Last June, fashion models for the fashion retailer Rainbow received a warning: AI was ramping up, and the number of workers needed would be ramping down.

"You may have already seen some changes taking place both within the studio and on the site," wrote Rainbow's studio manager, Phil Caraway. The company had started "styling certain products, and generating avatars, with the assistance of A.I," he explained, and while he couldn't say for certain whether any freelancers would lose their jobs, he wanted them to "plan accordingly."

"Fewer people will be needed in the long term," Caraway wrote in the previously unreported email. "It is very likely that this Fall will see a huge increase in A.I. use."

Thus began what several models described as a year of anxiety and, later, anger. They could see the company using AI to create synthetic models within view of where they worked, the models told Business Insider. At the same time, the models' days in the New York office began to dwindle, they said, leaving many without work. Nearly a year after that June email, Rainbow has begun rehiring some models — though many remain out of work.

In March of this year, the models began noticing Rainbow marketing images that looked like them, but posed in positions or locations that differed from the photo shoots they had participated in. Many suspected the doppelgängers were the result of AI. The lookalike models cropped up across Rainbow's site, social media, and newsletters. A flurry of emails to Rainbow followed, along with a lawsuit by one model.

As AI technologies improve, workplaces across the country are experimenting with how to use them — and navigating the thorny question of their impact on human jobs. Creative industries like modeling are especially exposed as AI-generated photos and videos improve in quality.

AI is growing more common within the fashion industry. In a 2025 study from the Worker Institute at Cornell University ILR School and Data & Society in partnership with the Model Alliance, researchers said that e-commerce gigs were "more vulnerable to displacement by AI technologies."

Business Insider spoke to multiple Rainbow employees and contractors, all of whom requested anonymity, and also reviewed dozens of email exchanges and images, as well as modeling contracts.

"Rainbow is responsibly evaluating emerging AI technologies in the marketplace, and has and is committed to doing so in a proper manner," David Cost, Rainbow's chief digital officer, wrote in a statement to Business Insider.

In a follow-up email, Cost wrote that "Rainbow's dealings with its employees and independent contractors are private" and that the company disagreed with "much of the purported 'facts.'" He declined to comment on specific questions sent by Business Insider. "Rainbow has acted appropriately and in accordance with its commitments, including contracts signed by models," he added.

Here's how Rainbow's AI model experiment got messy, according to its workers — from a slowdown on human modeling work to contract disputes and hiring some of the models back.

Rainbow, founded in Brooklyn over 90 years ago, has over 800 stores nationwide and is privately owned. The retailer caters to thrifty consumers with steep discounts, similar to Fashion Nova or PrettyLittleThing. It also operates the similar brand KissDon'tTell.

For its e-commerce shoots, the Rainbow team looked for models without agency connections, one former stylist who helped recruit models said. Two models said that they were found on Instagram and had little paid modeling experience. Fees varied by model, though many said they made around $50 an hour.

Three models said that one Rainbow employee told them to be available for five days of work a week. The former stylist said that Rainbow asked its freelancers to be available Monday through Friday, but that it wasn't written into their contracts. Two models said they left their prior jobs for the company.

Partway through 2025, the models began to notice something different in the studio: AI training. Employees would lay out the clothes on a flat board, take photos, and upload them to an AI program called Lica, one employee said. Lica generated fully synthetic AI models — not duplicates of human models — for Rainbow, the employee said.

The AI training caused significant anxiety among the models, they said. Trying to lighten the mood, some models said they would crack dark jokes about the system replacing them. Two models said that they recalled instances where the fit of a garment on their body was compared to an AI avatar, pointing out where the avatar needed to be more realistic.

After Carraway's June email a year ago, the models braced for their work to drop off. For months, several models said that they continued to get consistent bookings. Then, they slowed down, the models said, and by mid-March of this year, the work dried up. Some models submitted their availability but said they received no response.

During that period, two Rainbow employees who are not models said that they went weeks without seeing any human models in the studio.

Meanwhile, the models started spotting their doppelgängers on Rainbow's social media.

The models had previously participated in product shots wearing Rainbow apparel, such as a long floral dress, while photographed in front of plain backgrounds.

The doppelgängers they later noticed looked strikingly similar — the same builds, facial features, and outfits they had worn — but were pictured with their bodies in entirely different positions. The models texted these images back and forth in a group chat. Business Insider viewed over a dozen such images.

The second clause of the contracts many of the models had signed allowed Rainbow to use their images "whether intact or in part, composite or distorted in character or form, cropped or altered, without restrictions as to changes or transformations."

One image that sparked conversation in the group chat showed what the models suspected was an AI lookalike that altered the model's original skin tone. The model and the suspected AI lookalike had some similarities — the hairstyle and placement of the hair part, as well as the accessories and shoes — but also some differences, such as the nose shape.

None of the employees Business Insider spoke to had directly seen the creation or editing of these doppelgängers.

Several of the models who suspected that Rainbow was modifying their likenesses with AI raised issues with the company via email.

One of the models, Francheska Pujols, sued Rainbow on May 22, alleging the images defamed her and caused confusion over her endorsement of the company's products, among other allegations.

Pujols wrote in an affidavit that her contract only covered images captured in photo shoots, and "does not in any way authorize the creation of entirely new images, scenes, poses, or compositions that did not exist in the original content."

Rainbow posted photos of what Pujols said is her AI doppelgänger; in one, she straddles a barstool. Another shows her seated, wearing a short skirt, with one leg raised.

Pujols wrote to Business Insider that she would "never pose with my legs open or position myself in a sexualized manner for the world to see."

"I am extremely emotional and have many sleepless nights with the thought of the altered images of me," Pujols wrote. "I sought a professional aide to help with sleep and reconciliation."

Pujols withdrew her suit on May 29 to pursue a private settlement, her attorney wrote in an affidavit. She refiled the lawsuit on Monday.

"As Rainbow has stated previously in relation to this matter, Ms. Pujols' images were used properly and in accordance with the agreement she signed," Joan McGillycuddy, Rainbow's chief legal officer, wrote in a statement to Business Insider. "There is no violation of her rights."

Rainbow's contracts said the models would receive double their day rate for image use outside that second clause. Some models requested compensation for the suspected AI images but were turned down, according to their messages, which were viewed by Business Insider.

Then, the contract back-and-forth began.

On March 10, amid the work slowdown, Caraway sent an email to the models. "To account for today's rapidly-changing technology and expectations of use, Rainbow has come up with an updated Model Release," Caraway wrote.

One clause in the new contract was particularly controversial — one that the models interpreted as granting Rainbow sweeping AI rights.

The new clause allowed Rainbow to use "various technologies, tools, or production methods now known or later developed, including automated or computer-assisted techniques." The clause should be interpreted "broadly" as long as the company was not "materially misrepresenting the model," the contract read.

Some of the models said they refused to sign it. On March 28, Carraway emailed the models that Rainbow agreed to remove a non-compete clause, but the technology usage clause was presented as a dealbreaker.

"Rainbow cannot adjust the AI clause," Caraway wrote. "In order to continue to be hired, this must be agreed to."

It's not clear if the contract negotiations contributed to or prolonged the work slowdown.

Cost, Rainbow's CDO, hyped up the AI program Lica in an April video reposted by the startup's cofounder.

"It's amazing what the people at Lica have been able to do," he said. "We're using them for product photography. We're also using them for editorial or things that you'd see on a homepage or in an email."

Two staffers said the tool was buggy. Some of the synthetic models' legs were too short, one said; the AI repeatedly generated one synthetic model with a white cardigan over her clothes. Creating an AI image would also take long stretches of re-prompting, they said, often around 15-30 minutes.

Rainbow is no longer using Lica, one staffer said. Lica told Business Insider in a statement that it is "focused on foundational AI research for multimodal design models."

"As part of our research efforts, we provided interested enterprise partners with early access to emerging AI capabilities and model technologies," a Lica representative wrote. "We do not direct, supervise, or control our customers' implementation decisions, and we do not publicly comment on specific customer use cases."

Rainbow began bringing some of its human models back at the end of April, employees said.

This time around, some of the models received an agreement with the following clause: "Company will not create digital replicas, train AI on Model likeness, or generate synthetic images not based on original Content."

Rainbow is still producing images of the AI avatars, one staffer said, but not with Lica.

Cost, the company's chief digital officer, referenced the state of AI experimentation at Rainbow in his LinkedIn job description.

"Every experiment designed to replace a person with AI failed," Cost wrote. "Every experiment designed to give a talented person more capability won, and won bigger than expected."