Cal-Peculiarities: How California Employment Law is Different 2022 Edition

394 | 2022 Cal-Peculiarities ©2022 Seyfarth Shaw LLP  www.seyfarth.com 20.8 Diverse Representation on Corporate Boards of Directors Every publicly held corporatio n 36 with a principal executive office in California—whether incorporated in California or elsewhere—must have women on its board of directors . 37 P reviously, such corporations must have had at least one female director and now must have a minimum number of board seats filled by women, based on the total size of the board of director s. 38 Under 2020 legislation, such corporations must also, by the end of 2021, have had at least one director from “an underrepresented community”—someone 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 transgende r. 39 And by the end of 2022, a corporation with more than four but fewer than nine directors must have at least two directors from underrepresented communities, and such a corporation with nine or more directors must at least three directors from underrepresented communities. The Secretary of State recently published an annual report of how many publicly held corporations have principal executive offices in California and which corporations (1) complied with requirements, (2) moved their headquarters in or out of California, and (3) are no longer publicly traded . 40 For each director’s seat not held by a female or individual of an underrepresented community, when by law it should have been, the corporation is subject to a $100,000 fine for the first violation and a $300,000 fine for further violations. Corporations that fail to timely file relevant information with the Secretary of State will also be subject to a $100,000 fine . 41 If you thought that race- and gender-based mandates on corporate board representation raise constitutional issues, then you would not be alone. In May 2022 a Los Angeles Superior Court judge ruled that the corporate board diversity law is unconstitutional as to the gender mandate . 42 T he ruling reasoned that the gender-based quota is subject to strict constitutional scrutiny and lacks a compelling government interest to justify it. The judge rejected the state’s argument that remedying discrimination in director selection was a compelling government interest, because the state did not specify any intentional, unlawful discrimination to remedy. The judge also denied that there was a compelling interest in benefiting the public and state economy, as the law instead aimed to achieve gender equity or parity. Moreover, there are no conclusive connections between women on corporate boards and improved corporate performance and governance. The judge cited expert testimony that attributed the differences in the numbers of men and women on corporate boards to reasons other than actual discrimination, such the lack of open board seats, women’s networking issues, board members’ propensity to select persons they already, know, and board preferences for choosing CEOs to fill board positions. Finally, the judge held that the law was not narrowly tailored to California’s stated interest, because the Legislature failed to consider amending existing discrimination laws or to adopt more finely tuned legislation to root out alleged discrimination in the board selection process. The rulings are likely to be appealed and result in an opinion by the Court of Appeal. 20.9 Pay For College Athletes The Fair Pay to Play Act, which became effective on September 1, 2021 , 43 authorizes California student athletes enrolled in California public and private four-year colleges and universities and California community colleges to earn money from endorsements, sponsorship deals, and any other activities related to their athletic skills, without losing their status as student athletes. The Act also forbids California colleges, universities, and community colleges from denying their student athletes the chance to hire agents and earn money for use of their names, images, and likenesses . 44