A New Frontier of Discrimination Claims: CRD Introduces AI Regulations For Employers

A New Frontier of Discrimination Claims: CRD Introduces AI Regulations For Employers

California’s Civil Rights Department finalized regulations directly aimed at the impact of artificial intelligence on discriminatory hiring practices. The regulations apply to all employers in California and take effect on Oct. 1, 2025. Employers now face direct liability for algorithmic bias—even from third-party AI tools—and must pay close attention to compliance, data retention, and vendor oversight. Employers that underestimate these rules risk exposure to a new era of discrimination claims.

Employer Cannot Outsource AI Hiring Compliance

Most organizations assume that outsourcing hiring to AI vendors insulates them from liability. California’s latest regulations make employers directly accountable for algorithmic bias—even when it originates from third-party tools. Additionally, the four-year data retention mandate and audit requirements require Employers to update their compliance practices.

What Systems Fall Under the New Regulations?

The regulations apply to automated decision systems (ADS), defined as any computational process that makes or assists in making employment decisions, such as hiring, promotions, selection for training programs, or similar activities. The regulations apply beyond “machine learning” artificial intelligence and cover systems that involve the use of “selection criteria.”

Third-Party Tool Liability

Employers can no longer hide behind vendor contracts to avoid liability for discriminatory hiring using ADS. California’s new rules explicitly hold organizations responsible for bias in hiring decisions, regardless of whether the discrimination stems from in-house or outsourced ADS. This exposes companies to significant risk, if the ADS tools in their hiring programs are not scrutinized to ensure compliance with applicable laws.

Data Retention

The new regulations require employers to maintain all data related to automated employment decisions for four years. Organizations must ensure their data management practices, ensuring that every input, output, and audit trail is preserved and accessible for potential regulatory review or litigation.

Algorithmic Audits

Employers should routinely audit their ADS tools to ensure that their hiring systems continue to comply with the law. Just ensuring the system is compliant at the outset is not sufficient. ADS can suffer from “algorithmic drift” whereby the system’s outputs can shift overtime as they analyze more data. Employers should collaborate with their vendors and IT teams to make sure that they have a process in place for auditing ADS tools for continued compliance.

What To Do Next

California’s AI hiring regulations signal a shift in employer liability and compliance expectations. Employers should review all automated tools, update data retention protocols, and work with outside vendors to ensure compliance with these new standards.