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Bottom Line
Effective Oct. 1, 2025, California employers will face new compliance obligations when using artificial intelligence in hiring, promotion and other personnel decisions. The California Civil Rights Department (CRD) has finalized regulations confirming that automated decision systems (ADS) are subject to the Fair Employment and Housing Act (FEHA)—placing artificial intelligence (AI) on equal footing with human decision-making when it comes to anti-discrimination enforcement.
Employers should be prepared to show that their use of AI tools complies with FEHA by documenting bias testing, maintaining appropriate records, and ensuring meaningful human oversight. These rules represent a significant shift in how technology-driven employment practices will be evaluated, and they are expected to influence standards nationwide.
Highlights
Broad Coverage: The regulations apply to any "computational process that makes or facilitates human decision-making" in employment. This includes resume-screening platforms, personality and cognitive assessments, and video-interview algorithms, among other AI-based tools.
Anti-Discrimination Rules Apply: Employers may not rely on automated systems that result in disparate treatment or disparate impact under FEHA. Any bias embedded in an algorithm will be treated as bias attributable to the employer.
Bias Testing as Evidence: Although the rules stop short of mandating bias audits, regulators and courts may consider whether an employer tested its systems when evaluating compliance. Employers able to demonstrate review and oversight will be in a stronger defensive position.
Recordkeeping: Employers must retain ADS-related data, applications, and personnel records for four years—twice the previous requirement—and preserve them longer if a complaint or investigation arises.
Vendor Liability: Responsibility does not end with outsourcing. Employers remain accountable for the actions of vendors, contractors, or staffing agencies that design or operate AI tools on their behalf.
Privacy and Transparency: The California Privacy Protection Agency (CPPA) is pursuing additional regulations under the California Consumer Privacy Act (CCPA) that would require employers to give pre-use notices and, in some situations, offer applicants the ability to opt out of certain AI-driven processing. These privacy measures will overlap with the CRD's employment-specific framework.
Pending Legislation – SB 7: Awaiting Gov. Gavin Newsom's signature, SB 7 would prohibit fully automated employment decisions lacking human involvement and introduce further limits on electronic monitoring. If enacted, it would make California's AI employment laws among the most comprehensive in the nation.
Next Steps
- Evaluate AI Tools: Review any automated or algorithmic systems used in recruiting, screening, or personnel management to identify potential sources of bias or disparate impact.
- Engage Vendors: Obtain documentation from technology providers confirming that their tools have been tested for bias and meet California's regulatory standards.
- Update Internal Policies: Extend record-retention schedules to four years, ensure accommodation procedures address AI-based assessments, and incorporate human review into automated workflows.
- Coordinate Across States: Multi-state employers may find it more efficient to implement California's standards enterprise-wide rather than maintaining separate systems.
- Stay Informed: Monitor the governor's action on SB 7 and the CPPA's rulemaking process for new notice, consent, and data-handling requirements.
In summary: California's new AI hiring rules eliminate any ambiguity about whether technology can shield employers from discrimination liability. AI systems must now be designed, monitored, and documented with the same care traditionally applied to human employment decisions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
