California is leading the way with its AI regulations, leaving employers with less than three months to ensure compliance by January 1, 2026. The California AI regulations primarily center around automated decision-making via these AI tools, emphasizing transparency in all AI-optimized services.
The CA AI law, formalized in 2025, includes a collection of regulations, including the Transparency in Frontier Artificial Intelligence Act (TFAIA) and the California Fair Employment and Housing Act (FEHA)’s regulatory framework, but we’re going to focus on the amendments in relation to the automated-decision systems (ADS) and their impact on employment in the state.
California’s AI regulations lead the way with transparency, safety, and fairness among employers using automated-decision systems in hiring. (Image: Freepik)
California AI Regulations Explained: What Do These Regulations Mean for Employers
Artificial Intelligence systems are slowly becoming central support tools in recruitment, but there is considerable apprehension among job seekers who fear unfair treatment as a result of this technology. To ensure that AI is used with planning and care, California is laying the necessary groundwork to ensure these tools come with the promise of transparency. From encouraging auditing of these tools to reporting requirements on employers using AI in recruitment, there are many considerations being supported by the CA AI law in 2025.
On October 1, 2025, the state announced the enforcement of regulations under the California Fair Employment and Housing Act (FEHA), which was originally published earlier this year but was held up following external disagreements. A primary focus of this bill falls on ADS systems, described as a “computational process that makes a decision or facilitates human decision making regarding an employment benefit.”
How Does this AI Regulation in California Affect Hiring?
The California AI hiring law presents a list of use cases of AI in assessment, decision-making, and hiring, marking out the many ways in which employers might resort to using AI ADS tools. This includes creating computer-based assessments, directing recruitment materials to key locations, screening resumes, analyzing interview data, and evaluating employee data gathered from external sources.
The regulation then lays out the terms of “unlawful discrimination,” and discourages employers from discriminating against applicants based on any protected characteristics. What’s interesting is that the CA AI employment law holds both employers and the providers of such tech accountable for the use of these tools.
Employer “agents” refer to the third parties that “exercise a function traditionally exercised by the employer” in various aspects of the hiring and retention process, which includes those who develop and administer these tools for the employers. Furthermore, the California AI regulations ban the solicitation and use of medical data for ADS assessments, eliminating another potential avenue of discrimination.
How Can You Prepare to Adhere to the CA AI Hiring Rules
Employers and HR teams of businesses operating in California have until January 1, 2026, to ensure compliance with the state’s AI regulations. Businesses that operate in the other regions of the US don’t have any incoming AI laws reshaping employment just yet, but there may be more concentrated changes that take inspiration from the Californian law in the coming year. In both cases, understanding the regulations and adhering to them can be good practice.
Preparing for the AI hiring regulations in CA can include:
- Ensuring transparency in AI use and being forthcoming about the data collected and the decisions being made by the tools
- Build opt-out mechanisms if you are willing to give applicants a way to choose traditional assessments and processing
- Auditing the ADS and AI hiring systems in detail to understand the decisions it makes and how it operates
- Working with a legal team to understand the exact definition of “unlawful discrimination” or the protected characteristic mentioned in the bill
- Adding human supervisors to the decision process to ensure that the AI tool is not the ultimate voice on hiring or firing issues
- Maintaining records of data collected and assessed by ADS tools for a minimum of four years
- Avoid collecting any medical data through these systems
- Scrutinize third-party agents to get a better sense of their tools or their utilization of available technology
- Provide ethics training and bias assessment awareness training for HR teams and recruiters
AI Regulations Are on the Way, with More to Come in 2026
California’s AI hiring law is only the first step towards large-scale regulations on AI usage within the workplace. While policies have been slow to come, more states may eventually adopt regulations with varying degrees of severity of their own. Violations of these laws could result in fines adding up in the millions, not to mention the added expenses of facing employee-driven legal action in the future.
Instead of looking at California’s AI regulations as a hurdle, it is important to use the guidelines as a blueprint for transparency and ethical consistency. Building or utilizing technology with fairness in mind can help avoid considerable complications later down the line, allowing your businesses to connect with workers who can trust your usage of these advanced tools.
California’s AI safety law has already been met with resistance from lobbyists and opponents, and it could face additional challenges later down the line as well. This doesn’t mean that compliance should be taken lightly. Right from updating onboarding policy to clearly indicated AI use, to the reliance on human intellect as the final decision maker, there are many changes that can help ensure compliance with the new AI regulations in California.
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