Who Owns Liability in AI Hiring?
Key quote:
“It makes no sense for a Texas employer with a Texas applicant who will perform work in Texas, I don’t think there is any dispute that that employer would be subject to Texas law for employment discrimination.” What plaintiffs are asking the court to do is to also apply California law, depending on who the defendant is in the action. That is not the way the law is intended to work.” — Kayla Grundy, Workday attorney
Why it matters:
The legal battle in Mobley v. Workday isn’t just about algorithms; it’s also about geography. U.S. District Judge Rita Lin’s May 27 tentative opinion suggests that California’s Fair Employment and Housing Act (FEHA) applies nationwide if Workday develops tools there, which could set a significant precedent for tech vendors. Workday argued this logic is wrong. Their lawyer, Kayla Grundy, told the court during Monday’s oral arguments that software development shouldn’t count as a FEHA-regulated activity. If a Texas company hires a Texan, Texas law should rule, not California law, but that clean logic breaks when you realize Workday is based in Pleasanton, and uses their own software for hiring.
This dispute follows Judge Lin’s March 6 order where she dismissed some claims but let others move forward after giving plaintiffs until March 27, 2026 to fix factual gaps about unlawful conduct in California. Now they’re back arguing that Workday designed the screening systems from their headquarters, meaning the location of the code dictates the liability. If Lin rules against Workday, every AI hiring tool (also called ADMT) built in Silicon Valley faces potential liability across all 50 states. The preliminary class certification already covers applicants over 40 who were denied jobs since September 2020. The AARP’s even filed an amicus brief, signaling broader age discrimination concerns that go beyond a single vendor.
For executives, this would change vendor compliance and risk management. Companies would need to ask where the code lives, because if the screening tool runs on servers in California, you might suddenly owe penalties under a state law you never thought applied. Federal laws like the ADEA and ADA likely wouldn’t provide adequate legal cover if FEHA applies. While Lin hasn’t commented on when she’ll issue a written order, this increases the compliance risks for anyone building hiring tech outside the jurisdiction where their clients sit.
