Artificial Intelligence (“AI”) has become a part of everyday life, and many employers have sought to implement the use of AI in their personnel management in tasks such as screening applicants and resumes, measuring an applicant or employee’s skills or abilities, directing job advertisements and recruiting materials to targeted groups, and screening, evaluating, and/or recommending applicants for employment.
Employers must exercise caution when using AI as such may lead to liability if their use of an “Automated Decision System” (ADS) has an unintended discriminatory effect on applicants and employees based on their protected characteristics.
Amended FEHA Regulations Apply Existing Laws to Use of AI in the Workplace
California has implemented regulations which seek to govern the use of AI in the workplace.
The California Civil Rights Department (CRD) recently published amendments to the Fair Employment and Housing Act (FEHA) which are intended to “protect against potential employment discrimination as a result of the use of artificial intelligence, algorithms, and other automated-decision systems” in employment related decision-making.
The regulations, which take effect October 1, 2025, make it clear that all existing nondiscrimination laws apply to the use of AI in employment-related decisions, for both current employees and applicants, and the use of an ADS may violate California law if it harms applicants or employees based on a protected characteristic.
These changes fall into four general categories: (1) expanded definitions, (2) substantive provisions concerning pre-employment practices, (3) substantive provisions concerning discrimination, and (4) record-keeping requirements.
Expanded Definitions
- An “automated-decision system” (ADS) is defined as a computational process making decisions or facilitating human decision-making regarding employment benefits. The FEHA regulations provide several examples of the types of tasks an ADS can perform, including tools that:
- Screen resumes or applications;
- Rank or score candidates;
- Analyze facial expressions, voice, or behavior in interviews;
- Make predictive assessments about an applicant or employee;
- Measure skills, reaction-time, and/or other abilities or characteristics;
- Target job ads or other recruiting materials to specific groups; and/or
- Use games, puzzles, or assessments to evaluate traits like personality or aptitude.
- Employer’s “agent” is 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 as recruiting, screening, hiring, promoting or making other employment-related decisions, regarding pay, benefits, or leave, including when activities and decisions are conducted in whole or in part through the use of an ADS. Any agent of an employer is also an “employer” for purposes of FEHA.
- AI is “a machine-based system that infers, from the input it receives, how to generate outputs”. This broad definition of AI has the potential to include any computer program within its scope, even if such a program does not perform complex tasks normally done by human-reasoning.
- “Proxy” was also added and refers to a characteristic or category closely correlated with a FEHA-protected characteristic. The use of this term is intended to clarify how automated systems may indirectly discriminate by relying on variables that serve as stand-ins or substitutes for protected characteristics (e.g., using zip codes as a proxy for race or national origin).
Pre-Employment and Hiring Practices
Employers are already governed by FEHA’s regulations as to their pre-employment and hiring practices, including recruitment, pre-employment inquiries, applications, and interview or other screening methods. The regulations make it clear that all pre-employment practices are now expressly covered by those conducted via an ADS.
In addition, the FEHA regulations reinforce California’s Fair Chance Act by making it clear that employers cannot use an ADS to inquire into or obtain information about an applicant’s criminal history prior to extending a conditional offer of employment.
Substantive Provisions on Discrimination
Employers may not use an ADS or selection criteria that results in discrimination based on any protected characteristics (e.g., race, gender, age, disability, religion, national origin), which includes indirect discrimination through proxies (e.g., ZIP code, speech patterns, facial analysis).
Use of Vendors for ADS
Employers may face liability if their use of an ADS is direct (by the employer itself) or indirect (by an “agent”). If an “agent” is used for recruiting purposes, employers should review their contracts to ensure that proper indemnification and defense agreements are in place, while also mandating the agent certifies the efficacy and results of their anti-bias testing conducted on AI platforms.
Record-Keeping and Preservation of Records
The regulations specify that any personnel or other employment records made or kept, created or received by any employer or other covered entity dealing with any employment practice and affecting any employment benefit of any applicant or employee (including all applications, personnel, membership or employment referral records or files) shall be preserved by the employer or other covered entity for a period of four years from the date of the making of the record or the date of the personnel action involved, whichever occurs later.
This includes all applications, personnel records, membership records, employment referral records, selection criteria, automated-decision system data, and other records created or received by the employer or other covered entity dealing with any employment practice and affecting any employment benefit of any applicant or employee.
Affirmative Defense Available
The amended regulations provide employers with an “affirmative defense” to a claim of discrimination on the basis of the use of an ADS. To be able to assert the affirmative defense employers should:
- Ensure that interviews, screenings, and tests that are done through ADS are equally accessible to all applicants.
- Conduct bias audits or impact assessments before implementing AI technology;
- Regularly review the impact of AI tools on protected groups after implementation;
- Evaluate the quality of audits, assessments, and/or tests used to detect potential discriminatory outcomes in the use of AI tools;
- Document the results of any anti-bias testing, including the employer’s response to the results; and
- Institute human review of any employment decisions facilitated by AI.
What Should I do Now?
- Ensure that any agent retained for screening applicants and employees is in compliance with the new regulations, including anti-bias testing, record-keeping, and, if possible, having the vendor indemnify the employer for the vendor’s use of an ADS or AI.
- Educate hiring personnel on the new FEHA regulations and potential liability in the use of ADS, emphasize the importance of individualized assessments and documentation, and require human oversight and decision-making with respect to all personnel actions.
- Ensure the document retention and preservation policies comply with the expanded record-keeping requirements, both in terms of the data preserved and the length of time it is retained.
The full text of the regulations and additional information on the Civil Rights Council is available here.