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Biden’s AI Executive Order: Red Flags HR Tech Companies Should be Worried About

Compliance issues are just the beginning. What else can go wrong?

This week’s newsletter is brought to you by Jobin.cloud

In this issue:

  • Most Automated Countries

  • Biden’s AI Executive Order: Red Flags HR Tech Companies Should be Worried About

  • Do companies care if their employees are tired?

  • Is McDonalds using robots to serve their customers?

  • Don’t let employee lawsuits kill your company!

  • Comic: Manifesting Success

  • The Week in Recruiting

CHART: Most Automated Countries

Most automated countries worldwide (industrial robots per 10k employees): | Source

Biden’s AI Executive Order: Red Flags HR Tech Companies Should be Worried About

President Biden issued an executive order on AI that aims to mitigate the harm caused by AI, including job displacement. The executive order directs federal agencies to develop principles and best practices to minimize the harms and maximize the benefits of AI for workers. To quote it directly

AI is changing America’s jobs and workplaces, offering both the promise of improved productivity but also the dangers of increased workplace surveillance, bias, and job displacement. To mitigate these risks, support workers’ ability to bargain collectively, and invest in workforce training and development that is accessible to all, the President directs the following actions:

Develop principles and best practices to mitigate the harms and maximize the benefits of AI for workers by addressing job displacement; labor standards; workplace equity, health, and safety; and data collection. These principles and best practices will benefit workers by providing guidance to prevent employers from undercompensating workers, evaluating job applications unfairly, or impinging on workers’ ability to organize.

Produce a report on AI’s potential labor-market impacts, and study and identify options for strengthening federal support for workers facing labor disruptions, including from AI.

This order has raised more than a few concerns for HR tech companies. For one, compliance challenges. HR tech companies may face challenges in ensuring compliance with the new regulations, such as the requirement to audit their AI systems for bias and publish the results. This makes me think about NYC Local Law 144 which regulates the use of automated employment decision tools (AEDTs) by employers and employment agencies in New York City.  The law requires AEDTs to undergo a bias audit, with the results made publicly available, and provides notice requirements to employees and job candidates. Violators of the law can face civil penalties ranging from $500 to $1,500 per violation.

If a company uses multiple non-audited AEDTs, it will be fined for each tool that is not audited, potentially resulting in significant daily fines until compliance is achieved. In addition to the financial penalties, there is also the potential risk of lawsuits by individuals who believe they have been adversely impacted by a company's non-compliant use of an AEDT. (This is outlined in section 20-874 of Local Law 144.) Now imagine this happening in every state of the union and you can see why some HR tech companies are nervous. Yikes!


Another concern, challenges to innovation. Some HR tech companies are concerned that the order could stifle innovation and limit their ability to develop new and improved AI solutions. To quote Forbes

But Biden’s new order has given pause to a class of upstart companies looking to shake up tech’s current landscape. “It is crucial for the government to foster an open AI ecosystem, especially for startups,” Florian Douetteau, cofounder of Dataiku, a startup which helps companies to build AI tools, told Forbes in an email. “Cloud vendors monopolizing AI after heavy investments is akin to privatizing the electric grid. Such monopolization would stifle innovation and deter smaller players from contributing to the AI evolution.”

Another quote from the same article says…

Others noted the added regulatory burden could benefit the incumbents, who can more easily afford the associated costs. “Overregulation, such as limits on model size and stringent reporting requirements, will create barriers that only large monopolies can overcome,” enterprise search startup Hebbia’s founder George Sivulka wrote in an email. “America is built on risk-taking, not red tape.”

And then there is the responsibility for AI outcomes, another pandora’s box. The order requires companies developing AI systems to clearly define their responsibilities, promote transparency, and avoid bias and discrimination. Despite the best intentions, things happen. HR tech companies may need to invest additional resources in ensuring that their AI systems meet these requirements, which could impact their operations and profitability. Case in point, the EEOC recently settled the first-ever AI discrimination lawsuit. Here is a quote from SHRM

The Equal Employment Opportunity Commission's (EEOC) Aug. 9 legal filing in a New York federal court revealed that a tutoring company agreed to pay $365,000 to resolve charges that its AI-powered hiring selection tool automatically rejected women applicants over 55 and men over 60.

An applicant who was rejected from a position at iTutorGroup thought something was fishy when they allegedly submitted their same resume again, but this time included a younger birthdate and secured an interview. They took their complaint to the EEOC, which filed a lawsuit against the employer on behalf of more than 200 applicants, alleging age and gender discrimination. The lawsuit claimed the company illegally screened out women applicants over 55 and men over 60.

Umm… ouch, very, very ouch! Perhaps the best benefit an HR tech tool can offer is compliance to all state and federal AI laws? But I digress.

Another reason this order sets off alarms is that it addresses issues like job displacement, labor standards, and data collection, with a focus on supporting workers and maximizing the benefits of AI for them. HR Tech companies may want to shift how they promote their tools to not only include how their product benefits the company in the short-term (financial savings, productivity, etc.) but also how their company can help workers in the long-term. For example, Morgan Stanley examined the impact of spreadsheets on the job market. In a nutshell, any decline of one type of job was more than offset by the creation of new, adjacent jobs. To quote Business Insider

"As adoption of this technology grew rapidly throughout the 1980s, especially after the introduction of Microsoft Excel in 1987, we saw a reduction in the number of Americans working as bookkeepers and accounting/auditing clerks (from ~2 million in 1987 to just above 1.5 million by 2000) — but we also saw a significant increase in Americans employed as accountants/auditors (rising from ~1.3 million in 1987 to ~1.5 million in 2000) and management analysts & financial managers (from ~0.6 million in 1987 to ~1.5 million in 2000)"

I can imagine some HR tech companies providing industry-value and gaining goodwill from their customer base by offering training in jobs that are on the rise due to the impact of AI. For the curious, here are a few examples

  • Ethics and bias auditor: As AI systems become more sophisticated, there will be a need for professionals who can ensure that these systems are fair, unbiased, and compliant with legal and ethical standards.

  • Human-AI collaboration managers: As AI technology becomes more integrated into the recruitment process, there will be a need for professionals who can effectively manage the collaboration between AI systems and human recruiters, ensuring that the benefits of both are maximized.

  • Prompt Engineer: Prompt engineers are responsible for creating and refining the prompts that are used to interact with AI systems, such as chatbots and language models like GPT-3. Their main goal is to improve the quality and relevance of the AI-generated responses by providing clear and specific instructions to the AI system.

It remains to be seen how President Biden’s order will affect the HR tech industry, but it is certain that change is coming. Will we see the same growing worries and dread that GDPR initially produced? Likely. Will innovation take a hit? Possibly. Will some companies pivot to remain viable in the market? Most certainly. Whomever remains standing when the smoke clears will be those companies who saw the writing on the wall and adjusted their product roadmaps before they were compelled to by the market, and Uncle Sam.  

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The Jim Stroud Show

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At many organizations, the most common fear among executives is an employee lawsuit. The number of employee filings each year continues to be high with no sign of slowing down. Win or lose, defending a lawsuit by a disgruntled former employee with an attorney is costly, time-consuming, and affects all aspects of an otherwise thriving business. In today's podcast, Jim Stroud interviews Matthew Grabell, author of "The Employee Lawyer's Playbook" for a very interesting conversation that will raise the eyebrows of employers and employees alike. Tune in now.

Comic: Manifesting Success

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Jim Stroud