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On May 13, 2022, a law requiring publicly held corporations headquartered in California to have women on the board of directors was enjoined from being enforced and declared unconstitutional after a bench trial in Los Angeles Superior Court. In Crest v. Padilla, a judge ruled that the law violated the Equal Protection Clause of the California Constitution because it created a suspect gender classification without a compelling state interest, and the law was not necessary or narrowly tailored to achieve the State’s goals of remedying gender discrimination or benefiting the economy.
On September 30, 2018, Governor Jerry Brown signed Senate Bill 826 into law. It required public companies headquartered in California to have at least one female on the board of directors by the end of 2019. By the end of 2021, public companies in California with five directors were required to have at least two female directors, or three female directors if the company had six or more directors. The law authorized the Secretary of State to impose fines ranging from $100,000 to $300,000 per violation.
A group of California taxpayers filed suit in 2019 to enjoin implementation and enforcement of the law. The taxpayers alleged S.B. 826 violated the Equal Protection Clause and Article I, Section 31 (prohibiting discrimination based on sex in public employment, education, or contracting) of the California Constitution. Beginning in December 2021, the court commenced a bench trial and issued a lengthy verdict on May 13, 2022.
The trial court ruled that S.B. 826 violated the Equal Protection Clause, and enjoined the law. More specifically, the court applied the strict scrutiny standard of review applicable to gender-based classifications, and held that the State failed to carry its burden and sufficiently prove that the use of gender-based corporate board seat requirements was necessary and narrowly tailored to achieve a compelling state interest.
In support of S.B. 826, the State claimed three compelling interests: (1) to eliminate and remedy discrimination in the selection process for corporate directors; (2) to increase gender diversity on boards of directors that would lead to a benefit to California’s economy; and (3) to increase gender diversity on boards of directors that would lead to benefits for California taxpayers, public employees, and retirees. The court considered all of the evidence presented by the State in support of these three interests, and ruled that the State failed to carry its burden and establish a compelling interest behind the law. Furthermore, the court ruled that the State’s evidence of gender discrimination was unpersuasive and anecdotal, and that the use of a gender-based requirement for board of director seats was not narrowly tailored or necessary to benefit the economy, improve opportunities for women in the workplace, or protect California taxpayers. As a result, S.B. 826 did not survive strict scrutiny and violated the Equal Protection Clause, and the court issued a verdict enjoining the law.
Sheppard Mullin will monitor potential appeals of this ruling and provide further analysis of significant developments.
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