California to Increase Regulation of AI Tools In The Workplace: New Legal Liability

Topics: AI in the Workplace, Employee Hiring, Discipline & Termination, Personnel Policies and Procedures

The explosion of AI and the fast pace at which employers are implementing AI into the workplace prompted California regulators to propose new rules that will govern the use of AI tools in employment decisions such as recruitment, application screening, hiring, and promotions.  

Many California employers began adopting AI tools in some form and the scale is expected to increase in the near future. While California employers may enjoy the improvement in productivity AI offers, it is important to evaluate the design and implementation of AI to minimize legal liability down the road. The Civil Rights Department identified its concern that AI may exacerbate existing biases and continue such trends in a situation where AI is asked to mimic an existing workforce that happens to be male-dominated. Such guidance may cause the AI to reject female applicants to find the right “fit.”  

On May 17, 2024, California’s Civil Rights Council proposed regulations that:

• Clarify that job applicants or employees who are harmed by AI decision-making systems due to protected characteristics will have claims against the employer.
• Require employers and covered entities to maintain employment records, including automated decision-making data used for decision-making, for at least four years.
• Affirm that using an automated decision-making system alone does not replace the requirement for an individualized assessment when considering an applicant’s criminal history.
• Clarify that third parties are prohibited from aiding and abetting employment discrimination, including through the design, sale, or use of an automated decision-making system. In other words, AI providers, along with employers using their technology, may be liable for alleged discrimination arising from the use of AI systems.
• Provide clear examples of tests or challenges used in automated decision-making system assessments that may constitute unlawful medical or psychological inquiries.

California employers that use AI to aid employment decisions should immediately consult with employment counsel and take measures to insulate themselves from potential litigation down the road. The newly proposed regulations also implicate third-party providers/designers of AI tools and employers using those tools.  

CDF will continue to monitor developments related to AI issues in the workplace. Please contact Dan Forman or Linda Wang to discuss the implementation of AI and how to protect your organization if you have questions. We are available to assist with policies, notices, general compliance for employers, and defense of investigations and litigation.