California Lays the Groundwork for More Sweeping AI Workforce Regulation—Employers Should Start Preparing Now

Employers using or contemplating the use of artificial intelligence (AI) to streamline operations, reduce headcount, or reshape job functions in California may soon face additional regulatory requirements. On 21 May 2026, Governor Gavin Newsom signed Executive Order N-6-26 (the Order), directing a coordinated network of state agencies to deliver concrete policy recommendations on severance standards, California Worker Adjustment and Retraining Notification (WARN) Act expansion, collective bargaining protocols, workforce training frameworks, and revenue-sharing models for AI companies. For employers operating in or hiring into California, the Order signals that the state is not backing down from AI regulation, and the window to get ahead of new obligations is narrowing.¹ 

The Order builds on Governor Newsom’s responsible AI adoption and use policies and adds to California’s existing safeguards for child safety, self-harm prevention, restrictions on sexually explicit deepfakes, AI watermarking requirements, protections for performers’ digital likenesses, and measures against AI-generated robocall scams.

KEY DIRECTIVES OF EXECUTIVE ORDER N-6-26

Research and Early Warning Systems

Within 90 days of the Order’s issuance, the Labor and Workforce Development Agency (LWDA), Governor’s Office for Business and Economic Development (GO-Biz), and the Department of Finance, in consultation with academic, industry, and state agency partners, shall provide to the governor a review of the emerging body of academic research identifying the potential workforce impacts of technological shifts, including AI’s impact on California’s labor market and potential disproportionate impacts on demographic groups, including best practices on early economic warning signals of future labor disruptions.²

Within 90 days of the Order, the Employment Development Department (EDD) shall launch a dashboard showing AI’s impact on employment across various sectors using unemployment insurance data, and EDD may consult with leading AI labs that have published related data to build out its dashboard. The EDD also shall include, as part of the California Labor Market Review, a summary of feedback from businesses about the role of technological adoption in determining hiring or workforce decisions, with reporting to occur twice per year through the end of 2027.

California WARN Act Review

Within 180 days of the issuance of the Order, LWDA shall review and provide to the governor recommendations on revisions and updates to the WARN Act in a manner that is responsive to, and effectively provides early warning data on, emerging industry trends. 

Displaced Worker Safety Net Policies

Within 180 days of the Order, LWDA is required to submit to the governor a review of policies and practices that provide displaced workers with a safety net, including severance and other compensation, such as stock or equity, and any recommendations for incorporating such policies or strengthening existing programs. The review shall include, to the extent practicable, a comparative analysis of policies or common practices in other countries. Further, the Order directs LWDA to submit a workplan for expanding awareness of and enrollment in employment insurance programs, such as employment stability payments through the Work Sharing program.

Collective Bargaining Review

No later than 15 October 2026, the LWDA, in consultation with labor organizations, employer groups, and relevant experts, must review how the collective bargaining process is incorporating and addressing new technologies, such as AI, in ways tailored to the specific needs of workers and employers, including how worker voice is incorporated in adoption of emerging technologies, to identify what can be learned from unionized workplaces. 

Workforce Training and AI Playbook

Further, the LWDA is directed to review existing workforce training programs to ensure programs are fit for their purpose and targeted toward growing industries and professions, and the EDD, in partnership with local workforce development boards, shall develop an AI playbook to expand dislocated worker strategies for occupations exposed to AI and provide local boards with technical assistance on the utilization of Workforce Innovation and Opportunity Act resources for AI literacy-related programs. This review must be collected prior to 15 October 2026. 

Worker Ownership Models and Small Business Support

Additionally, the Order directs GO-Biz and the California Office of the Small Business Advocate (CalOSBA) to evaluate and, where appropriate, support opportunities to expand and enhance worker ownership models to encourage broad-based capital growth and build wealth from productivity gains among workers, including exploring any existing regulatory barriers to employee-owned company structures and best practices leveraged in other states. GO-Biz is also required to engage in educational and other initiatives to support business adoption of “opportunity AI,” including direct engagement through CalOSBA to support small business technology adoption and education on best practices for using emerging technology to encourage competition and broad-based economic growth while supporting workforce training and retention. 

Public Good and Incentive Structures

Finally, by 15 October 2026, the Government Operations Agency is directed to provide the governor with options and recommendations for actions that could alter incentive structures and increase the likelihood of AI development and deployments that advance the public good. Recommendations may include public-private partnerships, voluntary or mandatory programs that direct a portion of revenue generated by AI companies to support beneficial AI deployments, and securing dedicated access to computing power for research and development of AI that advances the public good. 

What this means for employers

While the Order imposes no immediate compliance obligations on private employers, it signals a clear trajectory: California is building the policy and regulatory architecture to address AI-driven workforce disruption, and action could follow swiftly. Employers should be aware of the following near-term developments:

WARN Act Exposure

Potential expansion of WARN Act obligations to cover AI-related workforce changes is now squarely on the state’s agenda.

Severance and Equity Policies

State review of severance standards and equity-based compensation for displaced workers may inform future legislative or regulatory proposals.

Collective Bargaining

Employers with unionized workforces may see increased pressure to negotiate over AI adoption, with the state actively studying how AI decisions are being handled at the bargaining table.

Workforce Training Obligations

New frameworks and playbooks for AI-displaced workers may eventually be tied to employer obligations or incentives.

Public-Good Mandates

Potential future requirements directing AI companies to contribute a portion of revenue to workforce programs could reshape AI-related business models in California.

Growing State-Law Patchwork

The Order adds to an already complex and expanding patchwork of state-level AI employment laws, reinforcing the need for employers operating across multiple jurisdictions to monitor and adapt to diverging compliance obligations.³