California Modifies Employment Discrimination Regulations to Include Automated-Decision Systems

And during its March 21, 2025, meeting, the CRC approved new regulations to address the use of “automated-decision systems” (ADS) in employment practices. While these new regulations do not expand upon any protected characteristic under the FEHA, they do now expressly address employment activities utilizing computational processes within the scope of potentially discriminatory practices.

Here’s what employers should know about what an ADS is, the potential liability for using one, when these regulations will likely be effective and what employers can do now based on California’s latest regulatory efforts.

What is an Automated-Decision System?

Most of the new regulations amend existing sections of the FEHA regulations; however, the one newly added section defines, for the regulation’s purposes, what an ADS is as well as several other terms like “algorithm,” “artificial intelligence” and “machine learning”. ADS is broadly defined as a computational process that makes a decision or facilitates human decision-making regarding an employment benefit. These systems may be derived from or use artificial intelligence, machine learning or algorithms, amongst other data processing techniques.

More importantly, the regulations provide a non-exhaustive list of tasks that an ADS could perform in the employment context, such as:

• Using computer-based assessments or tests to:
• Make predictive assessments about an applicant or employee;
• Measure an applicant’s or employee’s skills, dexterity, reaction time and/or other abilities and characteristics;
• Measure an applicant’s or employee’s personality traits, aptitude, attitude and/or cultural fit; and/or
• Screen, evaluate, categorize and/or recommend applicants or employees.
• Directing job advertisement or other recruiting materials to targeted groups;
• Screening resumes for particular terms and patterns;
• Analyzing facial expression, word choice and/or voice in online interviews; or
• Analyzing employee or applicant data from third parties.

While an ADS focuses on computational processes, the regulations do exclude certain types of processes, such as word processing and spreadsheet software; information technology security software; and calculators, databases and other computational processes, from the ADS definition — as long as those processes don’t make decisions regarding an employment benefit.

Potential Liability for ADS Use

These regulatory changes primarily confirm existing law applies to the use of an ADS in employment decisions as the regulations expressly state “[i]t is unlawful for an employer or other covered entity to use an automated-decision system or selection criteria … that discriminates against an applicant or employee or a class of applicants or employees on a basis protected by the [FEHA]”. In other words, it is unlawful to use an ADS if it results in a person or group of people being negatively impacted in hiring and employment decisions based upon a protected characteristic.

In this case, liability may not be just limited to the potential or actual employer, but to any agent of the employer. These regulations add a new definition for “agent” to include any person acting, directly or indirectly, on behalf of an employer to exercise an employment or FEHA-regulated activity traditionally exercised by the employer such as recruitment, applicant screening, hiring, promotion or other decisions involving an employment benefit, including when these activities and decisions are conducted at least in part using an ADS.

This definition is rooted in a California Supreme Court case, Raines v. U.S. Healthworks Medical Group, which as previously reported, extended direct liability under the FEHA to third parties who perform employment-related activities on behalf of an employer. This potentially means developers of an ADS that is used for employment-related activities may also be directly liable if that ADS use violates the FEHA.

As with any FEHA-related claim, such as race or sex discrimination, an employer may defend against the claim by providing evidence that the decision or employment practice was based on a legitimate, nondiscriminatory reason. Specific to an ADS, the regulations provide that relevant evidence to any FEHA-related claim or defense will include whether anti-bias testing of the ADS or other similar proactive efforts to avoid discrimination took place.

Finally, the regulations amend an employer’s recordkeeping requirements under the FEHA. Employers must now keep for four years any personnel or other employment record created or received dealing with any employment practice and affecting any employment benefit of any applicant or employee. Records include:

• Applications;
• Personnel records;
• Membership records;
• Employment referral records;
• Selection criteria;
• ADS data; and
• Any other records related to the employment practice or affected employment benefit.

What’s Next?

The CRC regulations must now be submitted to the California Office of Administrative Law (OAL) for review and approval. The OAL has 30 working days to review the regulations before making a final approval. If approved, the OAL files the regulations with the California Secretary of State. These regulations were expected to take effect on July 1, 2025; however, they were filed later than expected, so they should take effect on October 1, 2025.

Keep in mind that the CRC is not the only government entity exploring laws and rules around the use of computer processes for employment purposes. The California Privacy Protection Agency that enforces the California Privacy Rights Act (CPRA) is considering its own regulations governing the use of “Automated Decisionmaking Technology” that would have a broad impact on covered employers who utilize it for employment practices.

The California Legislature also has several active bills, including AB 1018 and SB 7, which CalChamber has identified as Cost Drivers under CalChamber’s 2025 Affordability Agenda, that may more broadly impact an employer’s use of automated decisions systems for employment purposes if enacted as currently written.

Employer Takeaways

Despite the flurry of activity in this area, using an ADS for employment activities is lawful and can still have a positive impact for employers who take deliberate efforts to ensure their ADS usage is for legitimate, nondiscriminatory purposes. Here are some tips for employers based on these new regulatory and legislative efforts:

• Identify the ADS tools already in place or that may be beneficial in the future to determine how those tools should objectively support the organization. ADS tools are designed to streamline and improve efficiency in time-consuming tasks, and using these tools should be tailored towards these goals. Evaluate the data used and results provided to ensure these tools are meeting the goals.
• Audit the performance of ADS tools. Although the CRC regulations don’t require anti-bias testing, the regulations are clear that the results or absence of this testing is relevant evidence in discrimination claims. Using ADS tools should come with a human backstop to evaluate and audit the tools to ensure no negative bias is in the results.
• Consult with legal counsel on best practices for maintaining ADS tools, including relationships with vendors that provide these tools. Although the regulations expand liability to third-party agents, employers are always responsible for discriminatory conduct towards applicants and employees.