Episode 231: Pending Automated Decision-Making Systems (ADS) Legislation, Regulations

Welcome to the Workplace, a podcast by Cal Chamber. I'm Bianca Saad, General Counsel for Labor and Employment with the California Chamber of Commerce. Hello listeners. As we enter the stretch run of this year's legislative session, bills that relate to automated decision systems and technology, which we have colloquially termed AI, are still a hot topic. This follows up on the heels of both the filing of the Civil Rights Council or the CRC's Automated Decision Systems amendments to California's anti discrimination regulations and the California Privacy Protection Agency considering its own automated decision making technology regulations that would impact employers. Taken together, there is a lot on the table relating to employer use of automated decision systems. To discuss the CRC regulations and the status of two cost driver bills that are still pending, we welcome back Ashley Hoffman, Cal Chambers Senior Policy Advocate for Labor and Employment. Thank you for being here, Ashley.

Thanks for having me.

All right, so let's get started with the regulations as those have been finalized and filed with the Secretary of State. So, Ashley, can you tell us about these regulations and how they may affect employers?

So I think really the impetus behind the regs and what they do is to confirm that existing law does apply in scenarios where employers are using ads. The regulations do expressly state that is unlawful for an employer or other covered entity to use an ads or selection criteria that discriminates against a new applicant or employee or class of applicants or employers on a basis protected by the Fair Employee and Housing Act. So in other words, it is unlawful if you using an ADS results in a person or group of people, you know, being discriminated against. I think a lot of times as we see ads being used in hiring, that's probably one of the biggest examples of where there's a risk of that occurring.

Okay, great. And so what are we really talking about when we say automated decision making?

The regulations do have a non exhaustive list of tasks that ads perform, the employment context as examples. So something like an assessment to date, predictive assessment about an applicant or employee, measuring of an applicant or employee's skills, measuring of personality traits, something that may be like resume screening, you know, directing job advertisements. Sometimes we've heard of things like interview software, right, that analyzes facial expressions. And so some of those processes, I think, are the kinds of things that the regulations are implicating. Okay.

And so when we're talking about ads, and now that we know a little bit of what that can look like when we're talking about the CRC regs, what are really the takeaways for employers? Like, what's important for them to take away from the obligations that are imposed.

I think for me, you know, looking at the regulations, it's really as mentioned, confirming that if you as an employer are using ads, it's very important that you are looking at the performance of those tools. Right. Are you auditing its performance to ensure that it's not having, you know, a bias? Especially when we're talking about hiring. I think we've heard stories, you know, of instances where sometimes software, you know, if you're running testing, you can see maybe it is screening out certain kinds of applicants and so wanting to be very aware of that and then also identifying what tools you have in place. How are you not only auditing the performance, but how they're also being used? For example, if it's making recommendations, you know, is someone looking at those recommendations and really how can you kind of implement it to improve efficiency and HR decisions, but then again also ensuring that you're evaluating the data, the results, to ensure that they are indeed meeting the goals that you have.

Okay, great. Yeah, I like what you said about making sure somebody is reviewing it, like having that human behind what the tools that's being used. It sounds like that's a really important piece for employers.

Yes, exactly. And I think, you know, when I look at these regs again, my takeaway is you don't want to be caught in a position where, unbeknownst to you, maybe the ads is unfortunately having a discriminatory impact. And you know, I think trying to guard against maybe some companies saying, oh, well, it wasn't us, it was the ads. Right. You want to make sure that if it's your employee, you know, and you're using the ads that, you know, at the end of the day, you are responsible if discrimination under the lies has been found to have been occurring.

Yeah, yeah, that's a really good point. Okay, so sticking with technology, one of the major tech bills that we're watching is SB7 that proposes to regulate the use of automated decision systems for employment purposes. So what are the proposals that exist currently in SB7?

SB7 has a couple of different components to it. And I think it's important to note at the outset that SB7, except for one notice obligation, doesn't apply to applicants in hiring. It really is about use of employment. So first of all, there's a notice requirement of pre use notice, and there are some, you know, accommodations in there. Of course, if the bill were to take effect, if you are already using some of these ads, you would have until April to provide this notice, which Has a couple of different components about, you know, the nature, purpose and scope of the decisions. Must be a standalone notice, but it can, you know, be provided in something like an email or a hyperlink. There is a notice requirement however, for Joppa applicants if ADS is going to be used, you know, for the job, right on their resume, what have you that they are applying for. And there's a couple of different options again as far as how you can provide that other major piece of the bill. There's a laundry list in there about prohibitions, some of which we have some concern about. You know, there's a blanket ban on predictive behavior analysis. One of the examples we use is sometimes you will have financial institutions that maybe use predictive behavior analysis to catch fraud. That is used sometimes on consumers, but also can be used on employees. Obviously a huge risk industry there and want to make sure that your employees are acting honestly and above board when dealing with folks monetary accounts and data. There is a ban on, quote, primarily using it for promotion discipline or termination decision. Again, have some concerns about the restrictiveness there. Just because, you know, if you have an ads, for example, that's pinging that someone doesn't have the right PPE on or is driving a machine unsafely or something like that. There may be scenarios where we do have to primarily rely because you cannot have someone watching someone else at all times. There's also a post duties notice requirements where if you are using ADS in a certain decision, then there must be notice to the worker that is individualized. And there's also an appeals process that kicks in as well, which is really one of the first times we've ever seen. You know, it's maybe the first time we've ever seen an appeals process actually introduced into statute, which I know is a big concern from us, just coming from the employment law perspective, not only just because Cloudflare is an at will employment state, but also the way we read the language really, even if ADS is only used minimally, you know, it could, the appeal could be triggered. And so that's a huge issue I think just not only from administratively for a business, but then also really the precedent that that's setting an employment law.

Wow, okay. So yeah, there is a lot there. There is a separate bill, AB 1018 that also addresses employer use of ADS as part of a broader approach. So what's different about AB 1018 from SB7?

So to your point, SB7 is really focused on employment and I'd be remiss to also not point out that it also applies to independent contractors. So if you're listening to this and you're thinking, oh, we have a lot of independent contractors. They are included in the definition of worker. AB 1018 is not just employment, but a lot of other decisions, right, that are being made in both bills. You know, the way ADS is defined is it's anything that even just assists with a decision. So really broad. And that's consistently, I think, been our issues with both bills is really the breadth there thinking about employment. AB 1018 is really focused a lot on the testing requirements, right. The impact assessments and things. And it did undergo recent amendments. And so there's an audit requirement, there's assessment requirements in there, even dating back to technology that predates the bill. So a lot of, you know, work, especially for those who develop this technology, you know, on the deployer side, you do, though, still have a lot of obligations. There's individualized post notice obligations. There is the right to appeal. There's also, you know, rights to correct while the opt out was taken out of 1018. You know, those other two pieces are still in there. And so we do have a lot of concern, I think, about the practical implications on employers and what this means. You know, SB7 is really not, you know, limited or neither of them really are limited by size either. And so, you know, you're talking about potentially big employers, but also small employers. You know, SB7 does include some language to try and kind of reconcile, you know, if both were to be signed, some, you know, some of the obligations in seven would supersede 1018. But again, that's really focused on the notice issues, not so much, you know, some of the other language in there, again in 1018, like, you know, I'm thinking things like the right to correct or something, which also is in seven. But you're talking about in some instances, potentially different uses. Like hiring is still in 1018, but it's not in 7. And so I think this is kind of a long winded way of saying, you know, there's similarities but differences. And I think as we get closer to the end of the legislative session, some of this is going to need to be ironed out as far as exactly how employers would, you know, if both were to get signed, for example, exactly how you'd comply with both.

Okay, so for those listeners who are familiar with the fact that Cal Chamber takes positions on bills and we have our affordability agenda and we have a cost driver list. Are these two on that cost driver list?

Yes, they are. And you know, this is the third iteration of 1018. It was not on the list prior. But I think from our perspective, especially when you're adding in things like the audit requirements, we did have a lot of concerns really, that actually some of the costs to be able to comply with this, you know, did increase this year, again with SB7. I think a lot of, you know, that decision is the cost, the implication both on sports, small and large businesses, but also really that appeals process and just introducing kind of this new concept into employment and the right to access and the right to correct. And if an employee were to make such a request, you know, what does that look like? Right. For both bills. And so just a lot of. A lot of still concerns that we really have about the breadth of both and what it would mean from an administrative burden perspective on employers as they're trying to comply.

Yeah. So after hearing all that, I'm sure many people will want to track the status of these bills and stay in the know as far as what's going on. So can you let us know as far as, you know, what is the current status and when might we know whether one or both pass the legislature? Sure.

So, you know, both bills went through the committee process. They're in the second House. So what happens is every bill before it goes to the floor, if it is tagged fiscal, so it has a fiscal impact, it goes through the Appropriations Committee. When a bill has a fiscal impact over a certain amount, it is put on what is called the suspense file to be reviewed more closely by the Appropriations Committee. So at the end of the month, there will be a hearing in which each House kind of dispenses with the suspense file and we find out what moves to the floor of the House for a full vote. So both of them are sitting on their respective suspense files. So you really have one of, I'd say, like, three options. One is it gets held. Right. It doesn't move forward. One is it does move forward, but it moves forward with amendments. Those can be amendments either put forward by the author or by the committee. And then the last would be that it does come out, but with no amendments. And so we will know at the end of the month, you know, what these bills look like as, and if they are moving forward onto the floor, and then you will have the full chamber of the House that they are in be, you know, set up to potentially bring it up for a vote.

All right. These are a couple of bills that we will definitely be watching closely on the compliance side of things, because as you said, there are a lot of obligations tied to those. So, Ashley, thank you so much for taking the time to sort out where we are in the world of automated decision making and AI.

Yes, thank you for having me. And I think these are both going to be very interesting builds to watch as we headed to the end of session.

And thank you listeners for joining this discussion on the workplace. Please share and subscribe to Cal Chamber's podcast by visiting calchamber.com.