Bracing for Impact: California Focuses Its Agencies on AI’s Threat to the Labor Market

On May 21, 2026, California Governor Gavin Newsom signed Executive Order N-6-26—a sweeping directive aimed squarely at understanding, measuring, and managing the impact of AI on California’s labor market (the “EO”). The EO reflects significant concern about AI’s potential major impact on all sectors of California’s economy.

Why This Order, and Why Now?

The already rapid pace of deployment of workplace AI tools continues to accelerate. With this profound shift, the labor market is experiencing significant transformation as employers seek to unlock the substantial potential productivity gains associated with AI adoption.[1] AI is being cited by employers as the primary or sole reason for more than a quarter of recent layoffs.[2]

California sits at the center of this transformation. But with no state legislation passed to specifically address the impact of AI deployment upon the labor market, the Governor has responded through executive action. This is not the first executive order on AI. A prior executive order, issued on March 30, 2026, directed the Executive Branch to ensure AI procurement and adoption protect civil rights, civil liberties, and privacy. The new EO builds on that foundation—but this time, the focus is on jobs.

The Focus of the EO Is to Build a Response Framework

The EO is primarily directive in nature, tasking state agencies with conducting reviews, producing reports, and developing recommendations within defined timeframes. Here are the most consequential elements for employers:

WARN Act Modernization. Within 180 days, the Labor and Workforce Development Agency (LWDA) must review and provide recommendations on revisions and updates to the California Worker Adjustment and Retraining Notification (Cal-WARN) Act, in a manner that is responsive to and effectively provides early warning data on emerging industry trends. The Cal-WARN Act already imposes pre-layoff notice obligations on qualifying employers. A revision tailored to AI-driven workforce reductions could expand the scope of who is covered, shorten notice windows, or impose new reporting triggers.

Safety Net Review for Retrenched Workers. Within 180 days, the LWDA must submit to the Governor a review of policies and practices that provide displaced workers with a safety net, including severance and other forms of compensation such as stock or other forms of equity, along with any recommendations for incorporating such policies or strengthening existing programs. This review will include a comparative analysis of practices in other countries—suggesting California may look to European models of worker protection as a potential template. This is particularly notable because, unlike California, the member states of the European Union do not generally recognize at-will employment, but instead regulate employers’ ability to discharge employees.

Collective Bargaining and Worker Voice. No later than October 15, 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 the adoption of emerging technologies, to identify what can be learned from unionized workplaces. For employers in non-union environments, this review could foreshadow future legislative or regulatory requirements around employee consultation or consent before deploying AI tools in the workplace. We previously wrote about regulatory developments concerning the use of AI in employment decision-making here.

An AI Employment Dashboard. The Employment Development Department (EDD) is directed to launch a dashboard showing AI’s impacts on employment across various sectors using Unemployment Insurance data within 90 days of the Order’s issuance. This will create publicly accessible, sector-by-sector data on AI-related job displacement—data that will almost certainly be relied upon in future policy and legislative debates.

Incentive Structures for Public-Good AI. No later than October 15, 2026, the Government Operations Agency must 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, including potentially mandatory programs that direct a portion of revenue generated by AI companies to support beneficial deployments. A revenue-sharing mandate directed at AI companies would be unprecedented and would have significant implications for how AI firms structure their California operations.

Reading the Signals

California already has robust worker protection laws that apply to firms adopting emerging technologies. But with this EO, the Governor’s message is that these existing tools may not be sufficient for the pace and scale of AI disruption. Amendments are coming. This EO reflects a broader national and global trend. States and federal agencies alike are wrestling with how to regulate AI’s labor market effects. California’s actions often presage federal legislative activity and serve as models for other states. What California does today, others do tomorrow. The EO sets in motion a series of agency reviews and recommendations that will almost certainly become the foundation for new legislation and regulations in 2027 and beyond. Keeping up to date on the latest legal developments in the AI space will continue to be a top priority for California employers.

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