California’s New AI Employment Regulations and What Employers Need to Know
By Laraya Parnell
September 24, 2025
Automated-decision systems (ADS), which rely heavily on algorithms and artificial intelligence (AI), have become popular in facilitating employment decisions related to job applicants or employees, including making determinations about recruitment, hiring, disciplinary actions, and promotion. While these tools can streamline a process, they can also exacerbate existing biases and lead to discriminatory outcomes. To combat potential risks associated with ADS, the California Civil Rights Council has implemented new rules that will govern the use of ADS and AI in the workplace. These new regulations apply to all employers in California and go into effect on October 1, 2025.
Key Information and Responsibilities for Businesses Incorporating ADS
The new regulations, which are rooted in the Fair Employment and Housing Act (FEHA), provide clarity on how existing anti-discrimination laws apply to the use of ADS and AI in employment decisions. Below is a brief summary of the new law, but the full extent of the requirements and modifications to current legislation can be found here.
- ADS Is Now Defined and Regulated.
California Code of Regulations, tit. 2, section 11008.1 was added to existing anti-discrimination regulations and defines ADS broadly as a computational process that makes a decision or facilitates human decision making regarding an employment benefit. According to § 11008.1, ADS perform tasks such as:
- Use computer-based assessments or tests to: (i) make predictive assessments about an applicant or employee; (ii) measure an applicant’s or employee’s skills and/or other abilities or characteristics; (iii) measure an applicant’s or employee’s personality trait, aptitude, attitude, and/or cultural fit; and/or (iv) screen, evaluate, categorize, and/or recommend applicants or employees.
- Direct job advertisements or other recruiting materials to targeted groups;
- Screen resumes for particular terms or patterns;
- Analyze facial expression, word choice, and/or voice in online interviews; or
- Analyze employee or applicant data acquired from third parties.
The regulations broadly define AI as “a machine-based system that infers, from the input it receives, how to generate outputs [which] can include predictions, content, recommendations, or decisions.” The regulations also broadly define “agent,” including companies hired to recruit and screen applicants, to be an “employer” under FEHA.
The regulations further make it clear that it is unlawful for an employer to use an ADS or selection criteria that discriminate against an applicant or employee, or a class of applicants or employees, based on a protected characteristic. Employers will also need to provide reasonable accommodations, where necessary, based on FEHA’s religious and disability protections. However, employers can refute claims of unlawful discrimination as it relates to its use of ADS with evidence of anti-bias testing or similar proactive efforts, including evidence of the quality, efficacy, recency, and scope of such efforts, the results of such testing or other efforts, and the response to the results. Note that the absence of such evidence will give the perception that the employer did not engage in their due diligence to ensure the ADS used complies with applicable anti-discrimination laws.
- Recordkeeping Requirements
In addition to broadly defining and regulating use of ADS, employers are also now required to retain ADS-related records for a period of four years. This includes retention of 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.
Recommended Actions for Employers Using ADS and AI
If you are currently using, or have considered using, ADS or AI as it relates to employment decisions, the following steps are recommended:
- Consider conducting an audit of any AI and algorithmic tools used in hiring and employment decisions.
- Revise policies for record retention of relevant records related to employment for a minimum of four years.
- When using ADS or AI, conduct anti-bias testing and document any findings and mitigation efforts.
- Review vendor contracts and ensure third-party tools comply with FEHA’s anti-discrimination regulations. Also review indemnification clauses in those contracts to protect the Credit Union’s interests in potential litigation.
- Mandate that human oversight remains a component of all major employment decisions.
SW&M will monitor pending legislation regarding AI and ADS, which as noted above, may incorporate additional obligations or penalties for employers.
Proposed AI Legislation
In addition to the new CRD regulations, the California legislature has passed Senate Bill 7, also known as the “No Robo Bosses Act,” which requires employers provide at least a 30-day notice before using ADS and provides a mandated structure for human oversight in key employment decisions, such as hiring, terminations, promotions, and disciplinary actions. It also gives workers the right to appeal decisions made by AI and prevent employers from making predictions about a worker related to their immigration status, ancestral history, health, or psychological state. The bill applies to job applicants, independent contractors, and employees, and prohibits employers from discharging, threatening to discharge, demoting, suspending, or in any manner discriminating or retaliating against any worker (which includes applicants) for taking certain actions asserting their rights under the new law. The bill is currently awaiting Governor Newsom’s approval and is likely to be signed into law. Stay tuned for more on SB 7 from SW&M in the coming weeks!
About the Author
Laraya Parnell
Laraya Parnell, Of Counsel at SW&M, brings nearly a decade of expertise in employment law and civil litigation. Her impressive portfolio includes guiding clients through the complexities of hiring, termination, employee benefits, and workplace policies, as well as tackling challenging […]
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