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Key Takeaways:
ARTICLE | Employment Regulation, AI, & DEI: 2024 Mid-Year Review
It feels fairly safe to say that 2024 has been an eventful year so far on a lot of fronts, and now that we are a little more than half way through it, we thought it might be worthwhile to look back at some of the challenges and opportunities that employers expected to encounter this year in order to take stock, reflect on the previous 6 months, and inform the next 6 months ahead.
The Littler Annual Employer Survey for 2024 surveyed 400 lawyers, executives, and human resources professionals about a wide variety of labor, compliance, and workforce management issues before the year began, and the resulting data provides valuable insight into how business leaders expected the year to unfold, including predictions that may be even more interesting in hindsight than they were as forecasts.
Some of the issues we’ll be highlighting include employment law and regulation, artificial intelligence use in human resources processes, and DEI initiative trends.
At the cusp of 2024, survey respondents in general expected a relatively tame regulatory environment with minimal changes, in part as a result of the forthcoming presidential election occupying a significant amount of lawmaker attention - especially in Washington DC.
The regulatory areas where employers expected to see the most legislative and/or rule-making activity were paid sick/family leave, income inequality, and artificial intelligence in human resources - all of which were areas where more than half of respondents expected change.
With regard to paid sick leave, the first 6 months of 2024 have indeed seen some movement on the state level with new/expanded paid sick leave requirements in Connecticut, California, Washington, and the city of Chicago, as well as ballot initiatives in the works to put the issue of mandatory paid sick leave directly to the voters of Alaska, Missouri, and Nebraska this fall. Approximately 40% of states currently have some form of paid sick leave mandate in place.
There has also been some noteworthy state-level movement toward new or bolstered paid family leave protections for employees in Georgia, New York, New Mexico, Maine, Minnesota, Rhode Island, and Colorado, with at least 13 states and counting now requiring employers to provide employees with at least some form of paid family leave.
As for income-inequality reducing measures, on July 1st the Wage and Hour division at the Department of Labor posted the final rule expanding overtime protections via revising highly compensated employee and executive, administrative, and professional (EAP) exemptions to raise the threshold for qualifying employees.
There were also a number of new state laws addressing pay transparency, the lack of which can apply significant downward pressure on wages as a result of a bargaining power imbalance between employees and employers. Hawaii, Minnesota, Vermont, and Washington DC all enacted new pay transparency requirements while Maryland expanded on the pay transparency regulations it already has on the books.
While still accounting for nearly 6 in 10 respondents, the proportion that expected changes in paid sick leave and income-inequality laws was still down by about 10% from the year before when ~7 in 10 respondents expressed similar expectations, which is a drop that can probably be explained by an election-related decrease in governing activity. The percentage of survey respondents who anticipated new rules covering artificial intelligence in the hiring practice, on the other hand, increased from 20% in the 2023 report to 51% in 2024.
Despite the steep upward trajectory in the number of business leaders expecting AI regulation to see some major changes this year, so far that prediction has largely failed to materialize on the federal level. While the DOL issued some guidance in April on when and how AI can be used appropriately in the hiring process, those recommendations were non-binding and limited to federal contractors, at least for the time being.
The Equal Employment Opportunity Commission also issued its own guidance in May on how to avoid violating the Americans With Disabilities Act when using AI in the hiring practice, but the single most practical tip included may be not to rely on vendor assurances that a given piece of software is in compliance, because the responsibility for ensuring there is no impermissible bias influencing the hiring process ultimate falls to the employer from a legal standpoint regardless of whether or not AI was utilized.
Ultimately, much of the headway in terms of AI hiring practice regulation has been made in state legislatures with Colorado enacting the first comprehensive AI regulatory scheme in May 2024, building upon what New York started last year in enacting the country’s first AI law, with California, Illinois, Georgia, and Washington all considering and/or in the process of adopting AI regulations, as well.
Direct regulatory changes, proposals, and guidance aside, the biggest regulatory-related event of 2024 is almost certainly the Supreme Court’s decision to end the judicial practice of Chevron deference, overturning 40 years of precedent during which time federal regulators needed only show that their interpretations of unclear legislative language was reasonable in order for the rules they crafted based on those interpretations to be upheld.
Of course, while it is not clear from the data whether or not respondents would have predicted this outcome, the survey does indicate that nearly 8 in 10 respondents believed that the way federal regulators have interpreted labor and employment law has created challenges for their organizations.
There is, however, no data about what proportion of respondents would also claim that the underlying employment and labor laws themselves create challenges for their organizations, but this metric will be interesting to track through subsequent reports as more rules that relied upon Chevron are challenged in court and some are presumably overturned as competitors across various industries test the limits of what is now allowable.
An absence of meaningful AI regulation in most states and nationally has created an environment where some employers are hesitant to lean into AI too heavily before a clearer picture emerges of what those rules and their enforcement will look like, while other employers are taking advantage of the opportunity to fill the void and explore potential AI uses with limited restraint.
Among survey respondents at least, the proportions of employers are nearly evenly split between those playing the waiting game versus those charging ahead and on-boarding AI applications in their human resources operations - with 51% not using AI while 49% do.
Concern about liability exposure related to AI usage seems to be a driving factor behind adoption hesitance, with about 7 in 10 respondents being moderately to very concerned about AI usage and compliance with data privacy laws, for example.
About 7 in 10 respondents also claim to be working to some degree with AI developers and providers in order to minimize data privacy, bias, data breach, and other AI-related issues, but given that half of those proactive respondents are only working ‘to a small extent’ with AI programmers and developers to resolve these issues, there’s clearly a great deal of room for improvement in this area.
Of the employers that are currently using AI for workforce management and human resources purposes, the most popular usage is the creation and management of HR-related documents, like writing job listings and intaking/organizing new documents, which is a practice that about 53% of AI-utilizing employers have adopted, while a similar proportion (47%) are using AI to operate chatbots for internal use that can answer employee and manager questions about company policies and work procedures, etc.
Only about one-third of AI-utilizing employers are using the technology to communicate with job candidates or conduct automated interviews, while about 1 in 4 are using AI for employee training, and about 1 out of 7 use AI for employee performance management purposes.
A recent poll from Deel last month seems to indicate that these trends remain largely on track.
Although a smaller proportion of HR decision-makers (36%) have woven AI into their workflow process than HR staff in general who have done so, 23% of HR decision-makers not currently utilizing AI plan to do so within the next year, which will bring the total number of HR decision-makers that will be utilizing AI to more than half of all HR decision-makers if those plans come to fruition.
Further, 61% of respondents expect AI to make a major impact on the human resources industry over the next 5 years, and that expectation is even higher among respondents age 34 or younger (85%), many of whom will presumably be growing within their careers and gaining additional decision-making capacity over those 5 years, which may provide some self-fulfilling-prophecy-tailwinds to continue pushing AI adoption rates along.
Almost 60% of C-level executive respondents claimed that they had increased their company’s diversity, equity, and inclusion (DEI) initiatives to some extent over the past couple years.
Although a majority agreed that the backlash against these programs had intensified following the Supreme Court’s ruling against race-based admissions in the summer of 2003, more than 9 in 10 C-level respondents claimed that ruling did not lead them to back away from or reduce focus on these programs.
Despite that stated support, more than 1 out of 3 agreed or strongly agreed that their organization was somewhat uncertain about how to lawfully continue and progress the missions of their DEI initiatives.
More than half-way through the year now, however, it appears either the C-level support behind DEI initiatives may have been overstated given some of the high profile DEI downsizing efforts that we've seen and given the continuing downward trend of DEI employment numbers depicted in the graph from Revilio below.
Even the Society of Human Resources management has altered its messaging to remove ‘equity’ from the DEI equation, and now simply promotes DI, which is not an encouraging testament on their confidence in DEI brand perception.
From business regulation, to AI use and DEI initiatives, each of the topics covered in this piece seem to be at a crossroads of sorts.
On the legal and regulatory front, employers largey got what they wanted with the Supreme Court overturning the Chevron decision, what remains to be seen over the next couple of years is whether the potential unintended consequences lead to any buyers's remorse, and if so, how much.
With all manner of industry-specific regulation now ripe for challenge and adjudication by federal judges who may come to very different conclusions in different jurisdictions, employers will likely respond to the uncertainty in a variety of ways, with some being more cautious and others proactively seeking out opportunities to exploit in order to gain an advantage over their competitors.
Some of the uncertainty surrounding the future of AI use and DEI initiatives stems from a similar uncertainty about the legal and regulatory frameworks surrounding these issues. While expectations for the future prospects of both AI use in the HR field and DEI initiatives generally remain high among respondents, the trajectory of AI seems to be going up while the trajectory for DEI seems to be going in the other direction, although reinvigorated efforts by interested parties could potentially reverse those trends.
As these regulatory uncertainties get ironed out over time, both AI adoption and DEI reinvestment seem primed for increased prevalence, but with regulatory uncertainty potentially rising to all time highs isn the coming years, it may take longer than it normally would have to get some of those regulatory uncertainties resolved.
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