AI Hiring Tools Face Legal, Regulatory Risk
With 98.4% of Fortune 500 firms using AI recruitment tools, employers are now being held liable for algorithmic discrimination, according to a recent podcast. A discussion on AI hiring bias highlighted that cities like New York and Colorado now mandate third-party bias audits, signaling a new era of algorithmic accountability.
- New York City's Local Law 144, which took effect in 2023, mandates annual bias audits for automated employment decision tools (AEDTs). These audits must assess for disparate impact based on race, ethnicity, and gender. Employers are also required to notify candidates that an AEDT is in use and what qualifications it assesses. - Following New York's lead, Colorado passed its own Artificial Intelligence Act, set to take effect in 2026. This law requires employers to exercise "reasonable care" to prevent algorithmic discrimination from "high-risk" AI systems used in hiring and other employment decisions. - The U.S. Equal Employment Opportunity Commission (EEOC) has actively pursued legal action against companies for AI-based discrimination. In a notable 2023 settlement, iTutorGroup paid $365,000 after its software was found to automatically reject female applicants over 55 and male applicants over 60. - A class-action lawsuit was filed against Workday, Inc. in 2024, alleging that its AI-powered screening tools discriminate against applicants based on age, race, and disability. Similarly, a suit against Eightfold AI claims its use of applicant data from various online sources violates the Fair Credit Reporting Act. - Common types of bias found in AI hiring tools include gender, racial, age, and socioeconomic bias. These biases often stem from the historical data used to train the algorithms, which can reflect and amplify past discriminatory hiring practices. - Employers are considered liable for discrimination caused by AI hiring tools, even if the tools are developed and managed by a third-party vendor. The EEOC has issued guidance stating that employers are responsible for ensuring the tools they use are not discriminatory. - Beyond the U.S., international regulations like the European Union's AI Act also classify AI systems used in employment as "high-risk," imposing strict requirements for transparency and human oversight. Canada's proposed Artificial Intelligence and Data Act (AIDA) will also target automated decision tools in hiring. - The emerging field of AI bias auditing involves independent, third-party auditors who assess recruitment tools for fairness. These audits typically involve examining the data used to train the AI, the algorithm's design, and calculating impact ratios to detect adverse effects on protected groups.
