California Board Diversity Law Violates Federal Constitution (1)

A California law mandating racial, ethnic, and sexual orientation diversity in corporate boards is unconstitutional, a federal district court said.

The Alliance for Fair Board Recruitment alleged that Assembly Bill 979—which requires boards of public companies headquartered in California to include at least one to three members of underrepresented groups or face a fine—violates the equal protection clause of the Fourteenth Amendment and 42 U.S.C. § 1981. The group sued in the US District Court for the Eastern District of California, which granted its motion for summary judgment Tuesday.

Senior Judge John A. Mendez found that the California law constituted on its face an impermissible racial quota, despite California Secretary of State Shirley Weber’s argument that the law only sets a “flexible floor” for diversity.

California asked that the part of the law found unconstitutional be severed, so that it would still apply to LGBTQ groups, but the court found that the bill wouldn’t be coherent as severed.

The decision comes as other court challenges remain unresolved for AB 979, as well as Senate Bill 826, California’s 2018 gender diversity legislation for boards.

In California state court, judges last year struck down the statutes, but the decisions are under appeal.

The Alliance for Fair Board Recruitment also sued the Securities and Exchange Commission over board diversity rules it approved for Nasdaq-listed companies in 2021. The regulations require the companies to generally have at least one woman and at least one minority or LGBTQ director on their boards—or explain why they don’t.

The case is pending in the US Court of Appeals for the Fifth Circuit.

Boyden Gray & Associates PLLC; Benbrook Law Group PC; and Brown Wegner LLP represented the Alliance for Fair Board Recruitment. State attorneys defended AB 979.

The case is All. for Fair Bd. Recruitment v. Weber, E.D. Cal., No. 2:21-cv-01951, 5/16/23.