New York City’s AI Hiring Law: Is My Company at Risk?

In July 2023, New York City (NYC) began enforcing a new law regulating the use of automated tools in making employment decisions. As one of the first laws to address employers’ use of artificial intelligence (AI) and other algorithms in the hiring process, NYC Local Law 144 received considerable attention during the rulemaking process. In spite of the strong interest, a recent study by researchers at Cornell University indicates that few employers are complying with the law’s provisions. This failure to comply suggests companies are either unclear if they are subject to the law or unsure of what actions to take.

Below are some helpful tips to determine if the NYC law applies to your company and, if so, what to do next.

What is NYC Local Law 144?

NYC Local Law 144 regulates the use of Automated Employment Decision Tools (AEDTs) in making selection decisions. The law took effect on January 1, 2023 and the NYC Department of Consumer and Worker Protection’s enforcement commenced on July 5, 2023. Under the law, NYC employers are prohibited from using AEDTs in hiring and promotion unless they meet certain requirements, including providing appropriate notice to applicants and ensuring an independent bias audit is conducted on the tool annually.

What is an AEDT?

A tool is considered to be an AEDT under the law if it uses any machine learning, statistical modeling, data analytics, or artificial intelligence to substantially assist or replace discretionary decision-making when making hiring or promotion decisions. AEDTs include commonly used tools such as applicant tracking systems that screen and prioritize resumes; algorithmic assessments that score applicants on job fit or likelihood of success; and video interviews with analysis of speech patterns and facial expressions.

Does the law apply to my company?

Local Law 144 applies to all employers and employment agencies that use an AEDT for a NYC-based position. This means that the job is located in a NYC office, at least part time, or is remote but associated with an office in NYC. For employment agencies, the law applies if the agency itself is located in NYC or is filling a position associated with a NYC office.

If an employer’s AEDT is used to assist in decision-making during any part of the hiring or promotion process, it is subject to the requirements of the NYC law. This includes tools that are leveraged to assess or screen candidates at any point in the hiring or promotion process, not just to make a final decision. The law does not apply, however, to sourcing individuals who have not submitted a job application, such as when employers search resume banks and invite individuals to apply.

What is required to comply with the law?

To ensure your company is properly complying with the law, any AEDT used in employment decisions must be disclosed. Applicants must be informed that an AEDT will be used during the process, and which qualifications or characteristics will be assessed.

In addition, the law requires a bias audit be conducted on the AEDT. A bias audit is an evaluation by an independent auditor that looks at either pass rates or scoring rates of candidates based on sex, race/ethnicity, and intersectional categories (i.e., sex by race/ethnicity). The audit should be based on data collected from the employer’s actual use of the AEDT, with some exceptions. The auditor must be an objective third party, meaning they cannot work for the employer using the AEDT or the vendor that developed the AEDT. While a vendor can have a bias audit conducted on their own tools, it is ultimately the employer’s responsibility to ensure the audit was conducted in accordance with the law prior to using the AEDT in their hiring process.

After conducting the bias audit, the employer must publicly share the outcomes by publishing a summary of the results as well as the distribution date of the AEDT. The bias audit must then be refreshed on an annual basis and the new results published each year.

What are the penalties for failing to comply with the law?

Failure to comply with the requirements of the law can result in escalating financial penalties. The first violation will cost an employer $500, with additional fines of $500 – $1,500 each day the AEDT continues to be used. This means if an employer is notified they are in violation of the law, they may face fines of $9,000 for the first week of non-compliance and up to $10,500 for each successive week the AEDT continues to be used.

What should my company do now?

If your company operates in NYC, first investigate the extent to which AEDTs are being used to make employment decisions at any point during the hiring or promotion process. If your company is currently using AEDTs, or planning to adopt AEDTs at some future date, make sure you are meeting the notification and bias audit requirements described above.

Understanding your obligations under NYC Local Law 144 can be a challenging process. Consulting with experts in this area can help you take the necessary steps to meet the requirements of the law while integrating AEDTs into your decision-making process.

Additional Reading
Bias Audits