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NYC Local Law 144 and AI Hiring Tools: What Startups Must Know in 2026

Latest reports already indicate that a significant number of U.S. businesses use AI-driven tools in recruitment. By 2026, some companies will use AI for the entire hiring process.

For understaffed startups looking to cut costs, AI could be used to review resumes, conduct assessments, interview candidates, and onboard new hires. NYC AI hiring law aims to prevent bias in AI use.

What Is NYC Local Law 144?

NYC’s Local Law 144 is widely regarded as the first U.S. law to regulate the use of Automated Employment Decision Tools (AEDTs) through annual bias audits and public disclosures.

AEDTs include any computer program that uses advanced data tools (such as AI, machine learning, and data analytics) to substantially assist or replace human judgment in hiring decisions.

Under Local Law 144, employers or employment agencies that are hiring or promoting for jobs tied to New York City using AEDTs must:

1. Conduct annual bias audits on their AEDT. This audit must be conducted by an independent auditor and published online. AND

2. Notify candidates before the AEDT is used. The notice must be provided at least 10 business days before AEDT use, explain how it will be used, specify which job qualifications/characteristics will be assessed, and allow candidates to request reasonable accommodation.

The Misconception of Vendor Liability

Many startups that rely on vendor AEDTs for hiring often assume that compliance with regulations such as Local Law 144 is the vendor’s responsibility.

It’s not.

Local Law 144 compliance obligations fall on employers and employment agencies, not vendors.

Startups may ultimately find themselves unable to comply when their vendor SaaS contract fails to:

• Require that the startup be provided access to audit documentation.

• Outline consequences for vendor refusal or delay in cooperation.

• Make specific compliance representations.

How Startups Can Prepare for Bias Audits

A compliant bias audit calculates selection or scoring rates and impact ratios across legally required demographic categories used in the hiring process.

These calculations should analyze disparities across sex, race/ethnicity, and intersectional combinations of these characteristics.

However, conducting a successful bias audit may come with challenges like:

1. The timing of audits vis-à-vis hiring cycles, since an AEDT may only be used if it has undergone a bias audit within the prior 12 months.

2. Data quality and record retention

3. A reliance on vendors for audit materials.

To avoid these challenges, startups must require audit access in their vendor SaaS agreements. Don’t settle for informal assurances!

Contract Drafting Checklist: Clauses That Matter Under Local Law 144

To ensure Local Law 144 compliance, startups must ensure the following clauses in their vendor contracts:

Vendor Cooperation and Audit Access

• Confirm there is a contractual obligation requiring vendor support for annual bias audits.

• Ensure the startup retains the right to receive the vendor’s audit summaries (if they are carried out) and additional documentation upon request.

Representations and Warranties

• Review vendor representations with a focus on ensuring compliance with other AI and employment laws.

• Require the vendor to supply accurate data inputs and outputs.

Indemnification and Risk Allocation

• Secure indemnification for failure or liabilities arising from the tool’s design, data, or functionality

• Scrutinize the contract for other limitations or carve-outs that may weaken startup protection.

Notice and Transparency Support

• Ensure the vendor meets its obligation to provide legally required candidate notices on time.

• Cross-check alignment between product functionality and transparency requirements.

Internal Policies and Disclosure Obligations

Even with a well-drafted vendor contract, startups must take other steps to ensure compliance. These steps include:

1. Updating internal AI usage and hiring policies to reflect legal requirements
2. Training HR teams on notices and their legal requirements
3. Adequate recordkeeping to demonstrate compliance
4. Synergy between legal, HR, and product teams.

Local Law 144 Is a Preview, Not an Outlier

The provisions of Local Law 144, which came into force in 2023, are only indicative of what’s ahead. California, Colorado, and Illinois are making similar laws to regulate AI use in hiring.

Even though a recent Executive Order signed by the President has signalled a federal interest in limiting or standardizing state AI regulation, it remains unlikely that an executive order will weaken the effect of state legislatures.

Therefore, the best course for startups across the country is to adopt the provisions of Local Law 144 as the most likely framework for the future.

Key Takeaways for Founders and Legal Teams

AI hiring, with its benefits, is likely here to stay. But startups using these tools must comply with any regulations surrounding their use.

Startups already in AI hiring contracts with tool vendors must proactively review these contracts to ensure they have all the support required to be compliant.

Vendors should also consult and align with internal legal and HR teams.