NYC's new AI hiring software regulations hit with pushback from business groups

A new law in New York City requires any employer that uses artificial intelligence-powered hiring software to first have the tool assessed for any racist or sexist biases against candidates, and major business groups are pushing back against it.

Local Law 144, which went into effect Wednesday, prohibits employers from using automated employment decision tools (AEDT) for screening candidates until the company has had the tool analyzed by an independent auditor for potential bias and publicly posts the results.

The new law passed in 2021 also requires employers in the city that use machine learning or AI tools for hiring decisions to send a notice to any New York City-based candidates informing the job-seekers that an AEDT was used.

The new regulations are enforced by New York City's Department of Consumer and Worker Protection (DCWP), which explains on its website the audits on AEDT tools must be conducted at least once a year and "[a]t a minimum, an independent auditor’s evaluation must include calculations of selection or scoring rates and the impact ratio across sex categories, race/ethnicity categories, and intersectional categories."

AI INTERVIEWS WILL BE USED BY 43% OF COMPANIES BY NEXT YEAR, SURVEY FINDS

Any company busted violating the new law faces a fine of up to $500 for the first violation, and up to $1,500 for each subsequent violation. The DCWP instructs anyone seeking to file a complaint of a potential violation of the new AI hiring tool regulations to visit the department's website or call 311, and claims of discrimination involving AEDT's should be directed to the NYC Commission on Human Rights.

AEDTs have been around for years and are used by companies and employment agencies to increase efficiency in the hiring process, but experts warn their use can expose firms to liability for violating Title VII or other anti-discrimination laws if the products are found to hold bias against a protected class.

The recent emergence and rapid adoption of generative AI tools like OpenAI's ChatGPT has sparked fears that the new tools could create more risk in the hiring process, and NYC's new law comes as an array of federal agencies examine how the technologies are impacting the way employment decisions are made and ramping up efforts to ensure companies are complying with federal law.

AI IS HERE TO STAY; IT'S TIME TO UPDATE YOUR HR POLICIES

But NYC's Local Law 144 is believed to be the first effort by a city to impose AI-related regulations, and one Big Apple business group says it is a mistake.

"This is just another top-down burdensome regulation that threatens to expose businesses to frivolous lawsuits based on manufactured racism concerns," Job Creators Network president and CEO Alfredo Ortiz told FOX Business in a statement. 

"Nobody wants racism or sexism in the hiring process, but analyzing automated hiring processes for racial or sexual disparities will result in trumped-up findings of business discrimination where none occurred," Ortiz said. "New York's City Council should repeal such big government actions that reduce entrepreneurship to meaningfully help minorities improve their economic opportunity."

The Society for Human Resource Management (SHRM) has also raised concerns against Local Law 144 and the fines employers could face over potential violations.

"SHRM is committed to improving opportunity and equity in the hiring process, performance management and other areas of HR – and that includes the employment of any emerging technology," the group told FOX Business in a statement reacting to the new law. "We agree that guardrails for AI are necessary; however, we do not support overregulation at the cost of workforce innovation and optimization."

GET FOX BUSINESS ON THE GO BY CLICKING HERE

The New York City Council did not immediately respond to FOX Business' request for comment on the new law and its potential impact.