California has become the first state to require publicly traded companies to include women on their boards of directors. Women in this bill are defined as people who self-identify as women, regardless of their designated sex at birth. The bill, SB826, was signed by Gov. Jerry Brown on September 30, 2018.

What is SB826?

The bill applies to companies that report having their “principal executive offices” in California. These companies are required to have at least one woman on their boards by the end of 2019. In 2021, the companies must have a minimum of two or three women, depending on the size of their boards.

The companies that fail to comply can be fined $100,000 for a first violation and $300,000 for subsequent violations. The law also requires companies to report their board composition to the California secretary of state and imposes a $100,000 fine if a company fails to do so.

Although it is the first of its kind in the United States, European nations such as France, Germany, and Norway already have gender diversity requirements for corporate boards.

This bill has drawn much controversy that Gov. Jerry Brown acknowledged that his critics have raised “serious legal concerns”, which he conceded “may prove fatal to its ultimate implementation.” However, Brown emphasized that “it’s high time corporate boards include the people who constitute more than half of the ‘persons’ in America.”

Hannah-Beth Jackson, a Democratic state senator who represents Santa Barbara, helped write SB826.  She approved the signing, stating that a quarter of California’s publicly traded companies do not have a woman on their board, despite studies showing that companies that do so are more profitable and productive.

The bill was opposed by the California Chamber of Commerce, who argued that the quotas were “likely unconstitutional, a violation of California’s Civil Rights statute, and a violation of the internal affairs doctrine for publicly held corporations.”

Further, the California Chamber of Commerce has contended that the composition of corporate boards should not be mandated by the government but should be determined internally. Additionally, the chamber has argued that although the intent of the bill was righteous, the new law “potentially elevates” gender “as a priority over other aspects of diversity” such as race and ethnicity.

Since SB826 specifically creates a classification based on gender, it raises questions of equal protection under both the U.S. Constitution and the California Constitution. When the government legislates on the basis of gender, courts typically subject that legislation to heightened scrutiny. Accordingly, the government needs to prove it has an important reason for the gender preference, and that there is no better way of accomplishing that goal. Due to this heightened scrutiny, it may take extensive litigation to determine whether the courts will uphold SB826.

If you need assistance navigating anti-discrimination laws, please contact Hackler Flynn & Associates.

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