The Ever-Changing Legal Landscape of State and Federal Regulations for Using AI in Candidate Recruiting and Screening

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According to a University of Southern California study, 55% of businesses are investing in automated recruiting measures that use artificial intelligence (AI). Using AI tools in employee recruiting and screening offers a range of potential benefits to employers, including increasing the efficiency and speed when it comes to finding the most qualified candidates, reducing the workload for HR teams, and lowering operational costs. However, while using AI in hiring decisions can reduce candidate screening times and increase efficiency, many observers have raised concerns that it can introduce bias and reduce transparency in the hiring process.

Numerous individuals have already filed lawsuits alleging they were summarily denied consideration for positions as a result of AI screening tools that discriminate on the basis of race, gender, age, or disability. Additionally, many states have introduced legislation establishing various requirements for employers using AI for employment-related decisions.

Recent Litigation

In Mobley v. Workday, Inc., the plaintiff filed a putative class action in a California federal court against Workday, a software company that provides algorithm-based applicant-screening tools to thousands of companies, including several Fortune 500 firms. The plaintiff alleged he was denied 80 to 100 jobs by several companies using Workday’s algorithm because of inherent bias embedded in the algorithm.

The court denied Workday’s motion to dismiss, finding that the amended complaint adequately alleged that Workday was an agent of its client-employers and thus fell within the definition of an “employer” under Title VII, the Age Discrimination in Employment Act, and the Americans with Disabilities Act. The case is still pending and is in the discovery stage.

Employers using AI screening tools should be familiar with the processes and methods the tools use to screen candidates and be ready to articulate clearly the role these tools play in hiring decisions and demonstrate that use of the tools does not result in disparate impacts on protected groups.

Recent Legislation

Although neither the court in Mobley nor other courts have yet decided whether a company’s use of AI screening tools violated federal or state antidiscrimination laws, numerous states have introduced legislation establishing various requirements for employers using AI for employment-related decisions.

For example, the Colorado Artificial Intelligence Act (CAIA), which will take effect on February 1, 2026, requires developers and implementers of certain “high-risk AI” systems to disclose to consumers that they are interacting with an AI system and protect Colorado residents from any risks of algorithmic discrimination, including in employment-related decisions. The CAIA is broad in scope and applies to any employer utilizing a high-risk AI system to make essentially any employment-related decision affecting a Colorado resident, regardless of whether the employer has a physical presence in the state. Similarly, in Illinois, effective January 1, 2026, amendments to the Illinois Human Rights Act will prohibit employers from using AI that subjects employees to discrimination on the basis of a protected class.

Last week, House Republicans proposed an amendment to their proposed signature budget bill, titled One Big Beautiful Bill Act, which would impose a temporary ban on state and local regulation of AI, with the stated goal of establishing uniform federal oversight. However, this proposal has faced bipartisan criticism and is unlikely to survive under the Senate’s procedural rules.

Recommendations

Employers using or planning to use AI tools in their hiring process should stay informed about state-specific AI regulations affecting employment practices and take measures to reduce the possibility of litigation.

Engaging legal counsel to navigate the complex and rapidly changing landscape of AI employment laws is one of the best methods for ensuring compliance and reducing litigation risk.

Steptoe & Johnson’s Labor & Employment attorneys represent employers in all aspects of labor, employment, employee benefits, and regulatory compliance, including compliance with complex and ever-changing AI-related legislation. For more information, reach out to the authors of this alert or other members of the Labor & Employment department.