California’s New AI Employment Regulations: What Employers & Workers Must Know | 2025 Update

Introduction

Artificial Intelligence (AI) is no longer just a futuristic idea—it’s already here, changing how businesses operate and how people are hired, promoted, and even monitored at work. Across the United States, companies are using AI tools to scan résumés, track employee performance, monitor productivity, and make decisions about promotions or terminations.

While AI brings efficiency, it also brings risk. If an AI system is poorly designed, it could unintentionally discriminate against certain groups of people. For example, an automated hiring tool might favor candidates with specific backgrounds while unfairly rejecting qualified individuals. Concerns like these are why California, a state known for being at the forefront of technology and worker rights, has taken major steps to regulate AI in the workplace.

In 2025, California approved two important sets of rules to govern the use of AI in employment. These regulations fall under two legal frameworks: the Fair Employment and Housing Act (FEHA) and the California Consumer Privacy Act (CCPA). Together, they are designed to protect workers from discrimination, improve transparency in employment decisions, and hold employers accountable when using AI-based systems.

This blog will break down what these new rules mean, why they were introduced, and how they affect both employers and workers. We’ll also provide a roadmap for businesses preparing for compliance and explain how a law firm like Sanders Law Group can help navigate this complex area.

Why California Stepped In to Regulate AI in Employment

California has always been a leader in worker protection and technology regulation. From privacy laws like the CCPA to wage and hour protections, the state is often the first to act when new challenges arise. The rise of AI in employment decisions presented one such challenge.

Here are the main reasons California stepped in:

1. Bias and Discrimination Concerns
   

• AI systems often rely on historical data to make decisions. If that data includes past hiring patterns with bias, the AI will repeat those patterns. For instance, if a company historically hired fewer women for technical roles, an AI tool might continue to prioritize male candidates.
  
• Regulators wanted to ensure that AI does not perpetuate or worsen discrimination.
  

1. Lack of Transparency
   
   • Many workers and job seekers have no idea how AI systems are being used to evaluate them. Without transparency, individuals cannot challenge or question unfair outcomes.
     
2. Employer Dependence on Vendors
   
   • Employers often use third-party vendors that provide AI tools. If those vendors create biased systems, employees could be harmed while employers claim they had no control. California closed this loophole by making vendors accountable as well.
     
3. Privacy Risks
   
   • AI systems often process sensitive personal data, such as behavior patterns, communication style, or demographic information. Misuse of this data raises privacy concerns.
     

In short, California stepped in to make sure technology is used responsibly, with fairness, accountability, and worker rights in mind.

Two Sets of Rules: FEHA vs. CCPA Regulations

To address AI in employment, California created two sets of rules that work together but focus on different issues.

• FEHA Regulations (Civil Rights Council – effective October 1, 2025):
  These rules focus on protecting workers from discrimination. They ensure that AI systems do not cause unfair treatment based on race, gender, age, disability, or other protected characteristics.
  
• CCPA Regulations (California Privacy Protection Agency – effective January 1, 2027):
  These rules focus on protecting personal data and giving workers more control over how their information is used in automated decision-making.
  

Together, the FEHA and CCPA regulations form a strong framework that ensures AI is used fairly and responsibly in the workplace.

Key Highlights of the FEHA Rules (Effective Oct 1, 2025)

The FEHA rules bring AI under the same legal standards that already apply to human decision-making in employment. Here are the most important points:

1. Expanded Definition of “Agent”
   
   • Under FEHA, an “agent” now includes not only human representatives of an employer but also AI vendors and automated systems. If an employer uses a vendor’s AI tool, the employer is still responsible for any discrimination the system causes.
     
2. Broad Definition of Automated Decision Systems (ADS)
   
   • The rules define ADS very broadly. This means almost any computer program or algorithm used to make or assist employment decisions could fall under regulation. It’s not limited to advanced AI—it could include simple automated tools as well.
     
3. Disparate Impact is Covered
   
   • Even if an employer does not intend to discriminate, if an AI tool creates an unfair disadvantage for a protected group, it could still violate FEHA. This is known as “disparate impact.”
     
4. Anti-Bias Testing as a Defence
   
   • Employers can protect themselves by showing that they conducted meaningful anti-bias testing of their AI tools. If they can prove they took steps to identify and reduce bias, it may help in defending against legal claims.
     
5. Record-Keeping Requirements
   
   • Employers must keep all records related to AI decision-making for at least four years. This ensures that if a complaint is filed, regulators can review how the AI system was used.
     
6. Human Oversight
   
   • Employers are encouraged to keep human involvement in AI-based decisions. This means not relying entirely on machines to decide who gets hired, promoted, or fired.
     

In essence, the FEHA rules treat AI as if it were another employee or manager—fully accountable under anti-discrimination law.

Key Highlights of the CCPA Rules (Effective by Jan 1, 2027)

The CCPA rules, finalized in 2025, are focused on privacy and transparency. They give workers and job seekers more control over how their data is used by AI.

1. Broad Definition of Automated Decision-Making Technology (ADMT)
   
   • ADMT includes any technology that processes personal information to replace or significantly assist human decision-making. This could include résumé screening software, performance-tracking tools, or scheduling algorithms.
     
2. Vendors Do Not Remove Employer Liability
   
   • Even if an employer uses a third-party vendor’s AI system, the employer is still legally responsible. They cannot avoid liability by saying, “It was the vendor’s system, not ours.”
     
3. Mandatory Notices by 2027
   
   • Employers must notify workers and applicants before using ADMT. The notice must explain:
     
     • What the system is used for.
       
     • How it operates.
       
     • What data it uses.
       
     • Workers’ rights, including the right to opt out in some cases.
       
4. Right to Access Data
   
   • Workers can request access to the personal data processed by the AI system. This improves transparency and allows individuals to challenge unfair use of their information.
     
5. Risk Assessments
   
   • Employers must weigh the benefits of using ADMT against the privacy risks. They should also document these assessments as part of compliance.
     

By requiring notices, opt-outs, and risk assessments, the CCPA rules focus on making AI use in the workplace more transparent and privacy-conscious.

What This Means for Employers

For employers, these new regulations bring both responsibility and opportunity.

• Responsibility: Employers must audit their AI tools, document compliance efforts, and monitor vendors. Failure to comply could result in lawsuits, penalties, or reputational damage.
  
• Opportunity: By embracing responsible AI, companies can build stronger trust with employees and attract top talent who value fairness and transparency.
  

Practical steps for employers include:

• Conducting anti-bias testing before and after deploying AI tools.
  
• Keeping detailed records of AI-related employment decisions.
  
• Updating vendor contracts to require proof of compliance.
  
• Training HR staff to oversee AI systems responsibly.
  

What This Means for Workers and Job Seekers

For workers, these regulations provide much-needed protection in the digital age.

• Fairer Decisions: AI tools will be tested for bias, reducing the chance of unfair rejection or discrimination.
  
• More Transparency: Workers will know when AI is being used to evaluate them.
  
• New Rights: The ability to access personal data and opt out of certain automated processes strengthens worker rights.
  
• Greater Accountability: Employers cannot simply blame vendors if AI causes harm.
  

These rules give workers more confidence that technology will be used fairly in their career journey.

Challenges and Concerns

While the regulations are a step forward, they also bring challenges:

• Broad Definitions May Create Confusion: The rules cover a wide range of technologies, which may leave employers unsure about what exactly counts as AI.
  
• Compliance Costs: Small and mid-sized businesses may struggle with the cost of audits, record-keeping, and notices.
  
• Evolving Technology: AI is changing rapidly, and laws may struggle to keep up.
  
• Risk of Over-Regulation: Too many rules could discourage innovation or make companies hesitant to adopt helpful technologies.
  

These concerns highlight the need for ongoing dialogue between regulators, employers, and technology providers.

Preparing for the Future: Compliance Roadmap

Employers should start preparing now, even if some rules don’t take effect until 2027. A practical roadmap includes:

1. Immediate Steps (2025-2026)
   
   • Audit current AI tools for bias.
     
   • Begin documenting record-keeping practices.
     
   • Review vendor contracts and require compliance certifications.
     
2. Mid-Term Steps (By 2027)
   
   • Develop and distribute mandatory notices to workers and applicants.
     
   • Establish procedures for handling opt-outs and data access requests.
     
3. Long-Term Steps
   
   • Build an ongoing AI governance framework.
     
   • Train HR and legal teams to stay updated on evolving regulations.
     
   • Consider external audits or legal partnerships for compliance.
     

By taking a proactive approach, employers can reduce risk and demonstrate a commitment to ethical technology use.

How Sanders Law Group Can Help

Navigating AI regulations is not simple. The rules are detailed, and mistakes can be costly. If you’re a worker who feels unfairly impacted by AI, we can help you assert your rights and take action if necessary.

Conclusion

California’s new AI employment regulations mark a turning point in how technology is used in the workplace. By extending anti-discrimination and privacy protections to AI systems, the state is ensuring that fairness and transparency remain at the heart of employment decisions.

For employers, this means adapting policies, auditing tools, and keeping up with compliance deadlines. For workers, it means greater protection, more transparency, and stronger rights in the age of AI.

The message is clear: AI can be a powerful tool, but it must be used responsibly. With the right guidance and preparation, employers and workers alike can benefit from a fairer and more transparent future.