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Pay Equity Advocates Leverage Shareholder Derivative Lawsuits To Drive Pay Equity Efforts

Pay equity advocates have used a variety of mechanisms to pressure employers to prioritize pay equity in the workplace. These efforts include shareholder resolutions regarding pay equity, threats of divestiture, and public campaigns against particular employers. Recently, pay equity advocates have unveiled a new tactic to enhance pressure on public corporations to prioritize pay equity: failure to comply with their own pay equity promises. These lawsuits signal a new front in the activist war against perceived pay inequities.

Recent Shareholder Derivative Lawsuits

One pay equity advocate—the Bottini & Bottini law firm—has filed shareholder derivative lawsuits against Qualcomm and the Gap based upon alleged failures to live up to pay equity promises. Bottini & Bottini commenced both lawsuits in the United States District for the Southern District of California, brought by an individual shareholder derivatively on behalf of the corporate entity. The lawsuit alleges that the defendant/employer made public pronouncements supporting pay equity. In turn, these pronouncements prompted the shareholder/plaintiffs and others to purchase shares, relying in part on the corporation’s public statements that pay equity positively impacts the corporation’s success, profits, and share price.

Plaintiffs in both lawsuits claim that the corporations did not live up to their promises regarding pay equity. Instead, the plaintiffs allege that each corporation failed to comply with its own policies of promoting diversity and prohibiting discrimination, identifying specific, alleged deficiencies in each corporation’s actions. Based upon these alleged failures, the plaintiffs contend that each corporation’s share price suffered, and the management of the corporations breached their fiduciary duties to the plaintiff and other shareholders.

Despite the rise in filings, these shareholder derivative lawsuits articulate novel factual and legal theories that must overcome a number of hurdles. For example, the plaintiffs must show that the corporations made specific statements regarding pay equity and diversity and failed to live up to those particular statements and that such failure led to a lower share price. It is unclear whether these lawsuits will ultimately be successful or whether the plaintiffs will receive any sort of recovery. However, the lawsuits have already drawn media attention, serving plaintiffs’ interest in driving public opinion towards perceived inequities and lack of diversity at Qualcomm and the Gap.

Minimizing Exposure

In order to minimize exposure, public corporations should study their shared statements regarding diversity, equity, representation, and compensation to ensure that they are meeting those efforts. Employers who make such statements without ensuring that they fulfill their promises may face additional shareholder derivative lawsuits of the sort alleged against Qualcomm and the Gap.

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