On March 21, 2025, the California Civil Rights Council adopted final regulations governing the use of artificial intelligence and automated decision systems in employment decisions. These regulations, pending approval by the Office of Administrative Law, are expected to take effect on July 1, 2025.
1. Background
The new regulations apply to any automated system—such as AI tools, algorithms, or machine learning models—that helps make employment decisions. These regulations will prohibit discriminatory use of these tools and impose obligations around selection practices, accommodation, and recordkeeping. Unless these regulations are preempted by pending federal legislation, employers, staffing agencies, and vendors using such systems in California will need to comply once the rules take effect.
2. Key Provisions
The regulations adopt a broad definition of automated-decision system (“ADS”), covering any computational process—including those using artificial intelligence, algorithms, machine learning, or statistical modeling—that is used to make or support decisions or evaluations related to employment benefits. Examples include tools used to screen resumes, evaluate interviews, assess traits or characteristics of job applicants, or targeted job advertisements. The definition excludes passive tools like spellcheckers, formatting tools, or similar general-use technologies unless they actively affect employment outcomes.
The regulations make it unlawful to use an ADS or any selection criteria—including employment tests, qualification standards, or proxies—that results in discrimination against applicants or employees based on protected characteristics. This includes both disparate treatment (i.e., when an employer intentionally treats applicants and employees differently based on a protected class) and disparate impact (i.e., when an otherwise neutral policy or practice results in a discriminatory outcome). The presence or absence of anti-bias testing or similar safeguards is expressly relevant in determining whether an unlawful practice has occurred and whether any available defense (such as business necessity) applies.
The regulations also address certain pre-employment practices. Employers may not use ADS that elicit or rely on information about protected characteristics unless justified by a lawful defense. For example, if a scheduling-based screening tool excludes applicants due to availability, the employer may need to provide a mechanism for individuals to request reasonable accommodation based on a disability or religious need. The same applies to systems that analyze voice, facial movements, or behavioral characteristics that may correlate with disability, religion, or other protected factors.
Employers are required to retain records related to the use of ADS. This includes all applications, personnel records, employment referral records, membership records, selection criteria, and all ADS-related data—such as inputs, outputs, and any information dealing with employment practices or employment benefits. These records must be preserved for at least four years from the date of the relevant employment action or record creation. If a complaint is filed, the obligation continues until the matter is resolved.
3. Practical Considerations
California employers should act now to assess their use of AI and automated tools in hiring and employment decisions. This starts with identifying any systems—whether in-house or provided by a third party—that meet the regulations’ broad definition of an automated-decision system. Employers should then evaluate whether those systems could result in disparate treatment or adverse impact based on protected characteristics, and document any business necessity justifications.
Where ADS is in use, employers should review whether the system could screen out applicants based on protected characteristics, and ensure that a process exists for individuals to request reasonable accommodation. Notices regarding the use of ADS are not explicitly required in the regulation text, but transparency and accessibility are emphasized in several contexts, particularly where accommodations may be necessary.
Additionally, employers should ensure they are retaining all records related to ADS use—including inputs, outputs, evaluations, and related documentation—for at least four years. These recordkeeping obligations apply regardless of whether the employer is the developer of the system or merely its user. By taking these steps proactively, employers can reduce legal risk and help ensure fair, compliant use of hiring technologies in California.
Finally, on May 22, 2025, the U.S. House of Representatives narrowly passed the “One Big Beautiful Bill Act” which as of early June 2025, is being considered by the U.S. Senate. The proposed legislation includes a near total ban on states enacting or enforcing AI-related legislation for 10 years. In the event Congress enacts, and President Trump signs, legislation barring state regulations over AI, such federal laws will likely have a significant impact on California’s proposed regulations.
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About The Author
Ryan J. Krueger is a Partner with Sheppard, Mullin, Richter & Hampton LLP in the firm’s Los Angeles office. He specializes in labor and employment matters on behalf of employers, including wage and hour violations, employment discrimination, wrongful termination and sexual harassment. Mr. Krueger has experience in all aspects of employment litigation, including brief writing and oral argument, taking and defending depositions, and negotiating settlements. He has also second chaired multiple trials and arbitrations, and argued before the California Court of Appeal. Mr. Krueger also regularly counsels employers regarding California and federal employment law issues.
Ryan is a co-author of the California’s Private Attorneys General Act (PAGA) Litigation and Compliance Manual, and is a frequent contributor to the California Labor and Employment ALERT Newsletter. He is a co-speaker at the Castle Publications’ Seminars as well as the Labor Law Update for Sheppard Mullin.
He received his J.D. from the University of California, Los Angeles and his B.A. from the University of Wisconsin, with distinction. During law school, Mr. Krueger served as extern to the Honorable Morton Denlow, U.S. District Court for the Northern District of Illinois. He is admitted to practice in all California state courts, along with the United States District Court for the Central District of California and the Ninth Circuit Court of Appeals.