The California Supreme Court issued a ruling last week in Raines v. Healthworks Medical Group, which may significantly impact third-party AI companies and PEOs that assist California employers in their hiring and employment decisions.
The Raines decision significantly expanded the definition of “employer” under the Fair Employment and Housing Act (“FEHA”), California’s primary anti-discrimination statute, to include agents of an employer’s business. Such agents, therefore, may be held directly liable for employment discrimination under FEHA if they have at least 5 employees and carry out FEHA-regulated activities on behalf of an employer.
This decision, coupled with the California Civil Rights Council’s proposed revisions to the FEHA regulations (“Proposed Revisions”) — which would define “agent” to include third-party providers of services related to making hiring or employment decisions, or the administration of AI-driven systems for use in making such decisions — enhances the possibility that vendors of AI-powered tools used for making employment decisions could be held liable for employment discrimination under FEHA if such tools have a discriminatory impact.
Even if the Proposed Revisions are not implemented, Raines still opens the door for AI vendors and other businesses that provide employment-related services to employers – such as PEOs – to be held liable for employment discrimination under FEHA (if the business is not already held liable as a joint or co-employer).
The Proposed Revisions are available here: Attachment-C-Proposed-Modifications-to-Employment-Regulations-Regarding-Automated-Decision-Systems.pdf