In the past few years, Artificial Intelligence (AI) has become a major tool used by businesses in improving efficiency and their decision-making process. The number and sophistication of AI applications has been exploding so rapidly that some estimate that the AI field will be entirely changed with new products and applications every six months, and these changes will upend the process of supply chain management, product development, manufacturing, retail, and financial operations.
One of the areas in which the use of AI has proliferated is in the human resources sector, most notably in the recruitment and hiring process. Employers have long sought ways to quickly review employment applications and resumes to identify those candidates who will be most attractive to them, so that they can consider and hire employees who will be most likely to succeed. AI has been touted as a very effective tool for this purpose.
However, the use of AI as a screening tool can result in the screening out of worthwhile candidates because of the inputs that AI uses to assess applications and resumes. The State of California has taken action to address this by promulgating regulations governing the use of “Automated-Decision Systems” (ADS) in the recruitment and hiring process. After final approval by the California Office of Administrative Law, these regulations will become effective on July 1, 2025.
The new regulations add to California’s existing regulations on non-discrimination to prohibit the use of ADS in a manner that may result in discrimination against applicants or employees based on any of the protected categories in California law. These categories include, among others, race, color, sex, gender, sexual orientation, gender identity or expression, age, disability, national origin, citizenship, and criminal conviction history (unless that history has a direct and adverse relationship with the specific duties of the position). The new regulations define ADS as “a computational process that makes a decision or facilitates human decision making regarding any benefit of employment”, which include hiring, promotion, selection for training programs, compensation, or discharge. The new regulations state that ADS can perform assessments about an applicant or employee such as making predictive assessments; measure skills, dexterity, reaction time or other abilities or characteristics; measure personality trait, aptitude, attitude and/or cultural fit; and/or screen, evaluate, categorize, and/or recommend applicants or employees—and that the use of an ADS for any of these decisions are subject to the law. The regulations also note that ADS can be used to direct job advertisements or recruiting materials to targeted groups; screen resumes for particular terms or patterns; analyze facial expressions, word choice, or voice in interviews; and analyze data acquired from third parties.
The new regulations specifically provide that an employer or its agent (which includes a third party acting on behalf of the employer as part of the recruitment and hiring process or other employment matter) will violate California’s anti-discrimination laws if it uses AI or another selection criteria that discriminates against a class of applicants or employees on a basis protected by the law. The agent, as well as the employer, can be found to have violated the anti-discrimination law if the ADS results in unlawful discrimination against a protected category. Employers must document their use of ADS as part of an employee’s employment records and maintain all employment records for four years.
Since the regulations provide that discrimination can be found if the ADS used by the employer or agent has a discriminatory impact on applicants or employees of one or more protected groups, the regulations state: “Relevant to any such claim or available defense is evidence, or the lack of evidence, of anti-bias testing or similar proactive efforts to avoid unlawful discrimination, including the quality, efficacy, recency, and scope of such effort, the results of such testing or other effort, and the response to the results.” This provision makes it clear that before an employer begins to use AI in recruitment, hiring, or other employment matters, including use of AI by an agent with which the employer contracts to perform or assist in these matters, it is well advised to ensure that the ADS tool has been tested or otherwise reviewed to ensure that its use will not result in bias in the employment process, and that the employer obtains documentation from the provider of the ADS demonstrating that use of this tool will not result in discrimination against members of any protected category.
The use of AI in employment decisions has been the subject of litigation in federal courts and administrative agencies in which claims of discrimination are asserted. Other states, including Illinois and Maryland, and the City of New York, have enacted laws relating to the use of AI in employment, other states have enacted laws restricting the use of AI in other areas, and legislation to govern the use of AI has been proposed in almost every state. So it is likely that if another state has not sought to regulate AI in employment, it will consider doing so—or will do so—in the near future.
Because the technology and the laws governing this incredible tool are changing so rapidly, all businesses are well-advised to remain focused on the subject of AI in employment and to consult with legal counsel before adopting AI tools in their recruitment, hiring, and other employment processes.