Executive Summary
Artificial intelligence (AI) is transforming hiring practices and increasing risk of legal action and regulatory oversight. Our Privacy, Cyber & Data Strategy and Labor & Employment Groups investigate the lawsuits and statutes grappling with concerns about potential discrimination.
- Lawsuits target both employers and their vendors for alleged bias in hiring when using AI
- High-profile cases, like Mobley v. Workday, spotlight the risks companies may face in discovery
- Regulators and courts are closely scrutinizing AI-driven employment practices under federal and state laws
Artificial intelligence (AI) technology continues to rapidly reshape how employers attract, evaluate, and manage talent. From resume screening and skills matching to retention prediction and enhanced performance analytics, AI can bring efficiency and scalability to core human resources (HR) processes. But these AI tools are becoming subject to heightened scrutiny by courts and regulators, exposing employers embracing AI to increasing litigation and regulatory risks.
Emerging Litigation Themes
There has been a surge in lawsuits challenging AI-driven hiring practices under long-standing antidiscrimination laws, targeting both the employers that use AI-driven products and services for candidate matching and the vendors that provide them. These cases stem from allegations that AI models and their outputs are biased by coding the AI models to look for traits and characteristics that may be more prevalent in or align with certain protected characteristics, such as age.
One of the most notable cases is Mobley v. Workday, where the U.S. District Court for the Northern District of California allowed a national collective action under the Age Discrimination in Employment Act (ADEA) to proceed. The Mobley plaintiffs allege that Workday's AI-powered recruiting tools disproportionately rejected applicants over age 40. Mobley does not allege that Workday itself was a direct "employer." Instead, he alleges that Workday operated as an "agent" performing functions traditionally exercised by employers.
On August 28, 2025, the court ordered Workday to produce a list of its customers that have used its AI features since September 2020. While the case is still in its early stages, this development underscores that claims against the providers of AI-based HR tools can have broad implications on employers that use them, raising discovery burdens and reputational risks across the ecosystem.
Plaintiffs in other AI-related employment discrimination cases are also targeting employers directly, alleging that employers' use of AI hiring tools has led to unlawful discrimination against protected classes under the ADEA, Title VII of the Civil Rights Act, and Americans with Disabilities Act, as well as state laws.
Regulatory Postures
With federal regulators rolling back their prior AI-related guidance, state and local regulators are now driving the compliance framework for employers' use of AI technology in their hiring practices. For example:
- The California Civil Rights Council finalized the Employment Regulations Regarding Automated-Decision Systems. These regulations, effective October 1, 2025, clarify that employers are responsible for discriminatory employment decisions made by "automated-decision systems" and require employers to maintain adequate records of employment decisions, including those made by automated-decision systems.
- The California Privacy Protection Agency finalized the updated regulations to the California Consumer Privacy Act. Once approved by the California Office of Administrative Law, these regulations will create new risk assessment, privacy right fulfillment, and other obligations relating to "automated decisionmaking technology" used for employment decisions.
- The Colorado Artificial Intelligence Act, effective June 30, 2026, imposes risk management requirements on businesses that use "high-risk artificial intelligence systems," including AI systems used to make employment decisions.
- New York City Local Law 144 requires employers that use "automated employment decision tools" to conduct and publish bias audits and provide transparency disclosures to candidates.
Other jurisdictions like Maryland and Illinois have also enacted laws prohibiting discriminatory use of AI in employment contexts and imposing notice and consent requirements for certain AI use cases, such as conducting an AI-based analysis of candidate interviews.
What These Developments Mean for Employers
While Mobley centers on Workday's AI features, the case has implications for any employer using platforms with AI features at the candidate screening stage.
Transparency and explainability of employment-related AI tools are becoming key issues. As Mobley illustrates, plaintiffs are pursuing discovery that could reveal how employers use AI tools to evaluate candidates. Regulators are also expecting employers to maintain detailed logs of AI-driven employment decisions. Employers should be mindful that discrimination claims based on AI tools and regulatory inquiries can result in disclosures of configuration histories, selection criteria, and other detailed information on how AI tools assist employers' decision-making.
The disparate impact theory is front and center in many discrimination claims. Many AI-related discrimination claims hinge on whether AI-assisted employment decisions have produced disparate adverse impacts on protected classes. Continuous monitoring of AI-assisted employment decisions is critical to address any unintentional disparate impacts that could expose employers to liability.
State and local frameworks are turning best practices into compliance obligations. As a best practice, many employers have implemented antidiscrimination and other risk mitigation measures for using AI tools to make employment decisions. But the emerging AI-specific laws and regulations are turning these best practices into specific compliance obligations. This means that employers may need to thoroughly review their existing AI practices and update as needed to comply with jurisdiction-specific and nuanced requirements.
Looking Ahead
Employers can expect continuing private claims against AI-powered employment decisions, as well as emerging state- and local-driven mandates. Therefore, employers should implement proactive measures to navigate the fast-changing legal landscape around their use of AI. Practical considerations include:
- AI Inventory. Consider maintaining a live inventory of any systems that score, rank, filter, screen, recommend, or otherwise evaluate candidates or employees. An adequate AI inventory is a crucial first step for evaluating applicable laws and managing risks.
- AI Governance. Consider establishing and strengthening an AI governance program to clarify, formalize, and document roles and responsibilities of internal stakeholders, as well as policies, procedures, and standards for evaluating and deploying AI tools.
- Assessments and Audits. Consider conducting thorough assessments of AI tools to make informed decisions on whether and how to use AI tools in employment contexts. It is important to also establish a proper audit process to validate that the use of AI tools complies with applicable laws and internal policies, procedures, and standards.
- Vendor Management. Consider strengthening the oversight procedure for vendors that provide AI-powered HR tools and ensuring proper contractual risk allocations are in place. Remember that employers may also be responsible for problematic employment decisions made by third-party AI tools.
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