Workday’s AI lawsuit keeps spotlight on AI-powered recruiting as case works through courts

A class action lawsuit against HCM giant Workday is among the first highly anticipated AI-related cases working its way through the courts as more than 90% of companies use AI in their TA process, according to a recent Manpower Group report.

The class action lawsuit, Mobley v. Workday, was first brought against the company in early 2023, and alleges algorithmic bias in its hiring software used by its customers. At issue is whether or not Workday’s AI-powered hiring system disparately impacts applicants based on age, race, and other factors. The suit alleges Workday’s AI-powered hiring tools discriminate against people protected by Title VII of the Civil Rights Act and those protections ordered by the the California Fair Employment and Housing Act (FEHA).

The lawsuit argues disparate impact, that an employment practice can violate civil rights laws even if it appears neutral and there was no intent to discriminate.

“From a fundamental level it’s very interesting to me because, obviously with the rise of AI, we’re seeing new legal questions that come up from this,” Ashlee Difuntorum, an associate with the law firm KHIKS, said. “Workday is essentially like an AI provider, so they contract with employers and say, ‘we’ll help you as you screen applicants to different job openings and positions.’ They’re using their algorithm that they’re building…[to] help these companies in the job application process.”

A US District Court judge for the Northern District of California denied Workday’s motion last month to dismiss portions of the suit claiming the HCM and enterprise software giant violated FEHA. The ruling noted the vendor had a significant (legal term alert) “nexus” to the Golden State even if not all of the plaintiffs in the class action suit are California residents.

“There needs to be some connection to California,” Difuntorum said. “To hold a company accountable—potentially hold them accountable for something that they do under a state law like California’s law—there needs to be a significant connection to California.”

Because these AI systems that Workday is shopping around to its customers (even those in another state) are created, maintained from, and serviced from its headquarters in California, there is enough “nexus” for plaintiffs to bring up these state FHFA claims.

“This is actually somewhat of a unique case because it’s going after the vendor,” she said.

“That’s not to say they couldn’t go after the employer. I view it as a little bit of going for the head of the snake, so to speak.”

Although the vendor, Workday (and not its customers), is the defendant in the Mobley class action, HR and TA teams should still eye the case, Difuntorum said. Federal agencies like the EEOC have outlined that employers still bear responsibility for discriminatory outcomes stemming from the AI technology they deploy, even if the software is built by an external vendor.

For HR leaders, one key takeaway is that courts also appear willing to evaluate AI hiring systems like any other employment selection tool. Difuntorum recommended paying close attention to vendor contracts and practices before deploying the tech.

“The employers need to be careful when they’re contracting,” she said. “Understand, as the employer, who you’re contracting with, what their systems are, how it operates, how they’re working to be cognizant of this very real reality and risk of there being discriminatory impact from the processes, and asking the questions, understanding what those vendors are doing to try to prevent that, and then of course including that in the vendor agreement, so that everyone’s on the same page.”