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Lawsuit Challenges California Boardroom Diversity Law

CEO giving peptalk to businesspeople at meeting in big conferenceroom
By Ashley Ravid on October 08, 2020 10:55 AM

California Gov. Gavin Newsom recently signed into law a bill that will require companies to have members of underrepresented communities on their boards. On Monday, conservative legal group Judicial Watch announced plans to sue on the basis that the law is unconstitutional. What are the grounds of such a suit, and who is likely to come out on top?

Not California's First Rodeo

The new law states that by the end of 2021, boards of directors of companies headquartered in California must have at least one member who self-identifies as "Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual, or transgender."

Depending on the size of the board, the quota for underrepresented board members would increase in subsequent years. This law is not without precedent, either: In 2018, California enacted a similar law that required boards to appoint women as members.

The Challenge

Affirmative-action type policies have long been a subject of legal debate. The Fourteenth Amendment to the U.S. Constitution guarantees equal rights and protection to all citizens. Supreme Court decisions have interpreted this in a variety of ways, either banning any sort of "discriminatory" practice outright or permitting policies that allow historically underrepresented groups to be awarded certain special consideration.

However, two Supreme Court cases indicate there may be trouble ahead for the future of California's groundbreaking new legislation. In Gratz v. Bollinger (2003), the court ruled that race was an acceptable factor in college admissions when used to admit students from more underrepresented groups. However, it was stated that rigid diversity quota systems were not permissible.

The root of this argument is derived from the Fourteenth Amendment. While race can be one of the considerations for hiring or admissions, the courts have generally taken the position that giving or denying someone a position solely on the basis of race is unconstitutionally discriminatory.

Further support for this point comes from another Supreme Court case, Fisher v. University of Texas at Austin (2013). The court struck down an admissions system that awarded minorities 20 "points" toward a threshold of admission. When exact numbers and quotas enter the picture, it becomes more likely that a diversity initiative will be held unconstitutional — spelling trouble for California's new laws.

Whatever the courts decide, the ruling is sure to set an interesting precedent for the future of diversity movements in the workforce.

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