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May 2023: NYC Finalizes Regulations on AI Employment Tools and Will Begin Enforcement In July 2023

05 May

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Update Applicable to:

All employers who utilize automated employment decision tools for hiring new employees in New York City, New York.

What happened?

In our previous communication here, we notified you that the New York City Department of Consumer and Worker Protection (DCWP) held a second public hearing on Local Law 144’s proposed rules to address several ambiguities related to key definitions and the scope of the law. This is an update for that communication.

What are the details?

After the public hearing on April 15, 2023, the New York City Department of Consumer and Worker Protection (DCWP) official adopted its Final Rule to implement Local Law 144, which regulates the use of “automated employment decision tools” (AEDTs) to screen applicants or employees in the city. The DCWP also announced that it will begin enforcing the law on July 5, 2023.

The law makes it unlawful for New York City employers and employment agencies to use AEDTs to screen candidates or employees for employment decisions unless:

  1. The AEDT is subject to an annual bias audit by an independent auditor before use;
  • The results of the most recent bias audit and the AEDT’s distribution date are published on the employer’s or employment agency’s website; and
  • Notice is provided to applicants and employees who are subject to screening by the AEDT at least 10 business days before use of the AEDT.

The law limits the meaning of “employment decision” to screening candidates for hiring or promotion, thus leaving unregulated the use of AEDTs for other employment decisions such as termination, work assignments, or compensation adjustments.

The DCWP is responsible for enforcing the law and has undertaken a months-long rulemaking process, holding two public hearings, publishing two sets of proposed rules, and considering a “substantial volume” of public comments. Enforcement of the law was initially set for January 1, 2023, with the DCWP postponing enforcement twice prior to its latest announcement.

The DCWP’s regulations require a bias audit to calculate an AEDT’s selection rate for race/ethnicity and sex categories, and to compare selection rates to determine an impact ratio. The Final Rule is substantially similar to the last set of draft rules proposed in December 2022. Notable changes include:

  • Revising the definition of “machine learning, statistical modeling, data analytics, or artificial intelligence” to, as the DCWP states, “expand its scope.” Specifically, the Final Rule removes the following qualifier from that definition: “for which the inputs and parameters are refined through cross-validation or by using training and testing data.” This change effectively broadens what constitutes an AEDT under Local Law 144.
  • Adding the requirement that a bias audit must indicate the number of individuals assessed by the AEDT that are not included in the audit’s calculations because the individuals fall within an unknown category; and requiring that number be included in the summary of audit results that employers must publish on their website.
  • Permitting an auditor to exclude from their impact ratio calculations a category that comprises less than 2% of the data being used for the bias audit.
  • Clarifying when an employer or employment agency may rely on a bias audit conducted using historical data of other employers or employment agencies. The Final Rule also provides examples of when an employer or employment agency may rely on a bias audit conducted with historical data from other employers and employment agencies, or test data.
  • Clarifying that the summary of audit results must include, for all categories, the number of applicants or candidates, selection or scoring rates (as applicable), and impact ratios.

For more information, please see the links below:

Local Law 144

Final Rule

DCWP Announcement

What do employers need to do?

Employers should review the links provided above and should review their automated hiring process to ensure they are in compliance with the law come the effective enforcement date of July 5, 2023.

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This communication is intended solely for the purpose of conveying information. The present post might incorporate hyperlinks directing readers to websites managed by third-party entities. The inclusion of any links within this communication is meant to serve as points of reference and could encompass opinion articles from various law firms, articles from HR associations, official websites, news releases, and documents of government agencies, and other relevant third-party sources. Vensure has no authority over these external websites and bears no responsibility for their content. Furthermore, Vensure does not endorse the materials present on these websites. The contents of this communication should not be interpreted as legal advice or as a legal standpoint concerning specific facts or scenarios. Nor should it be deemed an exhaustive compilation of facts potentially pertinent to federal, state, or local laws. It is strongly advised that employers solicit legal guidance from an employment attorney when undertaking actions in response to any legal updates provided. This is due to the possibility of future alterations occurring in federal, state, and local laws, regulations, as well as the directives and guidelines issued by governing agencies. These changes may transpire at any given time, potentially rendering certain portions of the content within this update void or inaccurate.

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