October 2025 Employment Law Update: AI, Pay Transparency, and Federal Scrutiny

NEW YORK | October 30, 2025 — The employment law landscape continues to fracture along state and federal lines, creating a deeply precarious situation for employers. October has been defined by a wave of new state-level mandates targeting AI in hiring and pay transparency, while federal agencies signal heightened scrutiny of DEI programs and create uncertainty through administrative changes. This acceleration of divergent state and federal priorities demands a proactive legal strategy to manage compliance across a patchwork of conflicting and expanding obligations.

For a video summary of these updates, watch our Sharpe Insights explainer here.

The Expanding State and Local Patchwork

This month, several key jurisdictions have implemented new laws that directly impact core HR functions, from hiring and compensation to data privacy and leave.

California Regulates AI in Employment Decisions

California is now enforcing new regulations to protect employees from discrimination via automated decision-making systems. These rules are specifically designed to govern the use of AI and algorithms in hiring and promotion, moving the issue of algorithmic bias from a theoretical risk to a direct compliance threat. (See CA CRD Guidance.)

Pay Transparency Mandates Expand

Following the nationwide trend, new pay transparency laws are now in effect in Massachusetts and Cleveland, Ohio. These laws mandate the disclosure of wage ranges on job postings and, in some cases, to current employees upon request. (See MA Pay Equity Guidance) This shift fundamentally alters compensation strategy and requires proactive internal pay equity audits to address disparities before they become public and contentious. (See Cleveland Ord. Chapter 669.)

Colorado Implements New Data Privacy Rules

New data privacy rules are taking effect in Colorado, with specific implications for how businesses collect, use, and protect employee and consumer data. These rules place a particular emphasis on the handling of children's data, which can impact how employers collect and manage dependent information for benefits and other employment-related purposes. (See CO Privacy Act Text.)

Michigan Expands Paid Sick Leave

As of October 1, Michigan's paid sick leave law now applies to small businesses with 10 or fewer employees, broadening the scope of employers who must provide this benefit. (See MI LEO FAQ.)

Philadelphia Restricts Criminal History in Hiring

New "fair chance" hiring reforms in Philadelphia further restrict how employers can consider criminal histories. The changes impose specific limitations on lookback periods and exclude certain non-violent offenses from consideration entirely, enhancing fair chance hiring protocols. (See Philadelphia Ordinance Details.)

Shifting Federal Tides: DEI and Agency Uncertainty

While states add new layers of regulation, developments at the federal level are creating strategic uncertainty and new areas of risk for employers.

Heightened Scrutiny of DEI Programs

The EEOC is reportedly increasing its investigation of corporate Diversity, Equity, and Inclusion (DEI) programs, scrutinizing them for potential Title VII violations. The scrutiny is reportedly focused on whether DEI initiatives result in discriminatory practices in hiring, promotion, and access to opportunities, effectively creating "reverse discrimination" risk. (See EEOC Guidance.)

Uncertainty at the EEOC and NLRB

Recent administrative actions to remove or replace officials at the EEOC and NLRB have created significant uncertainty regarding the enforcement priorities and long-term direction of these key agencies and creating legal uncertainty about their enforcement capacity and independence.

Evolving I-9 and Cannabis Testing Rules

Employers continue to face a complex, state-by-state patchwork of rules related to Form I-9 employment eligibility verification, with reports of increased workplace audits. (See USCIS I-9 Central) Simultaneously, new state-level restrictions on cannabis testing create a direct conflict for employers attempting to maintain drug-free workplace policies, particularly concerning off-duty use.

Strategic Guidance for Employers

In this volatile environment, proactive risk assessment is essential.

• Audit Your Technology: Employers using AI or automated systems for hiring and promotion—particularly in California—should conduct privileged audits to assess potential discriminatory impact.

• Prepare for Pay Transparency: Businesses in jurisdictions with new transparency laws (like Massachusetts and Cleveland) must immediately update job posting templates and conduct internal pay equity audits.

• Review DEI Program Guardrails: Given the EEOC's heightened scrutiny, employers should conduct privileged reviews of their DEI initiatives to mitigate legal risks.

• Update Local Leave and Hiring Policies: Businesses in Michigan and Philadelphia must review and update their sick leave and background check policies to align with new, more restrictive local mandates.

Conclusion

The fundamental tension between expanding state-level employee protections and a shifting, uncertain federal landscape is the dominant theme of 2025. Employers are caught between conflicting legal frameworks that require diligent, jurisdiction-specific compliance. Proactive audits, updated policies, and strategic foresight are essential to navigating this turbulent environment.

In a landscape redefined overnight, proactive and sophisticated counsel is essential. To understand how these changes impact your interests and to formulate a forward-thinking strategy, contact Sharpe Counsel.