California’s AI Workforce Order: What Employers Should Watch Next

On May 21, 2026, California Governor Gavin Newsom signed Executive Order N-6-26 (The order), directing state agencies to study the workforce impacts of artificial intelligence and recommend policy responses. The order does not immediately impose new legal obligations on employers, but it signals that California is moving toward closer oversight of how AI affects hiring, staffing, layoffs, training, and worker protections.

If your company is using or planning to use AI tools for hiring, performance management, staffing, or business automation, please contact the ILS legal team at contact@consultils.com.

What the Executive Order Focuses On

The order recognizes that AI may improve productivity and support innovation, but it may also disrupt jobs, industries, and certain worker groups. To better understand these risks, California is directing multiple agencies to review how AI and other emerging technologies may affect the labor market.

Several items are especially relevant for employers and HR teams：

• Assess AI’s Labor Market Impact: The Labor and Workforce Development Agency (LWDA), GO-Biz, and the Department of Finance will review how AI may affect California’s workforce, including disproportionate impacts on certain demographic groups;

• Review California WARN Act Updates: The LWDA will evaluate whether the California Worker Adjustment and Retraining Notification (WARN) Act should be updated to better address AI-driven layoffs or workforce disruptions;

• Review Worker Transition Protections: State agencies will study severance, equity-based compensation, Work Share, and other programs supporting displaced workers;

• Build AI Employment Data Monitoring: The Employment Development Department (EDD) will launch a dashboard tracking AI’s employment impact across industries and include employer feedback in labor market reports;

• Promote AI Training and Retention: State agencies will review workforce training programs, expand AI literacy-related programs, and support responsible adoption of “opportunity AI,” especially for small businesses.

Does This Mean Employers Cannot Use AI?

The answer is No.

The executive order does not prohibit employers from using AI or automated tools. It does not require companies to stop using AI in hiring, workforce management, scheduling, performance evaluation, or business automation. In fact, the order acknowledges California’s role as a leading AI innovation hub and supports responsible technology adoption. It also directs state agencies to help businesses, including small businesses, understand best practices and applications for using AI to support competition and broad-based economic growth.

However, the order makes one point clear: California wants to understand whether AI adoption is affecting workers, job stability, and employment decisions. That means employers using AI in HR-related contexts should expect more attention to how these tools are selected, monitored, and documented. This is especially important where AI is used to:

• screen resumes or rank job applicants;

• evaluate performance, attendance, productivity, or promotion readiness;

• support layoff, reassignment, or restructuring decisions;

• process employee personal information or workplace behavior data;

• guide staffing levels, scheduling, or workforce planning.

Existing California laws still apply. The order specifically notes that California already has worker protection laws covering anti-discrimination, retaliation protections, and layoff and closure notices. It also references regulations addressing employment discrimination through Automated Decision Systems and privacy protections related to automated decision-making technology.

Key Risks for California Employers

1. AI-related layoffs may receive closer scrutiny

The order specifically asks LWDA to review whether the California WARN Act should be updated to better respond to emerging industry trends. While no immediate WARN change has taken effect, employers planning reductions tied to AI, automation, or technology adoption should begin reviewing notice obligations, severance practices, Work Share options, and employee communications earlier in the planning process.

2. AI tools may increase discrimination and fairness risks

AI is not automatically neutral. If an algorithm screens out applicants, ranks employees, or influences discipline, promotion, or termination decisions in a way that disproportionately affects protected groups, the employer may still face discrimination or retaliation claims.

Employers should not assume that “the system made the decision” is a defense. Human review, explainability, and documentation remain critical.

3. Workforce data and decision records will matter more

The order directs the state to collect more information about AI’s impact on employment and to include employer feedback about technology adoption in labor market reporting. For employers, this points to a broader trend: companies may need better internal records showing how AI tools are used and how final employment decisions are made.

Employers should be able to explain:

• what AI tools are being used;

• which employment decisions they affect;

• whether managers independently review AI outputs;

• whether the company assessed bias, privacy, and data security risks;

• whether employees or applicants have a meaningful way to raise concerns or request review.

Compliance Steps Employers Should Consider Now

Although the order does not immediately create new private-sector obligations, employers should not wait until future rules are issued. Companies already using AI, or planning to do so, should begin building practical governance processes now.

• Map AI Use Cases: Confirm whether the company uses AI or automated decision-making tools in recruiting, scheduling, performance management, compensation analysis, promotions, layoffs, or employee monitoring;

• Assess Decision Impact: Review whether these tools may create unfair outcomes for certain employee groups, especially in resume screening, scoring systems, performance evaluations, and layoff selection;

• Maintain Human Oversight: Avoid relying entirely on algorithmic outputs for major employment decisions, and ensure managers can independently review and explain final decisions;

• Strengthen Data and Documentation Management: Retain tool descriptions, decision criteria, vendor materials, employee notices, internal review records, and risk assessment documents;

• Plan Ahead for Workforce Adjustment Risks: If AI adoption may lead to job reductions, department restructuring, or employee transfers, evaluate WARN obligations, severance practices, employee communications, and training or upskilling arrangements in advance;

• Review Vendor Contracts: Confirm whether AI tool vendors provide necessary compliance support, data protection commitments, audit information, and clear responsibility-allocation terms.

For small and midsize businesses, AI can be an important tool for improving efficiency and competitiveness. But the earlier companies establish clear governance procedures, the better they can remain stable across technology adoption, employee relations, and future regulatory changes.

Final Takeaway

Governor Newsom’s executive order does not ban workplace AI, but it makes clear that California is watching its impact on workers. For employers, AI compliance is becoming part of employment law, workforce planning, and long-term risk management. Companies that track where and how AI is used will be better prepared for future rules and guidance.

If your company is using or planning to use AI tools for hiring, performance management, staffing, or business automation, please contact the ILS legal team at contact@consultils.com. We help employers review existing processes, strengthen internal policies, and build practical legal support for responsible AI adoption and workforce management.

Disclaimer: The materials provided on this website are for general informational purposes only and do not, and are not intended to, constitute legal advice. You should not act or refrain from acting based on any information provided here. Please consult with your own legal counsel regarding your specific situation and legal questions.

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As Partner and Head of Transactions at ILS, Fiona delivers professional legal and strategic support to tech companies—with a focus on AI, medical devices, and fintech. Beyond full-spectrum technology law, she specializes in export control and compliance: supporting tech firms at all growth stages, aiding startups in scaling operations, and helping mature enterprises address regulatory challenges.

Previously, Fiona gained hands-on experience building legal frameworks from scratch. She advised unicorn companies on global expansion and regulatory hurdles, developing deep insight into clients’ growth challenges. Combining legal expertise with commercial judgment, she helps clients establish sustainable legal processes and provides clear guidance to advance their business.

Email:  fiona.xu@consultils.com | Phone: 626-344-8949