Compliance Conundrum: New State Laws Governing the Use of AI in Employment Practices

AI and Employment Law in 2024

Artificial Intelligence (AI) powered technology is increasingly being used in employment practices such as recruitment and hiring, productivity monitoring, performance management, and career development. Utilization of such technology can allow companies to streamline operations. However, when it comes to managing items that human resources typically handle impacting employees, companies need to be cognizant of how such technology may run afoul of the numerous employment laws with which they must comply. 

To help manage compliance, the U.S. Department of Labor’s (DOL) Wage and Hour Division issued Field Assistance Bulletin No. 2024-1 which provides guidance on the application of the Fair Labor Standards Act (FLSA) and other federal labor laws to employers’ use of AI in the workplace. The bottom line is that when using AI technology in the workplace, employers must maintain appropriate human supervision to ensure that the end product from AI is not in violation of federal or state employment laws.

State Laws on the Use of AI in the Workplace

Colorado and Illinois have recently passed laws governing the use of AI in employment practices, joining New York. Colorado passed their law in May 2024 and it has an effective date of February 1, 2026. The law identifies hiring, compensation, promotion, performance management, and termination as high-risk areas when using AI technology. Employers in Colorado with more than 50 employees will have certain obligations when AI is involved in the decision-making processes affecting personnel. Specifically, the Colorado law was developed to protect consumers from “algorithmic discrimination.” To do so, employers using AI in employment practices will be able to show they took reasonable care by taking the following compliance steps: 

• Establishing and implementing a risk management policy and program which must be regularly reviewed and updated.  

• Complete annual impact assessments for high-risk AI systems. 

• Provide appropriate notices to consumers and include a notice on the employer’s website containing information about AI systems covered under the law. 

• Provide notice to the attorney general of any algorithmic discrimination within 90 days of the discovery. 

More recently, Illinois passed a law in August 2024 impacting  employer use of AI technology under HB 3773. This law will go into effect on January 1, 2026. Under this law, employers will be required to notify employees when they use AI for employment decisions which include recruitment, hiring, promotion, renewal of employment, selection for training, discharge, discipline, tenure or the terms, privileges or conditions of employment. It will be unlawful for employers to use artificial intelligence that effectively subjects employees to discrimination of protected classes in Illinois.

What’s Next for Employers?

This latest activity in Colorado and Illinois may be a growing trend of attention to the use of AI in employment, and other states may soon follow suit. Employers should be aware of these laws and establish processes and procedures to ensure any AI technology is utilized in compliance with employment laws. Employers still have time, however, given the extended effective dates of these laws, and may want to consider conducting an AI system audit to identify any potential biases or discriminatory effects, develop processes to regularly assess AI use in employment, review agreements with AI vendors, and draft or update any internal policies on AI use in employment.