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CA Court Rules Board Diversity Statute Unconstitutional 

Last month, the Eastern District of California issued a ruling stating that California Assembly Bill 979 violates the Equal Protection Clause of the U.S. Constitution’s Fourteenth Amendment. 

AB 979, California’s Board Diversity Statute, imposed requirements on public companies headquartered in the state to hire a minimum number of directors from “underrepresented communities” or face fines for non-compliance. The bill defined a “director from an underrepresented community” as someone who self-identifies as belonging to certain racial or ethnic groups, as well as those who “identify” as “gay, lesbian, bisexual, or transgender.”

The plaintiff in the case, the Alliance for Fair Board Recruitment, argued that AB 979 mandated racial discrimination and established a “race-based quota,” violating the Equal Protection Clause. California defended the statute, asserting that it aimed to address past racial and ethnic discrimination by setting a “flexible” diversity standard. The state also requested the court to remove the unconstitutional sections of the statute if it agreed with the plaintiff’s position.

Senior Judge John A. Mendez sided with the Alliance, declaring that racial and ethnic quotas are invalid due to relevant U.S. Supreme Court precedent. The court also ruled in favor of the plaintiffs’ statutory challenge to AB 979 and rejected California’s request to remove the unlawful provisions from the statute, as doing so would make it incoherent.

Last year, state court decisions declared the gender diversity requirements of the statute unconstitutional, but those decisions are under appeal. In the case of Robin Crest, et al. v. Alex Padilla, the court found that AB 979 infringed upon California’s state constitution by treating individuals differently based on race, sexual orientation, and gender identity, without any compelling reason for such disparate treatment. In a related case, Padilla II, a Los Angeles Superior Court struck down California Corporations Code Section 301.4, citing violations of the equal protection clause of the California constitution.

Additionally, the Alliance is challenging boardroom diversity rules implemented by Nasdaq and approved by the U.S. Securities and Exchange Commission. This challenge is currently pending before the U.S. Court of Appeals for the 5th Circuit, with various interested parties filing amicus briefs in support of Nasdaq’s rule.

The Alliance for Fair Board Recruitment ruling could have broader implications for other legal challenges against initiatives aimed at promoting diversity on corporate boards. This decision has the potential to directly impact ongoing appeals in California state court concerning the invalidation of Senate Bill 826, California’s gender-diversity rule imposed on corporate boards. 

The Eastern District of California was right to strike down AB 979, as it violates the Constitutional principle of equal opportunity and undermines the importance of individual merit and personal responsibility. People should be treated as unique individuals, not merely as members of racial or ethnic groups, and discrimination cannot be remedied by more discrimination. 

Hopefully, the U.S. Court of Appeals for the 5th Circuit agrees and continues the trend of striking down unconstitutional and irrational diversity requirements.


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