Blog - Month: November 2026
New Laws Restrict Employers’ Use of AI in the Workplace
California employers that use artificial intelligence to monitor workers, evaluate performance or make employment decisions will face new restrictions under two measures recently signed into law by Gov. Gavin Newsom.
The laws establish requirements for employers using AI and automated technology in workforce reductions, employee surveillance, disciplinary actions and terminations. One takes effect Jan. 1, 2027, while the other takes effect July 1, 2027. Employers should begin reviewing their technology and employment practices now to prepare for compliance.
SB 951
Senate Bill 951 requires employers to provide additional information when AI or automated technology is responsible for all or a substantial part of a mass layoff, relocation or termination covered by California’s Worker Adjustment and Retraining Notification Act.
Cal-WARN generally requires employers with 75 or more employees at a covered establishment to provide 60 days’ advance notice of qualifying layoffs, relocations or closures.
Under the new law, notices involving technology-related displacement must include:
- A statement at the top reading, “This notice is for a technology displacement.”
- The number, job classifications and work locations of affected employees.
- The job functions that AI or automation will replace.
- The specific type or category of technology responsible for the displacement.
The law applies only when an event already triggers Cal-WARN requirements. It does not require a separate notice for every AI-related job elimination.
SB 947
Senate Bill 947 bars employers from relying solely on automated decision systems to discipline or terminate employees.
Under the new law, if an employer primarily relies on an automated system’s recommendation, a human reviewer must corroborate the decision using supporting information, such as performance evaluations, personnel records, work product or witness statements.
If the information cannot be corroborated or the reviewer determines it is inaccurate, incomplete or misleading, the employer cannot use that automated output to support the decision.
Employers must also provide affected employees with a separate written notice explaining that an automated system was primarily used, that a human reviewed the decision and how to request information about the data used.
Employees are protected against retaliation for exercising their rights under the law. Violations can result in civil penalties of $500 per violation and other remedies.
What employers can do
Employers that use AI tools in employment decisions need to keep up with California’s rapidly evolving laws and comply with the new requirements.
Be especially careful when laying off staff whose roles are being replaced by AI or other automated processes.
Those that use these systems to evaluate individual performance or recommend disciplinary actions should have procedures in place by mid-2027 for human review of AI decisions.
Employers should consult their employment law counsel to determine whether these laws affect their personnel procedures and what changes are necessary to comply before the effective dates.
Business Interruption Claims Costs Surge
Business interruption insurance claims are becoming significantly more expensive due to longer recovery periods, supply-chain constraints and inflation.
A new report by Allianz Commercial found that the average BI claim exceeded $950,000 in 2025, up 30% from 2023. BI claims are now about 70% higher than the average associated property damage claim. While the frequency of claims has remained relatively stable, their rising severity highlights the financial risks companies face when operations are disrupted.
The findings underscore the need for businesses to have contingency plans in place in case operations stop or are severely disrupted after an event.
What’s driving the sharp increase
- Longer recovery periods: Businesses are taking longer to rebuild damaged facilities, replace specialized equipment and resume operations, partly due to construction labor shortages.
- Supply-chain constraints: Companies increasingly depend on a limited number of suppliers. Disruptions involving one supplier can halt production across multiple businesses, while shortages of replacement parts delay recovery.
- Inflation: Higher labor, construction material and equipment costs are making repairs and rebuilding more expensive.
- Geopolitical tensions: Conflicts, tariffs and trade disruptions are increasing energy, transportation and material costs while complicating supply chains.
- Rising mitigation costs: Emergency measures such as expedited shipping, temporary production facilities and alternative sourcing are becoming more expensive.
Fire and explosion remain the costliest causes of BI claims, accounting for more than 40% of the total value of claims analyzed by Allianz. Natural catastrophes account for 34%.
The report also highlights growing exposure to cyberattacks and technology outages that can shut down operations without causing physical property damage.
How to reduce exposure
Employers should take the following steps to prevent disruptions and minimize financial losses:
- Develop and regularly test business continuity and contingency plans that identify critical operations and recovery procedures. Assemble a team with representatives from each department to help draft the plans.
- Identify alternative suppliers and maintain backup sources for essential materials.
- Strengthen fire prevention, equipment maintenance and property protection programs.
- Establish backup power, data recovery and cyber security safeguards.
- Arrange alternative production locations and emergency logistics options.
- Maintain sufficient financial reserves to sustain the business during prolonged shutdowns.
Review your coverage
Business interruption insurance, commonly included in commercial property policies or businessowners policies, may cover lost income and continuing operating expenses after a covered event causes physical damage that forces a company to suspend operations.
However, not all BI events result from damage to a company’s facilities. Companies should therefore consider additional protection for other disruptions:
- Contingent BI insurance — May cover lost income when insured physical damage at a supplier’s or customer’s property disrupts the policyholder’s operations.
- Service interruption coverage — Often available through a commercial property policy endorsement, this may cover income losses from qualifying external utility failures, including electricity, water or communications services.
- Cyber BI insurance — May cover lost income and additional expenses resulting from covered cyber incidents, including ransomware attacks and network outages. Some policies also offer protection for disruptions involving third-party technology providers.
Call us to discuss your options and review your coverage limits, waiting periods and maximum indemnity periods to ensure they reflect realistic recovery scenarios.
As business interruption losses grow, adequate insurance combined with effective contingency planning can help you withstand disruptions and recover more quickly.