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California Court Ruled California Board Diversity Law Unconstitutional​

April 1, 2022

On April 1, 2022, Los Angeles Superior Court ruled in Robin Crest, et al v. Alex Padilla (“Crest Case”) that Assembly Bill 979 (signed into law on September 30, 2020), mandating foreign and domestic publicly traded companies with their principal offices in California to have a specific minimum number of people from underrepresented communities on their boards by the end of 2021, violates the Equal Protection Clause of California Constitution. People from underrepresented communities means individuals who self‑identify as Black, African American, Hispanic, Latino, Asian, Pacific Islander,
Native American, Native Hawaiian, or Alaska Native, or who self‑identify as gay, lesbian, bisexual, or transgender.

In Crest Case, plaintiffs sought to enjoin the State of California from spending taxpayer funds to enforce Assembly Bill 979 and to declare the statute unconstitutional. In ruling the bill unconstitutional, the court first determined that the bill employed suspect classifications such as race and then applied the following scrutiny test: (1) whether the state demonstrated a “compelling interest” that justified using these classifications and (2) whether the statute was “narrowly tailored to suit that interest.”
        (1) The state claimed two compelling interests, first, remedying discrimination in board selection and second, obtaining benefits from diverse board to create healthier business, both were rejected by the court. The court considered the first one to be too general as it covers companies in all industries without providing convincing evidence of history of discrimination in all industries and the court rejected the second one because the state’s interest in healthier business is not sufficiently specific or immediate.
        (2) The court determined that even if the state has a compelling interest, Assembly Bill 979 was not narrowly tailored to suit that compelling interest as it was not the least restrictive means available for accomplishing the goals of the legislature when there are many other neutral measures not yet
tried by the legislature.

The state has not appealed the ruling, so as of now, companies are not required to comply with CaliforniaBoard Diversity Law, but shall keep watching on next actions taken by the state.

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