By: Kevin Golden

A ruling on Friday from the Northern District of California offers guidance on what a plaintiff may need to allege, who might be liable, and what theories may be viable when it comes to claims of AI based discrimination in employment decisions. In short, third parties providing AI software for employment-based decisions may have potential liability where plausible disparate impact claims are alleged. And while the allegations of the Mobley matter are unique in that regard – the plaintiff alleges that he was rejected by Workday’s AI tools for each of the nearly 100 job applications he submitted – the decision does provide clarity on whether and when traditional employment discrimination claims are viable against third-party software providers.

In the case at hand (Mobley v. Workday, Inc.), the plaintiff originally filed suit alleging that Workday’s AI programs “rely on algorithms and inputs created by humans who often have built-in motivations, conscious and unconscious, to discriminate.” Mobley then went on to allege how he had applied for, and been rejected from, nearly 100 job opportunities, all of which had been screened through Workday’s AI software. Workday moved to dismiss the complaint arguing, among other things, that it was not an “employment agency,” that Mobley failed to allege that Workday acted with discriminatory intent, and that Mobley “fails to identify a specific employment policy or practice that allegedly caused an unlawful disparity.” The court granted the motion with leave to amend.

In response, in his amended complaint, Mobley alleged that Workday was an agent of potential employers that had “delegated to it authority to make decisions in the hiring process[.]” Mobley also detailed his background and qualifications while also alleging that AI algorithms “can ‘learn’ to use omitted demographic features by combining other inputs that are correlated with race … like zip code, college attended, and membership in certain groups.” Mobley then offered specific examples of his applications, against his qualifications, and a rejection for each – one, in particular, coming less than one hour after he applied and at 1:55 a.m. Workday again moved to dismiss, arguing that it was not an employment agency but rather a software provider – and not an agent of its customers. More specifically, Workday argued that it only sold a “configurable software tool” and that Mobley failed to allege that “Workday controls, requires, or otherwise dictates the inputs, criteria, and ultimate functionality” of the software. Workday equated itself to an entity that provided training on Microsoft Excel that was then potentially liable for the accounting function of the spreadsheet software. Further, Workday argued that both Mobley’s intentional discrimination and disparate impact claims should fail in any event.

The court, in advance of oral argument on Workday’s motion, provided notice of several questions on which it wanted the parties prepared, with the first being whether any entity would be liable, under Workday’s interpretation of Title VII, if a software vendor “provides employers a tool that the vendor knows” intentionally excludes potential candidates who had attended historically black colleges (such as Mobley), a function of which the employer was unaware. It was this question that seemed to trouble Judge Lin during oral argument and that seems to have underlined Judge Lin’s Friday ruling.

Specifically, Judge Lin noted that “Workday had not contested that agents of employers could be held liable when the employer delegates traditional employment functions to them” while concluding that “Workday may be liable on an agency theory because the [complaint] plausibly alleges that Workday’s customers delegated their traditional function of rejecting candidates or advancing them to the interview stage to Workday” and its “algorithmic decision-making tools[.]” Judge Lin cited, as one example of such delegation to Workday’s software, the rejection email Mobley received at 1:55 in the morning. Judge Lin went on to state that “[d]rawing an artificial distinction between software decisionmakers and human decisionmakers would potentially gut anti-discrimination laws in the modern era. … Employers could thus ‘delegate discriminatory programs’ to third-party software tools, with job applicants and employees having little recourse to challenge such discrimination. Nothing in the text of the anti-discrimination statutes or the case law interpreting them supports that startling result.” In this regard, Judge Lin also noted the hypothetical question she had posed prior to, and entertained during, oral argument stating that under the position advanced by Workday, as it relates to agency liability, “no party would be liable for intentional discrimination.” (Judge Lin thereafter dispensed with Workday’s Excel argument “because the spreadsheet is not participating in the determination of which employees to hire,” something which Workday’s software allegedly does.”)

Turning to Mobley’s substantive claims, Judge Lin stated that Mobley’s “zero percent success rate at passing Workday’s initial screening, combined with the [complaint’s] allegations regarding bias in Workday’s training data … plausibly supports an inference that Workday’s algorithmic tools disproportionately reject applicants based on factors other than qualification such as a candidate’s race, age, or disability.” Judge Lin thereafter allowed Mobley’s disparate impact claims to proceed. However, Judge Lin concluded that Workday was not an employment agency and Mobley’s claims predicated on that theory were dismissed. Judge Lin also dismissed Mobley’s intentional discrimination claims without leave to amend (unless warranted by discovery), finding that while Mobley “plausibly alleges that Workday’s screening tools have disparate impacts based on race, age, and disability … [the complaint] lacks allegations that Workday intended this outcome.” Finally, Judge Lin dismissed, with leave to amend, Mobley’s state law Fair Employment and Housing Act claims.

It remains to be seen whether Mobley will amend that claim, or whether either party may attempt an interlocutory appeal, but we will continue to monitor this case for significant updates.