Workday Faces California Liability in Landmark AI Hiring Bias Case

Judge questions jurisdictional defense in AI discrimination lawsuit

Workday, a leading provider of AI-powered human resources software, appears headed toward defending itself against California anti-discrimination claims after a federal judge expressed doubt about the company's jurisdictional arguments during a Monday hearing.

U.S. District Judge Rita Lin in San Francisco questioned whether Workday could avoid liability under California's Fair Employment and Housing Act simply because some job applicants screened by its software live outside the state. The case, first reported by Reuters, represents the first class action to broadly challenge algorithmic decision-making in AI hiring tools now used by more than 80% of U.S. employers.

During the hearing, Lin pushed back against Workday's position that it cannot be held liable under California law when screening out-of-state applicants for jobs at companies based elsewhere. The judge cited a three-decade-old California appeals court ruling establishing that parties can face direct liability for their own conduct regulated by the FEHA, focusing on where the alleged wrongful activity occurred rather than where applicants reside.

Why it matters

This case could establish critical precedent for how AI hiring tools are regulated and litigated. With virtually all Fortune 500 companies now using algorithmic screening software, the question of which state's laws apply—and whether software vendors can be held directly liable—will shape accountability frameworks across the industry. Until now, litigation over AI hiring discrimination has been sparse, partly because applicants often don't know when algorithms reject them and partly due to the complexity of challenging emerging technology in court.

The expanding lawsuit

The litigation began in 2023 when Derek Mobley alleged Workday's software rejected him for more than 100 positions because he is Black, over 40, and has anxiety and depression. The case has since grown to include three additional plaintiffs and broader discrimination claims beyond the original federal allegations.

Workday attorney Kayla Grundy argued that the company's liability as an agent of its customers depends on whether each individual employer violated the law, and that California shouldn't impose its regulations on screening decisions involving out-of-state applicants and employers. She questioned whether California could "assert itself as the premier law" for decisions spanning all states and potentially international jurisdictions.

Judge Lin did not indicate when she would rule on Workday's motion to dismiss the California claims. The judge previously ruled in 2024 that Workday could be considered an employer under federal anti-discrimination laws because it performs screening functions typically handled by the companies themselves—the first decision of its kind.

Broader concerns about algorithmic bias

Government agencies and worker advocates have raised concerns that AI hiring tools can perpetuate discrimination when trained on data reflecting existing biases. The widespread adoption of these systems—Workday and competitors process applications for major employers globally—has occurred largely without litigation testing their legal boundaries.

The case is Mobley v. Workday Inc., U.S. District Court for the Northern District of California, No. 3:23-cv-00770. Details were first reported by Reuters legal correspondent Daniel Wiessner.