Hunton Employment & Labor Perspectives

Recently, the California Civil Rights Council, which is the arm of the California Civil Rights Department that is responsible for promulgating regulations, voted to approve final “Employment Regulations Regarding Automated-Decision Systems” (“Regulations”). The Regulations attempt to curb discriminatory practices that can arise when using AI tools in the workplace. If they are approved by the Office of Administrative Law, the Regulations will become effective on July 1, 2025. The Regulations have undergone several revisions since they were initially proposed in May 2024, and their adoption would make California one of the first states to implement anti-discrimination regulations pertaining to automated-decision technology.

The updated Regulations define “Automated-Decision Systems” (ADS) as “[a] computational process that makes decisions or facilitates human decision making regarding an employment benefit,” that “may be derived from and/or use artificial intelligence, machine-learning, algorithms, statistics, and/or other data processing techniques.” Examples of functions that ADS can perform include resume screening, computer-based assessments, and analysis of applicant or employee data from third parties.

Both employers and “agents” are covered under the Regulations. Agents are defined as “any person acting on behalf of an employer, directly or indirectly, to exercise a function traditionally exercised by the employer or any other FEHA-regulated activity . . . .” Such functions could include applicant recruiting and screening, hiring, or decisions pertaining to leaves of absence or benefits.

The Regulations provide that it is unlawful for a covered entity to use an ADS that discriminates against an applicant, employee, or a class of applicants or employees based on a protected characteristic, but also indicates that discrimination based on accent, English proficiency, height, or weight is prohibited. In defending against claims of such discrimination, the employer can point to any due diligence performed by the company, such as anti-bias testing. Lack of testing is also relevant to determine liability. Under the new Regulations, covered entities must retain personnel records and ADS data for four years.

Given the intense focus on the use of AI in employment in recent years, employers across the country who use AI tools should ensure that they understand how these tools work and whether they have been properly tested for bias. Employers should review their policies to ensure that the use of AI is adequately covered. Prudent employers will also review contracts with any third parties (such as AI developers or any consultants) to determine whether they are protected against liability arising from AI-related discrimination claims.