By Gerald L. Maatman, Jr., Adam D. Brown, and Elizabeth G. Underwood
Duane Morris Takeaways: In the closely watched AI-related litigation entitled Mobley, et al. v. Workday, Inc., No. 23-CV-00770 (N.D. Cal. June 22, 2026) (ECF No. 360), Judge Rita F. Lin of the U.S. District Court for the Northern District of California issued an order denying in part and granting in part Workday’s motion to dismiss. The Court denied Workday’s motion to dismiss Plaintiffs’ California Fair Employment and Housing Act (“FEHA”) claims, holding that Plaintiffs adequately alleged a nexus to California because Workday allegedly designs, develops, and operates its algorithmic screening tools from its California headquarters. Id. at 3-4. The Court also denied the motion as to one of the plaintiffs’ Americans with Disabilities Act (“ADA”) claim, determining that her new proxy-discrimination factual allegations fell within the scope of a prior order granting leave to amend to address certain deficiencies in a prior iteration of Plaintiffs’ Complaint, despite Workday’s argument to the contrary. Id. at 8. However, the Court granted Workday’s motion to dismiss as to Plaintiff Rowe’s newly asserted race-based disparate impact claim because Rowe did not seek leave to add a race-based claim, and therefore Rowe could not add this claim to the Third Amended Complaint (“TAC”). Id. at 9.
For employers and AI vendors defending against AI employment discrimination claims, this decision provides important guidance on how defendants can successfully move to strike unauthorized claims and legal theories that exceed the scope of court-granted leave to amend.
This development follows the Court’s previous Discovery Order, which we blogged on here, Workday’s unsuccessful Motion to Dismiss Plaintiff’s Amended Complaint, which we blogged about here, Workday’s first successful Motion to Dismiss, which we blogged on here, and the EEOC’s amicus brief filing, which we blogged about here.
Case Background
Plaintiffs Derek Mobley, Jill Hughes, Sheilah Johnson-Rocha, and FaithLinh Rowe brought this action against Workday, alleging that Workday’s algorithm-based applicant screening tools discriminated against them and other similarly situated job applicants based on race, age, and disability. Id. at 1. After the Court ruled on two rounds of motions to dismiss, Mobley proceeded on claims for disparate impact discrimination based on race under Title VII, disability under the ADA, and age under the ADEA. Id. at 1-2.
On November 12, 2025, Mobley sought leave to file a further amended complaint adding three new named plaintiffs and claims for sex-based discrimination under Title VII and sex-based, race-based, and age-based discrimination under the FEHA. Id. at 2. The Court found good cause for the late amendment under Federal Rules of Civil Procedure 15 and 16. Id. Workday moved to dismiss the resulting Second Amended Complaint (“SAC”), and the motion was granted in part and denied in part. Id. Plaintiffs were given leave to remedy deficiencies in their FEHA claims, which lacked allegations of a nexus to California, and Hughes was given leave to amend her ADA claim. Id. Plaintiffs then filed a TAC. Id.
Subsequently, Workday filed a motion to dismiss and to strike portions of the TAC, arguing Plaintiffs’ FEHA claims failed to plead a non-conclusory nexus between the alleged misconduct and California, and that the other amendments were unauthorized because they fell outside the scope of Plaintiffs’ leave to amend. Id. at 1.
The Court’s Decision
The decision addressed several issues.
Plaintiffs’ FEHA Claims Were Plausibly Asserted
First, the Court denied Workday’s motion to dismiss the FEHA claims, finding that Plaintiffs sufficiently alleged that Workday, whose principal place of business is in California, participated in the alleged misconduct from its California headquarters. Id. at 3. The TAC alleged that Workday’s tools were “designed, developed, maintained, and controlled from [Workday’s] California headquarters” and that the “screening, scoring, and rejection” of Plaintiffs’ applications “originate[d] in and [was] carried out from California.” Id. at 4. The Court reasoned that the TAC adequately alleged “material participation in the allegedly unlawful discriminatory employment decisions by an actor (Workday, through its algorithmic decision-making tools) in California.” Id.
The Court rejected Workday’s argument that its liability as an agent under the FEHA must turn on the liability of its customers, relying on the California Supreme Court’s decision in Raines v. U.S. Healthworks Medical Grp., 534 P.3d 40 (Cal. 2023). Id. Under Raines, Workday is not subject to derivative liability based on its employer-customer’s liability but instead “is directly liable for its ‘own engagement in FEHA-regulated activities on the employer’s behalf.’” Id. (quoting Raines, 534 P.3d at 53).
The Court also rejected Workday’s contention that applying the FEHA to its California-based conduct would amount to an impermissible extraterritorial application, reasoning that wrongful conduct within California’s borders is not properly understood as “extraterritorial” regardless of where an aggrieved worker resides. Id. at 5-7.
Plaintiff Hughes’s Amended ADA Claim Was Permissible
Second, the Court denied Workday’s motion as to the permissibility of Plaintiff Hughes’s ADA claim. Id. at 8. The TAC alleged that “algorithmic hiring tools can identify and rely upon [ ] proxy indicators of illness or health-related limitations” such as “medical-related leave, or patterns consistent with treatment and recovery,” and “can disproportionately flag and screen out such applicants based on inferred health status rather than job-related qualifications.” Id. The Court rejected Workday’s argument that the Court had not authorized new theories of proxy discrimination for physical disabilities, reasoning that the additional allegations were squarely within the scope of the leave to amend. Id.
Plaintiff Rowe’s Race-Based Disparate Impact Claim Was Dismissed
Third, the Court dismissed Plaintiff Rowe’s race-based disparate impact claim under Title VII, which sought for the first time to assert discrimination based on her race as an Asian American. Id. at 9. The Court reasoned that the Second Amended Complaint did not contain such a claim and that Plaintiffs had not previously sought or received authorization to add the claim, as the prior race-related allegations were limited to African American and Black applicants. Id.
Plaintiffs’ Direct-Employer Theory Was Stricken
Finally, the Court dismissed Plaintiffs’ new legal theory that Workday is liable as an employer because it used the challenged recruitment and hiring procedures in screening and selecting its own employees, explaining that this legal theory was unauthorized. Id. at 10.
Implications For Employers
This decision highlights that companies developing and operating AI-driven hiring tools in and/or from California may be subject to the FEHA for their own California-based conduct, even when the affected applicants reside and apply for jobs out of state.
Moreover, the Court’s treatment of the amendments to the complaint underscores the importance of carefully observing the scope of court-granted leave to amend. While the Court permitted new proxy-discrimination allegations supporting an existing ADA claim, the Court dismissed and struck a new race-based theory and a new direct-employer theory that exceeded the scope of the amendments the Court had authorized, illustrating that plaintiffs cannot use amendments to incorporate entirely new claims or theories without leave.