Two relatively recent California laws have required that corporations take specific action to include underrepresented groups in their leadership. AB 979 required publicly held corporations with a principal executive office in California to have at least one member from an underrepresented community on their board of directors by December 31, 2021. This was further expanded by requiring covered corporations with boards of 9+ directors to have a minimum of 3 directors from underrepresented communities or if a covered corporation has a board of more than four but less than nine directors they are required to have a minimum of 2 directors from underrepresented communities by December 31, 2022. Corporations were able to increase the number of directors on their boards to comply with these requirements. Companies failing to comply with these requirements could face fines anywhere from $100,000- $300.000.
This law was a continuation of creating equity on corporate boards following SB 826, which focused on gender diversity, requiring a minimum of one female director on corporate boards.
In a recent suit over the state constitutionality of AB 979, a Los Angeles County Superior Court has issued summary judgement against AB 979, finding that it violates the California State constitution’s equal protection clause. This most recent ruling represents a successful challenge to the law after a series of unsuccessful attempts.
The question remains open as to how this ruling will affect the future of SB 826, since it has been attacked on similar grounds. The state may appeal the Superior Court ruling, but in the meantime AB 979 is currently unenforceable. If you have questions about the impact of this ruling on your business, please feel free to reach out to the attorneys at Chauvel and Glatt.
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