California Fair Employment & Housing Council Proposes Sweeping Regulation of Automated Decision-making and Artificial Intelligence in Employment

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On March 15, 2022, the California Fair Employment & Housing Council released draft revisions to the state’s employment non-discrimination laws that would dramatically expand the liability exposure and obligations of employers and third-party vendors that use, sell, or administer employment-screening tools or services that embody artificial intelligence, machine learning, or other data-driven statistical processes to automate decision-making.

As proposed, the regulations would define an “automated-decision system,” or ADS, in extremely broad terms: any “computational process, including one derived from machine learning, statistics, or other data processing or artificial intelligence techniques, that screens, evaluates, categorizes, recommends, or otherwise makes a decision or facilitates human decision making that impacts employees or applicants.”  This includes, without limitation:

  • algorithms that screen resumes for particular terms or patterns;
  • algorithms that employ face and/or voice recognition to analyze facial expressions, word choices, and voices;
  • algorithms that employ gamified testing that include questions, puzzles, or other challenges used to make predictive assessments about an employee or applicant, or to measure characteristics including but not limited to dexterity, reaction time, or other physical or mental abilities or characteristics; and
  • algorithms that employ online tests meant to measure personality traits, aptitudes, cognitive abilities, and/or cultural fit.

The proposal goes on to specify that the use of ADS in a manner that is intentionally discriminatory, or that is facially neutral but nonetheless results in discriminatory impact, is unlawful under state law.

The draft regulations provide that liability extends to third parties that act on behalf of an employer by providing services relating to various facets of employment, including recruiting, applicant screening, hiring, payroll, benefit administration, etc., if they adversely affect the terms or conditions of employment. These third parties would be considered “agents” of the employer (and thereby, “also an employer” of the aggrieved party) and would thus be directly liable for claims of discrimination.  The regulations likewise expand the definition of “employment agency” to include any person who provides ADS or ADS-related services—essentially making the vendors and administrators of employment-screening tools subject to the non-discrimination law. The proposed regulation would also create “aiding and abetting” liability for anyone engaged in “the advertisement, sale, provision, or use” of an ADS if the end use of that ADS results in unlawful discrimination.

Finally, the regulations would expand recordkeeping requirements under current law from two years to four years, and would require the retention, by the employer and all other covered third-party entities, of all data used in the process of developing or applying machine-learning algorithms that are utilized as part of an ADS.  This would include datasets used to train the algorithm; data provided by individual applicants or employees; data about individual applicants and employees that have been analyzed by the algorithm; and data produced from the application of an ADS operation.  The revisions would also require all third parties engaged in “the advertisement, sale, provision, or use” of ADS tools to preserve “the assessment criteria used by the [ADS] for each such employer or covered entity to whom the [ADS] is provided.”

The Council is slated to discuss these proposed regulations in a public (virtual) meeting scheduled for 3:00 p.m. (PDT) on Friday, March 25, 2022.  If approved, they will be open for public comment.  Ultimately, the Council may approve the draft as proposed, or presumably make modifications to the proposal based on comments received.  What is clear, however, is that the Golden State is poised to regulate the use of artificial intelligence and machine learning in employment decision-making aggressively, and to extend liability to vendors and those who provide products or services to assist employers in doing so.

Littler’s Workplace Policy Institute will continue to monitor and keep readers apprised of developments.

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