New York City Enacts Law to Regulate the Use of Automated Hiring Tools

On December 11, 2021, New York City enacted Local Law Int. 1894-A.  The law, which takes effect on January 1, 2023, limits an employer’s ability to use “automated employment decision tools” in hiring and promotion decisions within New York City. In this regard, the law provides that it will be “unlawful for an employer or an employment agency to use an automated employment decision tool to screen a candidate or employee for an employment decision” unless the tool has undergone a “bias audit.”

What is an automated employment decision tool?

An “automated employment decision tool” is defined broadly as “any computational process, derived from machine learning, statistical modeling, data analytics, or artificial intelligence, that issues simplified output, including a score, classification, or recommendation, that is used to substantially assist or replace discretionary decision making for making employment decisions that impact natural persons.”  Therefore, the law applies to any data-driven tools used to conduct skills testing or behavioral analysis, review resumes, rank applicants, or assess employee performance. Notably, the law states that “automated employment decision tools” do not include firewalls, calculators, spreadsheets, databases, or other compilation of data.

Can employers still use those tools?

The law does not act as a per se ban on automated employment decision tools. Indeed, employers are still permitted to use these tools, subject to an annual “bias audit” conducted by an “independent auditor” which assesses “the tool’s disparate impact” on race, ethnicity, and gender. Further, the results of the bias audit must be made “publicly available on the website of the employer or employment agency prior to the use of such tool.”

Notice is required…

If an employer uses an automated employment decision tool, the employer is required notify each resident of New York City “who has applied” for a position: (1) that their application will be subject to an automated employment decision tool and (2) which job qualifications and characteristics the tool will use in the assessment of the candidate or employee.

Based on the statutory language of the law, it appears that this notice requirement does not apply to non-residents of New York City, so it is unclear how this law will affect non-residents of New York City who are applying for a position within New York City.

When is noticed required?

Such notice must be provided to the employee or candidate at least ten business days prior to the use of the tool and the employer “must allow a candidate to request an alternative selection process or accommodation.”

More notification requirements…

Employers and employment agencies must either post the following information on their website or provide such information within thirty days after receiving a written request from applicants or employees:

• Information about the type of data collected for the automated employment decision tool;
• The source of the data; and
• The employer’s or employment agency’s data retention policy.

The disclosure of this information is not required when prohibited by law or if the disclosure would interfere with a law enforcement investigation.

So what happens if an employer does not comply?

Any employer found in violation of the law will be “liable for a civil penalty of not more than $500 for a first violation and each additional violation occurring on the same day as the first violation, and not less than $500 nor more than $1,500 for each subsequent violation.” The explicitly states that a violation is measured on a per-day basis (i.e., each day on which an automated employment decision tool is used without complying with the law is a separate violation).

The law authorizes New York City’s corporation counsel to bring court proceedings against employers that violate this law to seek both the above civil penalties and/or injunctive relief. Additionally, applicants and employees can bring private lawsuits in any court of competent jurisdiction.

What to do now?

The New York Division of Human Rights is expected to issue regulations and guidance regarding this new law, which should hopefully be released prior to the January 1, 2023 effective date. Employers should monitor for any new updates to ensure compliance with all applicable obligations.

In the meantime, employers that use automated employment decision tools should audit such tools, including having necessary discussions with vendors and legal counsel, to assess whether to continue the use of such tools, especially in light of the potential liability associated with the new law.