What happened
On June 22, 2026, U.S. District Judge Rita Lin in the Northern District of California ruled that job applicants can proceed with disparate-impact discrimination claims against Workday over the company's AI-based applicant-screening tools (Bloomberg Law, 2026; HR Executive, 2026). Ten days earlier, more than 1,300 miles away, Illinois quietly pulled back its own attempt to write clear rules for the same technology. Together, the two events show where AI hiring compliance actually stands in mid-2026: real legal exposure, and almost no settled guidance on how to avoid it.
The Workday ruling widens who can be sued
Mobley v. Workday is a proposed collective action brought by Derek Mobley and three other job applicants who allege Workday's algorithmic screening tools rejected them because of race, age, and disability (HR Executive, 2026). Workday moved to dismiss the amended complaint. Judge Lin denied that motion on the plaintiffs' California Fair Employment and Housing Act claims, finding they had adequately alleged that Workday designs and operates its screening tools from its California headquarters, and let one plaintiff's Americans with Disabilities Act claim proceed on a proxy-discrimination theory (Duane Morris, 2026; Bloomberg Law, 2026). She dismissed the racial discrimination claim and the claims that treated Workday as a direct employer.
The practical effect: a court has now allowed the theory that an AI vendor, not just the employer using its software, can face direct discrimination liability for how its screening tools sort candidates (HR Executive, 2026). Workday disputes the allegations and the case remains in litigation, with no ruling yet on the merits. But any HCM vendor selling screening or scoring tools into hiring workflows now has a live precedent showing that "we just built the software" is not, on its own, a defense that survives a motion to dismiss in federal court.
Illinois freezes its own AI hiring rules
Illinois HB 3773, an amendment to the Illinois Human Rights Act, took effect January 1, 2026. It makes it a civil rights violation for an employer to use AI in a way that produces discriminatory effects, bans using zip codes as a proxy for protected characteristics, and requires employers with at least one Illinois employee to notify workers when AI is used in recruiting, hiring, promotion, discipline, or discharge decisions (Saul Ewing, 2026; National Law Review, 2026). Violations can draw civil penalties from the Illinois Human Rights Commission ranging up to $16,000 for a first offense and up to $70,000 for a third within seven years (Saul Ewing, 2026).
The Illinois Department of Human Rights published proposed rules on May 15, 2026, to spell out exactly what the notice requirement should look like in practice, with a public hearing set for June 10 (Ogletree, 2026). On June 2, the department postponed that hearing and temporarily withdrew the proposed rules, saying it needed more time to coordinate with other state agencies, without setting a new timeline (Ogletree, 2026; Seyfarth Shaw, 2026). The statutory obligations under HB 3773, including the notice requirement and the zip-code ban, remain in force regardless (Ogletree, 2026). Illinois employers using AI in hiring are covered by a law with real penalties and no finished rulebook for how regulators will interpret it.
A federal vacuum, not federal guidance
Both developments land against a backdrop where the federal government has stepped back from this area entirely. The EEOC removed its AI hiring guidance from its website on January 27, 2025, and that guidance page still returned no content as of March 2026, following an executive order directing agencies to deprioritize disparate-impact enforcement (National Law Review, 2026; K&L Gates, 2025). California had already moved to fill part of that gap: its Fair Employment and Housing Act regulations on automated-decision systems took effect October 1, 2025, holding employers responsible for discriminatory outcomes even when the AI tool comes from a third-party vendor (Mayer Brown, 2025). Illinois followed in January. Colorado has its own AI Act, though its effective date has been pushed back by the state legislature.
The result is a compliance map with no federal floor and a growing, uneven set of state rules, decided case by case in courts that are still working out basic questions like who counts as liable when a vendor's algorithm, not the employer directly, makes the call.
What to watch next
Mobley v. Workday moves toward discovery on the surviving claims, and a trial date has not been set. Illinois has not announced when it will restart its AI notice rulemaking, so employers there are operating under the statute's plain text until it does. Any HR Tech vendor with hiring or screening products in its stack should expect more state legislatures to introduce their own versions of Illinois's approach before Congress or the EEOC produce anything comparable at the federal level.