In a recent ruling from the California Supreme Court, AI vendors will join employers in liability for automated tools that discriminate among job applicants. In the case, a conditional job offer was revoked by the employer after the applicant refused to answer a vendor-administered health history survey riddled with offensive questions about venereal diseases, menstrual cycles, pregnancy and mental illness. The employer settled discrimination claims, but the plaintiff sued the vendor who administers such questionnaires nation-wide. Certainly, this will increase the risk to service providers intending to offer AI-dependent services to California customers. This points out the importance to enterprises procuring such services to negotiate an indemnification provision along with conducting reasonable due diligence.
Finally, this is far from the last word on the regulation of AI in California. The California Fair Employment & Housing Council (FEHC) has proposed “Draft Modifications to Employment Regulations Regarding Automated Decision Systems” that would address employment screening tools and services with artificial intelligence (AI), machine learning, and automated decision-making. Importantly, automatic decision-making includes any process that screens, evaluates, categorizes, recommends, or otherwise makes a decision or facilitates human decision making that impacts employees or applicants.” It expressly includes not only resume screening tools but also candidate evaluation tools such as questions, puzzles, or other challenges used to make predictive assessments about an employee or applicant's physical, cognitive or interpersonal aptitude.
As with most things, California is merely a harbinger of things to come. The proposed EU regulations are similarly broad in defining artificial intelligence. General Counsel and CCOs should prioritize scrutiny of existing employment, performance assessment, benefit eligibility and recruiting applications to review how they are being used. Because of the widespread trend and practice of outsourcing of employment related services, this due diligence process will involve many third-party vendors and it should include a review of contracts for indemnification terms.