.

SB 826, which Governor Jerry Brown signed in 2018, mandates that publicly held firms headquartered in California (even when included elsewhere) have a minimal variety of feminine administrators on their Boards of Administrators, with no less than three feminine administrators if the company has no less than six administrators in whole.  Whereas violations of this legislation are punishable by fines of as much as $300,000, the state has not fined an organization below this legislation.

In Crest, the Court docket discovered that SB 826 violates the state structure’s Equal Safety Clause by treating teams of individuals otherwise based mostly on intercourse.  As a result of the California state structure requires that legal guidelines that differentiate based mostly on intercourse should survive “strict scrutiny” overview, the challenged legislation should not solely serve a compelling authorities curiosity but in addition be “narrowly tailor-made” to that curiosity.  Because of this the state should present that there isn’t a solution to obtain its acknowledged objectives with out differentiating based mostly on suspect classifications.

The Court docket discovered the state’s justifications for the legislation had been unpersuasive, together with the state’s reliance on research displaying that extra girls on company boards enhance company efficiency and enhance the state financial system.  The Court docket famous various steps the state might take to enhance the state’s financial system with out discriminating based mostly on intercourse, and thus SB 826 couldn’t be narrowly tailor-made for that function.

This choice follows on the heels of a California courtroom’s ruling placing down as unconstitutional below the Equal Safety Clause an identical legislation that required firms headquartered in California to have no less than one minority or LGBTQ+ director on their boards.

This choice may impression judicial overview of a Nasdaq rule, accepted by the Securities and Change Fee, that can require corporations listed on Nasdaq’s change to have no less than one feminine director and no less than one director “who self-identifies as a number of of the next: Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, or Two or Extra Races or Ethnicities” or as LGBTQ+, or clarify why they don’t.  The Nasdaq rule is at present dealing with a authorized problem within the Fifth Circuit within the type of a petition for overview filed by the Alliance for Honest Board Recruitment.

We’ll proceed to watch the Crest choice and supply any related updates.