Building upon California’s prior efforts to increase diversity in the workplace, Governor Newsom has signed into law Assembly Bill 979 and Senate Bill 973. AB 979 requires greater diversity on corporate boards of directors while SB 973 imposes pay reporting requirements based on gender, race, and ethnicity. Both laws will become effective on January 1, 2021.
AB 979 applies to publicly held corporations headquartered in California, requiring them to diversify their boards of directors with directors from “underrepresented communities”. AB 979 defines “director from an underrepresented community” as “an individual 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.” The bill is similar to Senate Bill 826, signed into law in 2018, which required publicly held corporations headquartered in California to appoint women to their boards of directors pursuant to established quotas (i.e., at least one female director by the end of 2019 and more by the end of 2021 proportional to the total number of directors on the board). For more specific details about SB 826, see “Female Quota for Corporate Boards” section of one of our earlier articles.
Like SB 826’s requirements for corporations to successively increase the proportion of female directors on their boards, AB 979 also imposes a schedule of proportional increases in the number of directors from “underrepresented communities” on corporate boards. By December 31, 2021, corporations covered by AB 979 must have at least one board director from an underrepresented community. By December 31, 2022, covered corporations with boards of nine or more directors must have at least three board directors from underrepresented communities, while corporations with boards of five to eight directors must have at least two board directors from underrepresented communities. The bill does not require corporations to replace existing directors with directors from underrepresented communities. Rather, corporations may increase the number of directors on their boards to comply with AB 979. Starting no later than March 1, 2022, the California Secretary of State will publish annual reports on its website documenting covered corporations’ compliance with AB 979’s diversification requirements.
The other diversity law, SB 973, focuses on equal pay concerns for diverse employees. Starting on or before March 31, 2021, private employers with 100 or more employees that is required to file an Employer Information Report (EEO-1) under federal law will also be required to annually submit various pay and hours data to California’s Department of Fair Employment and Housing (DFEH). The required data includes the number of employees by race, ethnicity, and gender in the following categories: executive or senior level officials and manager, first or mid-level officials and managers, professionals, technicians, sales workers, administrative support workers, craft workers, operatives, laborers and helpers, and service workers. The report must include previous year W-2 earnings and hours worked for all employees in a searchable and sortable format. Since the first report will be due on March 31, 2021 for 2020 annual pay data, affected employers should begin preparing for compliance now.
The new report required by SB 973 will be put to good use; the law authorizes the DFEH to receive, investigate, conciliate, mediate, and prosecute complaints alleging practices unlawful under discriminatory wage rate provisions. The bill further requires that the DFEH adopt procedures to ensure that it coordinates enforcement activities to enforce those provisions with the Division of Labor Standards Enforcement (DLSE).
AB 979 and SB 973 require sweeping changes that employers cannot afford to sleep on. As part of efforts to comply specifically with those statutes, employers should plan ahead by auditing the diversity of their workforce and boards of directors and assessing the adequacy of their internal policies for hiring, retention, and advancement of diverse employees. Employers should also take this opportunity to audit their payroll practices in terms of diversity to ensure that all classes of employees are paid fairly based on nondiscriminatory factors.