Using AI to screen job applicants: which laws apply, and does EPLI cover it?
Using AI to screen, rank or reject applicants does not move the liability to the software maker. The EEOC’s iTutorGroup settlement ($365,000) and the Mobley v. Workday case show regulators and plaintiffs go after the employer or the vendor, and New York City and Illinois already have AI-in-hiring laws, with Colorado rewriting its own. Employment practices liability insurance (EPLI) is the policy that usually responds to a hiring discrimination claim, and most policies treat an AI-assisted decision the same as a human one, but a minority now carry an AI exclusion, so read yours.
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How an AI hiring claim actually arrives
The EEOC’s first AI-related settlement is the plain version. A tutoring company’s application software was programmed to automatically reject women over 55 and men over 60. Over 200 qualified applicants were turned away, and the company agreed to pay $365,000. Nothing subtle or statistical was needed: the rule was written into the tool.
The harder version is Mobley v. Workday, a case against a software vendor rather than an employer. The plaintiff says the vendor’s screening tools disadvantaged applicants over 40, and in May 2025 a federal court conditionally certified a collective of such applicants. The claim is about effect, not intent, and the vendor denies it. For an employer the lesson is that a biased result from a tool you bought can still land on you, and that a vendor case does not stop an applicant from naming you.
The laws a small employer can hit
New York City, Local Law 144. If you hire or promote for a job in New York City and use an automated tool to substantially help decide, the tool must have had an independent bias audit within the past year, a summary of the results must be public and candidates and employees must be given notice, which the city’s guidance puts at ten business days beforehand. The city has enforced it since July 5, 2023. Check current penalties on the city’s site, as published figures differ.
Illinois, HB 3773. Since January 1, 2026 the Illinois Human Rights Act bars employers from using AI that has a discriminatory effect in decisions such as hiring, promotion, discipline and discharge, bars zip codes as a stand-in for a protected class and requires notice when AI is used. The state is still working out how the notice must be given, so check the Department of Human Rights before relying on a form of words.
Colorado. The 2024 Colorado AI Act, which would have required risk programs and impact assessments from employers using high-risk AI, was delayed once and then repealed and replaced in May 2026 by a narrower law about notice, explanations, correction rights and human review, reported to take effect January 1, 2027. Treat the date and the details as open until you have checked the Colorado Attorney General’s site.
Every state. Existing anti-discrimination law, such as Title VII, the Age Discrimination in Employment Act and the Americans with Disabilities Act, applies to a hiring tool exactly as it does to a person. The new laws mostly add notice and audit duties on top.
What employment practices liability insurance does with it
Employment practices liability insurance (EPLI) covers an employer against claims by employees and applicants of discrimination, harassment, wrongful termination and similar wrongs. A claim that your screening tool discriminated is a discrimination claim, and if the policy has no AI wording it is normally treated like one.
A July 2026 industry report quotes a broker saying that most EPLI policies draw no line between human and AI conduct, that absolute AI exclusions appear on closer to 10% of policies, and that the protection must be in the wording, not in a conversation. That is a broker’s market observation, not a rule, so the point stands: read your own endorsements.
Two gaps remain even without an exclusion. EPLI is for claims against you; it does not pay for a bias audit you must buy to comply with a law, and fines and penalties are often excluded. And the software vendor’s own insurance protects the vendor, not you.
AI hiring rules at a glance
New York City (Local Law 144)
- What it asks of an employer
- Bias audit within a year, public summary, notice to candidates
- Status to check
- In force since July 5, 2023; check current penalty schedule
Illinois (HB 3773)
- What it asks of an employer
- No discriminatory effect, no zip-code proxy, notice when AI is used
- Status to check
- In force January 1, 2026; check state notice rules
Colorado (SB 26-189)
- What it asks of an employer
- Notice, explanation of adverse outcomes, correction and human review
- Status to check
- Reported to take effect January 1, 2027; check enforcement
Everywhere
- What it asks of an employer
- Title VII, ADEA and ADA apply to a tool as to a person
- Status to check
- In force
Laws change often. Confirm each against the state or city site.
The detail
In September 2023 the EEOC announced that iTutorGroup would pay $365,000 to settle a suit alleging it programmed its tutor application software to automatically reject women aged 55 or older and men aged 60 or older, rejecting more than 200 qualified U.S. applicants.
On May 16, 2025 a federal court in California conditionally certified a nationwide collective of job applicants aged 40 and over in Mobley v. Workday, which alleges an AI screening vendor’s tools discriminated by age; the claims rest on disparate impact and the vendor has denied that its tools make hiring decisions or discriminate.
Fisher Phillips, “Discrimination Lawsuit Over Workday’s AI Hiring Tools Can Proceed as Class Action”
New York City Local Law 144 bars an employer or employment agency from using an automated employment decision tool unless it has had a bias audit within the past year, a summary of the results is public and candidates and employees have received notice; the city has enforced it since July 5, 2023.
NYC Department of Consumer and Worker Protection, Automated Employment Decision Tools
Illinois HB 3773 (Public Act 103-0804, signed August 9, 2024) amends the Illinois Human Rights Act, from January 1, 2026, to bar employers from using AI that has a discriminatory effect in hiring, promotion, discipline, discharge and similar decisions, to bar zip codes as a stand-in for a protected class, and to require notice to employees when AI is used.
Colorado’s first AI Act (SB 24-205) was delayed to June 30, 2026 by a special-session bill signed August 28, 2025, and was then repealed and replaced by SB 26-189, signed May 14, 2026, a narrower law built around notice, explanations of adverse outcomes, correction rights and human review, reported to take effect January 1, 2027.
Greenberg Traurig (delay) and Eckert Seamans (repeal and replace), law-firm alerts
In July 2026 a management liability broker told Insurance Business that absolute AI exclusions appear on closer to 10% of employment practices liability policies, that most such policies draw no line between human and AI conduct, and that protection has to appear in the policy wording rather than informal assurances.
What this means for you
- Find out whether you use an automated tool at all. Résumé ranking in an applicant tracking system, video interview scoring and “fit” scores all count in many readings. Ask the vendor in writing what it does.
- Ask the vendor for its bias testing and an indemnity. If you are in New York City you need the audit. Everywhere else it is the document you will wish you had asked for.
- Keep a person making the decision. A human who reads the tool’s output and decides, and can say why, is a better position than a tool that rejects without anyone looking.
- Tell applicants. Notice is the common thread across the new laws and costs a paragraph on the application.
- Ask your agent for the EPLI endorsements list. Look for “artificial intelligence,” “automated decision” or “algorithm.” Ask whether fines and the cost of compliance are covered.
Related questions
- Is the software company or my business liable if the tool discriminates?
Potentially both. Cases like Mobley v. Workday name the vendor, while the EEOC’s iTutorGroup case was against the employer that used the tool. As the employer you are the one the applicant can sue, whatever your contract with the vendor says.
- Does Local Law 144 apply if my business is not in New York?
It applies to jobs in New York City, so an employer elsewhere that hires for a New York City position and uses an automated tool for it is within its reach. A business that does not hire in the city is not.
- Does EPLI cover a lawsuit about an AI hiring tool?
Usually it treats an AI-assisted discrimination claim like any other, unless the policy carries an AI exclusion, which a minority do. We cannot say yes for your policy without reading it.
- What EPLI covers
- Does using AI to write job descriptions create risk?
Less than screening does, but wording that discourages older or disabled applicants can be evidence in a discrimination claim. Read what the tool wrote before posting.
- Is there a federal AI hiring law?
Not one specific to AI. Existing federal anti-discrimination laws apply, and the EEOC has enforced them against an AI-related hiring practice.
Need this handled?
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Written by Kevin Kelsey, founder and principal agent, CA License #6011822, at Boring Insurance. Last updated 2026-10-25. See all guides.