July 15 (Reuters) - A federal judge in California has

rejected Workday's bid to dismiss a proposed class action

claiming that the artificial intelligence-powered software the

company uses to screen out job applicants for other businesses

bakes in existing biases.

In the first ruling of its kind, U.S. District Judge Rita

Lin on Friday said that Workday could be considered an employer

covered by federal laws banning workplace discrimination because

it performs screening functions that its customers would

normally carry out themselves.

Lin refused to dismiss several claims in a 2023 lawsuit by

Derek Mobley, who says he was passed over for more than 100 jobs

at companies that contract with Workday because he is Black,

older than 40 and has anxiety and depression.

The case is the first proposed class action to challenge the

use of AI screening software, and could set important precedent

on the legal implications of using AI to automate hiring and

other employment functions, which most large companies are now

doing.

Lin dismissed claims that Workday intentionally

discriminated based on race and age. She also ruled that the

company cannot be considered an "employment agency" under

anti-bias laws because unlike a staffing firm, it does not

procure job opportunities for workers.

A Workday spokesperson in a statement said the company was

pleased that Lin tossed out some of the claims.

"We're confident that the remaining allegations will be

easily refuted as we move to the next phase where we'll have an

opportunity to directly challenge their accuracy," the

spokesperson said.

Lawyers for Mobley did not immediately respond to a request

for comment.

The lawsuit claims Workday uses data on a company's existing

workforce to train its AI software to screen for the best

applicants without accounting for the existing discrimination

that it may reflect.

Mobley has accused Workday of race, age and disability

discrimination in violation of Title VII of the Civil Rights Act

of 1964 and other federal anti-discrimination laws. The proposed

class could include hundreds of thousands of people.

Workday says it is not covered by workplace bias laws

because it was not Mobley's prospective employer and is not an

employment agency that can be held liable for discrimination,

since it does not make hiring decisions for its customers.

But Lin on Friday said anti-bias laws were designed to

broadly protect workers and prevent employers from farming out

tasks such as screening applicants in order to escape liability,

and that Workday could be held liable as an agent of its

customers.

"The (lawsuit) plausibly alleges that Workday's customers

delegate traditional hiring functions, including rejecting

applicants, to the algorithmic decision-making tools provided by

Workday," wrote Lin, an appointee of Democratic President Joe

Biden.

The U.S. Equal Employment Opportunity Commission, which

enforces federal laws banning workplace discrimination, had

urged Lin to let the case proceed in an April brief. The agency

has warned employers that they can be held legally liable if

they fail to prevent screening software from having a

discriminatory impact.

The case is Mobley v. Workday Inc ( WDAY ), U.S. District Court for

the Northern District of California, No. 3:23-cv-00770.

For Mobley: Lee Winston and Roderick Cooks of Winston Cooks

For Workday: Julie Totten of Orrick, Herrington & Sutcliffe

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