California AI Regulations

California’s AI and Automated Systems Regulation

Artificial Intelligence (AI) is changing how we work, communicate, and do business. As these technologies spread into everyday life, California is leading the way in setting rules to make sure AI is used fairly, safely, and openly.

This article looks at three important laws and proposals: SB 942 (AI Transparency Act), which requires big AI providers to watermark and label their content; AB 1651 (Workplace Technology Accountability Act), which aimed to protect workers’ privacy; and AB 2930 (Automated Decision Systems), which focused on preventing unfair treatment from algorithms. Together, they show how California is shaping the future of AI regulation and what it means for businesses.

 

WSB 942 – California AI Transparency Act

 

Status: Enacted – Effective January 1, 2026

SB 942 (AI Transparency Act) establishes transparency requirements for large providers of generative AI systems that produce image, video, or audio content.

Who it applies to: Businesses with more than one million monthly users.

Key requirements:

1. Provide a public AI detection tool that allows anyone to check whether a piece of content was generated by their AI.
2. Watermark all AI-generated content, both visibly and imperceptibly, with metadata including the system used and a timestamp.
3. Include contractual clauses prohibiting third-party users or licensees from removing watermarks or altering metadata.

Penalties: Non-compliance may result in $5,000 per violation and legal action for disclosure breaches by downstream parties.

 

AB 1651 – Workplace Technology Accountability Act

 

Status: Proposed in 2022 – Not enacted

AB 1651 was designed to regulate how employers and vendors collect and use worker data in California, with the goal of protecting employees’ privacy and rights.

Key provisions (proposed):

• Grant workers the rights to know, review, correct, and secure their personal data collected by employers.
• Restrict employers from using collected data beyond predefined, legitimate purposes.
• Impose limits on electronic monitoring, especially outside of work contexts.
• Regulate the use of automated decision systems (ADS) in employment, requiring impact assessments and disclosure obligations.

Although the bill did not pass, it signals legislative interest in regulating workplace AI and data practices.

 

AB 2930 (formerly AB 331) – Automated Decision Systems

 

Status: Proposed – Not enacted

AB 2930 focused on addressing risks of algorithmic discrimination in automated decision systems (ADS) used in employment, housing, and other key areas.

Key provisions (proposed):

• Establish a legal definition of algorithmic discrimination based on protected characteristics.
• Require organizations to conduct impact assessments and implement governance programs for ADS.
• Impose notice requirements for individuals subject to automated decisions.
• Provide enforcement authority to the California Civil Rights Department, rather than relying on private lawsuits.

While not enacted, AB 2930 demonstrates the state’s ambition to regulate AI systems with an emphasis on fairness and accountability.

 

Why California AI Regulations Matter for Businesses

​California’s legislative activity on AI has ripple effects well beyond state borders. For businesses operating in or providing services to California, these developments highlight several important considerations:

• Compliance obligations: SB 942 introduces mandatory transparency and watermarking requirements for large generative AI providers. Non-compliance risks financial penalties and reputational damage.
• Contractual responsibilities: Companies must ensure downstream users and partners comply with watermarking rules, requiring updates to license agreements and supply chain governance.
• Workplace impacts: Even though AB 1651 did not pass, employers should anticipate renewed attempts to regulate worker monitoring and automated decision-making in employment contexts.
• Anti-discrimination focus: AB 2930 illustrates California’s concern with algorithmic fairness. Organizations using automated decision tools may face stricter requirements in the future, including impact assessments and transparency obligations.
• Market influence: California regulations often serve as a template for broader U.S. and even international rules. Early compliance planning can give businesses a competitive advantage.

Nemko Digital offers specialized services in AI Regulatory Compliance to help organizations navigate these complex requirements effectively.

 

How to Prepare for California AI Regulations Compliance

​Even though only SB 942 is currently law, businesses should begin preparing now for compliance and for the likelihood of future AI-related regulations. Here are some steps to consider:

1. Assess your exposure

• Determine whether your company qualifies as a provider under SB 942.
• Review whether your operations involve automated decision systems or employee monitoring, as these may be targeted in future laws.

 

2. Build detection and watermarking capabilities

• Develop or integrate tools to watermark and label AI-generated content (both visible and hidden metadata).
• Ensure users can access a reliable detection tool to confirm whether content came from your AI systems.

 

3. Update contracts and policies

• Add clauses to prevent licensees and partners from removing or altering watermarks.
• Review supply chain agreements to ensure downstream compliance.

 

4. Strengthen data governance

• If you use employee monitoring or automated decision-making, implement clear data access, correction, and security policies.
• Consider conducting internal impact assessments for algorithmic tools, even if not legally required yet.

 

5. Monitor regulatory developments

• Keep track of new proposals in California and beyond, as state laws often influence federal and international standards.
• Be ready to adapt policies quickly to meet new requirements.

Bottom line: Companies that start preparing now (by putting transparency, fairness, and strong data practices in place) will not only stay ahead of California’s rules but also build trust with customers, employees, and partners.

For deeper insights on AI compliance readiness, consider attending our future expert webinars like the AI Maturity & Compliance Readiness Webinar offered by Nemko Digital.

 

Stay Ahead with Expert Guidance on AI Compliance

Navigating the complexities of California’s AI Regulations acan be challenging. Partner with experts who understand the nuances of AI governance and can tailor solutions to your needs, ensuring compliance with legal challenges.

Explore Nemko Digital’s AI Regulatory Compliance Services to ensure your AI initiatives meet California’s high standards. Stay informed, stay compliant, and lead with confidence in the age of AI.

 

By understanding and embracing California’s AI Regulations, your organization can lead responsibly in the AI revolution—protecting consumers, fostering innovation, and building a sustainable future.

If you want to learn more about AI compliance or need tailored support, feel free to reach out or explore our resources. Your journey to responsible AI starts here.