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Paul Zimmerman

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New California Law Seeks to Close the Corporate Gender Gap, But Is It Constitutional?

(Fall Associate Alex Markoff contributed to this post)

Think of California and you’re likely to conjure up images of palm trees, movie stars, surfers, the Golden Gate Bridge and maybe even In N Out Burger. But what the Golden State is perhaps best known for is its progressivism. Time and again, causes that take root in California are often precedential, which explains the adage: as California goes, so goes the nation.

Enter Senate Bill 826. Recently signed by Governor Jerry Brown, the law requires publicly held, California corporations to have in place at least one female board member. These companies have until December 31, 2019 to comply, and then in 2021, additional measures kick in – when boards with five or more seats will be required to include at least two female directors. The failure of corporations to abide by the new rule comes with a notable price tag – fines from $100,000 to $300,000 can be imposed.

In a letter to the California Senate, Governor Brown noted the bill’s timing and quite bluntly referenced the #MeToo movement, writing, “Recent events in Washington, D.C. – and beyond – make it crystal clear that many are not getting the message.” Yet will the rest of the nation follow California’s lead and embrace SB 826’s nod to gender equality? Much of that will depend upon the legality of the law.  While its aim is certainly righteous, the bill’s legality is as foggy as the month of May in San Francisco. 

To understand why, it is necessary to revisit a decades-old case involving gender-based law, one decided by the U.S. Supreme Court involving, perhaps surprisingly, discrimination against males – not on boards, but in bars. In 1958, the Oklahoma legislature passed a law prohibiting the sale of low-alcohol beer to males under 21 and females under 18. Years later, after a challenge by local resident, the Supreme Court addressed the discrepancy, applied an “intermediate scrutiny” test and found that “gender-based difference[s in laws must] be substantially related to the achievement of the statutory objective,” this according to Justice William Brennan in Craig v. Boren. But Oklahoma’s statutory objective, promoting traffic safety, failed to satisfy the new standard. “The relationship between gender and traffic safety becomes far too tenuous to satisfy [intermediate scrutiny],” Brennan lamented. The takeaway from the Craig case is a standard of review that asks two simple questions: (1) does the law serve an important government interest; and (2) is it substantially related to that interest?

Proponents of SB 826 must now be able to answer these questions in the affirmative, establishing that the law substantially relates to the promotion of gender equality. They must also clear another hurdle: the imposition of the government’s will on private enterprise. While laws promoting equality within government are often upheld – like affirmative action programs at public universities – SB 826 effectively regulates the boardroom.

In the absence of litigation – which is sure to come – it remains to be seen how California will frame SB 826 to meet the rigors of intermediate scrutiny. But even Governor Brown concedes that the law may be constitutionally defective. “I don’t minimize the potential flaws that indeed may prove fatal to its ultimate implementation,” he wrote. Whatever the case may be, the net effect of SB 826 may be less drastic than imagined. A recent study published by the New York Times revealed that the law would increase the number of female directors at Fortune 500 companies by one. Smaller companies stand to add approximately 200 female board members in total.

As the leaves settle, corporations are left to comply with SB 826 until it is challenged. We will be sure to report if and when that happens.

This blog post is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.