New California Regulations Target AI Use in Hiring Employees

For many, using artificial intelligence is a common part of our everyday lives, particularly in internet searches. But it’s also used in doctors’ offices, schools, and many more workplaces.

Lately we’re seeing many employers using AI, and its influence on hiring practices is growing quickly. But employers should exercise caution when using AI in the employment context.

On March 21, 2025, the California Civil Rights Council (CRC) took significant steps toward regulating AI and automated decision-making systems (ADS) in employment. The CRC issued regulations which will likely take effect July 1, 2025, after the Office of Administrative Law approves and the Secretary of State publishes the regulations.

How is an ADS Used in Employment?

An automated decision-making system (ADS) is defined as a “computational process that makes a decision or facilitates human decision making regarding an employment benefit.”

An ADS may be derived from and /or use artificial intelligence, machine-learning, algorithms, statistics, and other data processing techniques. These types of systems help employers make employment decisions or conduct pre-employment inquiries. For example, employers may use these systems for:

• Recruitment
• Resume screening
• Ranking applicants
• Assessing qualifications and video interviews
• Hiring and firing
• Promotion and transfer decisions

The systems make predictive assessments about individuals, such as measuring skill, dexterity, reaction-time or other abilities, personality traits, attitudes, and cultural fit. Whether the system or device makes decisions independently or assists human decision-making, the new regulations consider it an automated decision-making system.

Key Rules for Employers

The final regulations the CRC adopted are consistent with California’s continued leadership in monitoring AI, and are predictably, pro-employee. The regulations:

Manage pre-employment practices:

The regulations state, “It is unlawful for an employer… to use an automated-decision system or selection criteria … that discriminates against an applicant or employee… on a basis protected by the Act…”

Thus, employers may not engage in unlawful discrimination and should not use ADS for pre-employment inquiries that could be discriminatory on the basis of a protected characteristic (e.g., race, sex, disability). For example, an ADS cannot seek criminal history or use medical or psychological tests before a conditional job offer.

Stated differently, employers must ensure the systems do not cause disparate treatment (intentional discrimination) or adverse impact (unintentional but disproportionate harm to specific groups), based on characteristics protected under the Fair Employment and Housing Act.

Expand the definition of an employer:

The regulations apply to any business or enterprise regularly employing five or more individuals. Additionally, the rules cover “agents” such as third-party vendors or service providers (“An agent includes any person acting on behalf of an employer, directly or indirectly, to exercise a function traditionally exercised by the employer… which may include applicant recruitment, applicant screening, hiring, promotion, or decisions regarding pay, benefits, or leave…”.

Employers are responsible for discriminatory outcomes from any third-party ADS tool they use.

Require record maintenance:

Employers must retain ADS records for at least four years (including data, selection criteria, and referral records).

Require proof for adverse impact:

When ADS negatively affects a protected group, the employer must prove the tool directly relates to the job, serves a business necessity, and that there is no other less discriminatory option available.

California Employers’ Next Steps

While ADS tools can be valuable for hiring, they also carry legal risk. Employers using or considering ADS in their hiring process should:

• Understand their AI and ADS tools: Gain a clear understanding of how the software works and can potentially affect individuals on a protected basis. An internal audit can be beneficial to understand the impact new technology has on hiring and employment decisions.
• Communicate with vendors: Communicate clearly with vendors on what the ADS includes and how it functions.
• Review policies: Ensure hiring procedures, job postings, and screening comply with the new regulations for ADS.
• Train HR staff: Provide comprehensive training on the risk of new technology.
• Keep documentation: Maintain records as required by the regulations, and proof of compliance.

Final Thoughts

Automated decision-making systems are here to stay. As California tightens regulations, employers should ensure an effective yet efficient transition into technology-based hiring.

Those with questions regarding the impact of the Civil Rights Council’s final regulations and other employment law matters should contact an employment attorney for help.

Sue M. Bendavid is the Chair of our Employment Practice Group.