California's New AI Employment Rules: The Return of the Illegal Psychological Test?

Employment Testing: Failing to Make the Grade — Ten Years Later, Part 11

In 2005, a federal appeals court confronted a question that remains surprisingly relevant today.

Could an employer violate the Americans with Disabilities Act (ADA) by requiring employees seeking promotion to complete what the employer described as a personality assessment?

In Karraker v. Rent-A-Center, 411 F.3d 831 (7th Cir. 2005), the court concluded that the assessment included a prohibited medical examination because it incorporated questions designed, at least in part, to reveal mental illness.

The employer maintained that the assessment measured personality characteristics relevant to management positions rather than psychiatric disorders.

The court rejected that distinction.

Calling a psychological examination a personality test did not remove it from the ADA's restrictions.

Twenty-one years later, the same question is returning in a different form.

Instead of lengthy psychological questionnaires, employers may use computerized games, timed exercises, behavioral assessments, video interviews, and algorithms that analyze applicants' responses.

These systems can measure attention, reaction time, risk preferences, communication patterns, and other characteristics that may overlap with manifestations of mental health conditions.

And California has now expressly addressed how employment discrimination laws apply to these technologies.

What Changed on October 1, 2025?

California's regulations governing the use of automated-decision systems in employment took effect on October 1, 2025.

Adopted by the California Civil Rights Council, the regulations clarify how the state's Fair Employment and Housing Act (FEHA) applies to artificial intelligence, algorithms, and other technologies that make employment decisions or assist humans in making them.

The regulations are not limited to sophisticated AI.

They encompass qualifying computerized processes used to screen resumes, rank applicants, administer employment assessments, or analyze information obtained during interviews.

They also address proxies: characteristics that may serve as substitutes for legally protected traits.

California did not invent a new prohibition against discrimination by computers. Employers were already subject to civil rights laws when using automated assessments.

What changed is that California expressly identified modern screening technologies and clarified how existing legal protections apply to their use.

Three distinct legal issues deserve attention: prohibited medical examinations, discriminatory selection criteria, and reasonable accommodations.

When Does a Computer Game Become a Medical Examination?

Perhaps the most significant provision appears in California Code of Regulations, title 2, § 11071(e).

It expressly recognizes that medical or psychological examinations and disability-related inquiries may be administered through automated-decision systems.

The provision identifies assessments involving tests, questions, puzzles, games, and other challenges likely to elicit information about a disability.

Consider a job applicant completing a computerized game that measures reaction time, attention, emotional responses, or patterns of decision-making.

The employer describes the exercise as a measure of judgment, resilience, adaptability, or workplace compatibility.

Those characteristics may be relevant to particular jobs.

But what if the assessment is designed to reveal psychiatric conditions or mental impairments?

What if the system draws inferences about an applicant's mental health from behavioral responses without asking directly whether the applicant has a disability?

These questions require examination of the assessment's purpose, design, operation, and the information it seeks to obtain.

Not every measurement of attention, reaction time, or personality constitutes a medical examination. Ordinary employment assessments may lawfully measure job-related abilities and characteristics.

But California has made an important principle explicit:

An employer cannot avoid restrictions on disability-related examinations simply by embedding the examination in a game or algorithm.

The Lesson of Karraker

The parallels with Karraker deserve attention.

Rent-A-Center required employees seeking management positions to complete a battery of tests that included 502 questions from the Minnesota Multiphasic Personality Inventory (MMPI).

The MMPI contained scales associated with psychiatric conditions and characteristics, including depression, paranoia, and mania.

Rent-A-Center argued that it used vocational scoring methods to assess personality traits relevant to management positions.

The Seventh Circuit disagreed that this distinction removed the examination from the ADA's protections.

The court emphasized that the MMPI was designed, at least in part, to reveal mental illness.

It also recognized that employees with psychiatric disorders might receive unfavorable scores affecting their opportunities for promotion.

Although the plaintiffs were existing employees, the parties treated the assessment as pre-offer for purposes of the litigation. The court did not independently resolve whether that classification was appropriate.

The decision does not establish that every psychological or personality assessment is a medical examination.

But its central lesson remains important:

What matters is not merely how an assessment is marketed or scored, but what the assessment is designed to reveal.

California's regulations bring that longstanding principle directly into the era of automated employment testing.

Discrimination Without Asking About a Diagnosis

A second legal concern is different from the prohibition against improper medical examinations.

An assessment may unlawfully disadvantage applicants with disabilities even if it never seeks medical information.

Consider an applicant with depression, PTSD, an anxiety disorder, or another qualifying condition.

An automated assessment might evaluate response speed, sustained attention, employment gaps, or communication patterns.

The system may never identify the applicant's diagnosis.

Nevertheless, particular selection criteria could disadvantage qualified applicants because of disability-related characteristics.

California's revised § 11072 addresses employment tests and selection criteria, including those administered through automated-decision systems, that unlawfully screen out or adversely affect individuals with disabilities.

The applicable analysis may involve job-relatedness, business necessity, and less discriminatory alternatives.

The regulations also recognize that statistical comparisons between applicants with and without disabilities are not necessarily required to establish that a particular individual was screened out because of disability.

That distinction matters.

A qualified applicant should not necessarily have to demonstrate a statistical disparity across an entire workforce to challenge an assessment that unlawfully excludes that individual.

An unfavorable score, however, does not automatically establish discrimination. The applicant's qualifications, the screening criterion, and the employer's justification remain relevant.

An algorithm can raise disability-discrimination concerns without ever asking an applicant to disclose a disability.

That is a separate legal question from whether the assessment constitutes a prohibited medical examination.

When a Lawful Assessment Still Requires Accommodation

A third issue receives less attention but may be particularly important.

Even an otherwise lawful employment assessment may create barriers for qualified applicants who need reasonable accommodations.

A timed computerized exercise might disadvantage someone whose disability affects processing speed.

A video assessment could create barriers for an applicant with a hearing, speech, or communication disability.

A game requiring particular physical responses might be inaccessible to someone with a motor impairment.

Depending on the circumstances, the employer may need to provide a reasonable accommodation or an appropriate alternative method for demonstrating qualifications.

Employers are not required to eliminate essential job functions or disregard legitimate qualifications.

But they must comply with applicable accommodation requirements.

The distinction is straightforward:

A test can be lawful in its design yet unlawfully administered when an employer fails to provide a required accommodation.

This issue becomes increasingly important as employers replace conventional interviews and written assessments with standardized digital experiences.

Can the Vendor Be Responsible?

California's regulations also address the role of third parties performing functions traditionally exercised by employers.

The definition of an employer's agent encompasses certain entities acting on an employer's behalf, potentially including those performing applicant recruitment or screening through automated systems.

This raises questions similar to those being litigated in Mobley v. Workday, Inc.

In that case, plaintiffs allege that Workday's automated applicant-screening services unlawfully disadvantage applicants based on protected characteristics.

Workday disputes the allegations, and no final determination of discrimination has been made.

The federal court has permitted certain claims to proceed under theories involving Workday's potential role as an employer's agent.

California's regulations do not establish Workday's liability, and supplying software does not automatically make a vendor legally responsible for every decision made by its customers.

But the broader question deserves attention:

When a vendor performs consequential parts of the employment-screening process, where does the employer's responsibility end—and where might the vendor's begin?

The answer depends on the parties' actual functions, their relationship, and the applicable statutes.

What Evidence Supports the Assessment?

California's regulations also recognize that anti-bias testing and related efforts may be relevant when evaluating allegations of discrimination.

The scope, quality, timing, results, and effectiveness of such testing may matter, as may the steps taken in response to identified problems.

The regulations do not create a universal requirement that every employer commission a particular independent AI audit.

Nor does the absence of an audit automatically establish unlawful discrimination.

But they reinforce the importance of evidence.

Suppose an employer purchases a commercial behavioral assessment that promises to identify candidates likely to perform well.

Has the assessment been validated for the particular jobs involved?

What characteristics does it measure?

Could those measurements reflect disabilities rather than relevant qualifications?

Were reasonable accommodations considered?

And what happened when testing or applicant complaints identified possible problems?

A vendor's general assertion that its product is scientifically validated may not adequately answer these questions.

Commercial confidentiality may complicate access to technical information, but it does not automatically excuse an employer's legal obligations.

Four Years of Records: What the New Rules Actually Do

California's regulations also address preservation of records involving automated employment decisions.

Covered entities generally must preserve relevant employment records, including applicable automated-decision-system data, for at least four years.

An important distinction deserves emphasis: the four-year retention period was already established by California legislation enacted in 2021.

The 2025 regulations clarify its application to relevant automated-decision-system information.

The final regulations also limit the preservation requirement to applicable records that the covered entity created or received, rather than requiring the employer to preserve every piece of information maintained independently by a software vendor.

That limitation matters, particularly when proprietary models and detailed assessment data are held by outside providers.

Nevertheless, the recordkeeping requirement could have substantial practical consequences.

Investigating a disputed assessment may require identifying the criteria used, the results generated, the relevant assessment version, and how recommendations influenced employment decisions.

Without that evidence, applicants and regulators may have difficulty determining what occurred.

The rules do not automatically require public disclosure of proprietary algorithms or source code.

But they reinforce a basic principle:

Meaningful enforcement of employment discrimination laws increasingly depends on preserving evidence of how automated assessments actually operated.

Why California Matters Beyond California

California's regulations do not automatically govern every employer in the United States.

Their application depends on California law and the circumstances of the employment relationship.

Nevertheless, national employers and screening vendors operating in California may need to account for these requirements when developing and administering their assessment systems.

More importantly, the regulations illustrate a broader legal development.

Questions once associated primarily with conventional psychological tests are now arising in computerized games, behavioral analytics, and AI-assisted hiring.

The underlying legal protections are not new.

What has changed is the sophistication and scale of the technologies to which those protections must be applied.

The Old Psychological Test in a New Package

When Karraker was decided in 2005, the challenged assessment contained questions from a conventional psychological inventory.

Today, a hiring system may measure behavioral traits through computerized games, infer characteristics from patterns of responses, and rank applicants using factors that correlate with disability.

Some of these technologies may offer legitimate benefits.

Others may create barriers that are difficult for applicants to recognize, explain, or challenge.

California's 2025 regulations make explicit that tests, puzzles, games, and other automated challenges may implicate restrictions on disability-related examinations, discriminatory screening, and reasonable accommodations.

Twenty-one years after Karraker, the technology has changed dramatically. The fundamental legal questions have not.

What does the assessment actually measure? Is that measurement appropriate for the job? Does it seek information that an employer is prohibited from obtaining? Does it unnecessarily exclude qualified applicants with disabilities?

Employers and assessment vendors should be prepared to answer these questions with evidence.

Calling an assessment artificial intelligence does not make it any more lawful than calling a psychological examination a personality test.