AI and Employment: Tracking California’s Proposed Regulations on Employers and Automated Decision-Making

California is among the first states to propose expressly regulating employers’ use of algorithms and artificial intelligence. In a March 25, 2022 virtual public meeting, the California Fair Employment and Housing Council discussed proposed regulatory changes that would address employers’ and third parties’ use of artificial intelligence in employment practices. While the proposed regulations remain a work in progress, they provide a glimpse into how policymakers are approaching these issues — and they could prove influential to other states (and even, potentially, the federal government) contemplating their own regulations in this space.

A Closer Look: AI, Algorithms and Employment-Related Decisions

The proposed regulations, which were released on March 15, 2022, would make explicit that California’s current non-discrimination law prohibits an employer’s use of “qualification standards, employment tests, automated-decision systems, or other selection criteria that screen out or tend to screen out an applicant or employee or a class of applicants or employees” based on legally protected characteristics, unless the selection criteria is shown to be “job-related” and “consistent with business necessity.”

Specifically, the proposed regulations:

• Define “automated-decision system” broadly as any “computational process…or other data processes or artificial intelligence technique[]…” and specifically includes algorithms that:
  • Screen resumes for terms or patterns.
  • Employ face or voice recognition to analyze expressions or word choices.
  • Use gamified testing that includes puzzles or questions to make predictive assessments or measure characteristics like dexterity, reaction-time or other physical or mental abilities or characteristics.
  • Use online tests to measure personality traits, aptitudes, cognitive abilities and cultural fit.
• Expand the definition of “employment agency” to include any person who provides automated-decision-making systems or services involving the administration or use of those systems on an employer’s behalf.
• Extend recordkeeping requirements from two to four years and make explicit the obligation to retain “all machine-learning data.”
• Expand the aiding and abetting provision by adding that unlawful assistance, solicitation, and encouragement includes the “advertisement, sale, provision, or use” of a selection tool that limits, screens out, or unlawfully discriminates against applicants or employees based on protected characteristics.

During the March 25 meeting, the subcommittee that drafted the proposed regulatory revisions offered insight into the drafting process and solicited Councilmember feedback and public comment. The discussion suggested that the proposed regulations are not aimed at creating new causes of action or defenses. Rather, they are intended to clarify the current law’s application to employers’ existing and anticipated use of emerging technologies to make employment-related decisions.

Several commentors asked about the proposed regulations’ use of highly technical terms, which may not be familiar to those outside the tech industry. Others asked about whether the subcommittee reviewed the laws of other jurisdictions or sought feedback from subject matter experts. The most predominant question, though, concerned the timeline for next steps. In response to these questions, the Council made clear that the 45-day comment period did not begin with the March 15, 2022 release of the proposed regulations. The Council is still “workshopping” the proposed regulations and continues to invite informal public comment on the draft.

The proposed regulations follow the Council’s April 30, 2021 virtual civil rights hearing on the use of algorithms in employment, housing, lending and health care. The Council has prioritized revising the regulations related to employment, but proposed regulations related to the use of algorithms in housing are expected to follow.

A Sign of Things To Come?

While California is among the first to propose expressly regulating employers’ use of algorithms, other states — and the federal government — are likely close behind. In the Equal Employment Opportunity Commission’s (EEOC) March 28, 2022 press release for its Fiscal Year 2021 Performance Report and Fiscal Year 2023 Budget Justification, the EEOC announced that its proposed budget will help advance three initiatives launched in 2021, one of which is “an initiative to ensure that employment-related artificial intelligence and algorithmic decision-making tools comply with federal civil rights laws.” Simply put, there is little doubt that employers will face more regulation of the use of automated decision-making tools in the near future, in California and beyond.