California Governor issued Executive Order on AI workforce disruption

At a glance

• On May 21, 2026, Governor Newsom issued an Executive Order (Order) directing California agencies to prepare for AI‑driven economic and labour market disruption.
• The Order shifts focus from AI procurement standards to workforce impacts, mobilising regulators, academia and industry to assess risks and opportunities.
• Key agencies must deliver research reviews, policy recommendations and data reporting on AI’s employment effects, including potential updates to the Worker Adjustment and Retraining Notification Act (WARN Act).
• The Order also promotes initiatives such as worker‑ownership models, support for small businesses adopting 'opportunity AI,' and enhanced workforce training pathways.
• Overall, the development signals a potential move towards future legislation aimed at worker protection, AI governance, and redistributive or public‑benefit AI policies.

On May 21, 2026, California Governor Gavin Newsom issued an Order, effective immediately, directing state agencies to prepare workers, small businesses, and communities for economic disruption caused by artificial intelligence (AI). Below, we highlight the Order’s key provisions and their potential impact on California AI policy.

Background

The Order is the latest in a series of efforts by the state to regulate AI, which includes the enactment of the Transparency in Frontier Artificial Intelligence Act, other AI-related bills signed into law in late 2025, and the Governor’s March 2026 Executive Order on standards for companies contracting with the state. The new Order marks a change of focus from procurement to the labor market.

Directives to California regulators and industry

Rather than impose direct obligations on businesses and users in the AI value chain, the Order mobilizes labor experts, economists, universities, and industry leaders to review and develop policies intended to 'manage and mitigate potential disruptions to our [California’s] workforce, education systems, and economy, alongside harnessing opportunities.'

Key directives include:

• The Labor and Workforce Development Agency (LWDA), Governor’s Office for Business and Economic Development (GO-Biz), and the Department of Finance are directed to provide the Governor with a review of academic research on potential workforce impacts of AI within 90 days of the Order.
• The LWDA is also directed to recommend updates to the California WARN Act, provide a review of 'policies and practices that provide displaced workers with a safety net' and provide recommendations to mitigate unemployment impacts, review how the collective bargaining process addresses AI, and review existing workforce training programs.
• The Employment Development Department (EDD) is directed to prepare 'a summary of feedback from businesses about the role of technological adoption in determining hiring or workforce decisions' and report those findings twice per year through 2027. The EDD will also be required to launch a 'dashboard showing AI’s impacts on employment across various sectors using Unemployment Insurance data.'
• The Jobs First Council is instructed to 'work with local leadership on opportunities to support regions facing systemically high unemployment.'
• The Government Operations Agency is directed to consult with academics, experts, and the private sector to provide the Governor with recommendations on how to'“alter incentive structures and increase the likelihood of AI development and deployments that advance the public good and address critical problems and emerging opportunities facing society.' Example recommendations provided by the Order include public–private partnerships and 'voluntary or mandatory programs that direct a portion of revenue generated by AI companies to support beneficial deployments of AI that otherwise would not be pursued based solely on market incentives.'
• GO-Biz and its Office of the Small Business Advocate are directed to evaluate and support opportunities to 'expand and enhance worker ownership models,' including exploration of 'regulatory barriers to employee-owned company structures,' in addition to evaluating strategies used in other states to support formation of these structures. GO-Biz is also required to launch initiatives to support business adoption of 'opportunity AI.'
• Higher education institutions and the California Education Interagency Council are requested to evaluate training and other opportunities that may lead to employment for recent graduates.

Impact on California AI policy

The first-in-kind nature of the Order reinforces California’s leading role in AI governance across industries. With the publication of the Order, there is a shift in focus towards protecting workers and the labor market from potentially disruptive impacts of AI technology, which may be reflected in future proposed legislation and regulation in California.

In addition, the Order signals that California may pursue regulation or legislation requiring employers to provide earlier or enhanced notice of AI-driven workforce reductions. Companies in California are encouraged to monitor the forthcoming WARN Act recommendation to evaluate their internal practices.

The Order also indicates that California may consider programs that direct revenue generated by AI companies to fund public-good AI deployment. While currently discussed as a recommendation for the Governor, AI companies are encouraged to continue to monitor the options and recommendations presented.

Finally, for higher education institutions, the Order expresses greater emphasis on 'on-the-job' training to develop employment for recent graduates. This again indicates California’s interest in exploring recommendations across industries for the workforce.

Given that California is a home base for technology and AI industries, the Order could have significant impacts on AI policy positions not only in California, but also the United States more broadly.

For more information, please contact the authors.