California Approves Landmark AI Employment Regulations

• Published date: 04 August 2025
• Law Firm: Littler Mendelson
• Author: Mr Grace Waddell, Joy C. Rosenquist, Alice H. Wang and Niloy Ray

At a Glance

• Revisions to Title 2 of the California Code of Regulations will govern the use of AI-based tools in California starting October 1 2025.
• Among other things, the regulations define the scope of AI-driven (and other) automated decision-making systems (ADS) clarify what constitutes discriminatory use of ADS, require anti-bias testing of ADS, impose new recordkeeping requirements and discuss affirmative defenses to employer liability.
• The final regulations are less burdensome than the original draft, but still impose several new compliance requirements for employers.

On June 30, 2025, the California Civil Rights Council ("CRC" or "Council") secured final approval for revisions to Title 2 of the California Code of Regulations, which governs administration of the California Civil Rights Department (CRD). These regulations interpret California's Fair Employment and Housing Act's (FEHA) prohibitions against discrimination in recruitment, hiring, promotion, training and termination, specifically inserting requirements and expectations when using "artificial intelligence, machine-learning, algorithms, statistics, and/or other data processing" to facilitate human decision-making. These revisions take effect on October 1, 2025, hence creating some urgent compliance needs for employers using AI-based tools in the Golden State.

In summary, the Regulations:

• define the scope of automated decision-making systems (ADS) and other key terms;
• provide details on the prohibition of discriminatory use of ADS;
• require anti-bias testing of ADS;
• implement recordkeeping requirements;
• raise the bar for employer, agent, vendor and employment agency liability;
• define a key affirmative defense; and
• outline the diligence employers can conduct to establish this defense.

More specifically, the approved regulations:

• no longer create joint-and-several liability (or aiding-and-abetting liability) for intermediate entities in the AI supply chain, such as retailers, advertisers, designers, technical service providers, and others providing services related to the use of AI tools for employment decision-making;
• no longer mandate retention of all data used to train the machine-learning AI model underlying an ADS all data inputs to the ADS, and all of the ADS's outputs;
• no longer presume that personality-based questionnaires and puzzle-based or otherwise gamified assessments are impermissible pre-offer medical/psychological examinations;
• require a tighter nexus between the use of an ADS and the alleged harm before liability can be imposed; and
• no longer shift a key evidentiary burden previously placed on employers'proving the absence of a less-discriminatory alternative.

Over three-plus years, employers have watched these revisions with concern because of the significant new regulatory obligations proposed with respect to AI-based ADS tools. In final form, however, certain burdensome aspects of the previous proposal have been eliminated or replaced with more commonsense, feasible options.

While some changes from the previous draft, such as a narrower data-retention requirement, are more business-friendly, other compliance requirements add new burdens, such as coverage of Generative AI as well as traditional Predictive AI, and focus on evidence of pre-use testing and risk-mitigation efforts by employers. At a 30,000-foot level, the pains taken to work AI, machine-learning, and automated decision-making into the existing regulations signal the Council's intent to scrutinize AI use in hiring and beyond. At the same time, adding evidentiary guidelines should help employers to understand the due diligence they can undertake to...