In the absence of federal regulations, several states have passed or are considering legislation aimed at mitigating the risk of an employer’s use of AI systems resulting in algorithmic discrimination.
“Algorithmic discrimination” is defined as the use of an artificial intelligence (AI) system that results in differential treatment or impact disfavoring an individual based on protected characteristics (e.g., age, color, ethnicity, disability, national origin, race, religion, veteran status, sex, etc.). AI systems have the potential to create discriminatory results in decision making. And such discrimination is particularly harmful in the context of employers that use AI systems to make employment decisions.
Enacted and Proposed Legislation
While President Biden released an executive order on the development and use of AI, there is no comprehensive federal regulation regarding the use of AI systems, especially in the context of employment decision making. Several states have enacted or proposed legislations to impose a duty of reasonable care on employers to mitigate and assess the risk of algorithmic discrimination caused by their use of AI systems.
- Colorado: Senate Bill 24-205: The Colorado Artificial Intelligence Act will take effect on February 1, 2026, and adopts a risk-based approach to AI regulation similar to the European Union’s AI Act.
- Illinois’ House Bill 3773: Amends the Illinois Human Rights Act to protect employees against discrimination from, and require transparency about, the use of AI in employment-related decisions.
- California Privacy Protection Agency (CPPA):In November 2024, the California Privacy Protection Agency released draft regulations on the use of AI and automated decision-making technology, which were promulgated under the California Consumer Privacy Act.
- The California Civil Rights Department (CRD): Under the proposed rules, employers that use AI in their hiring or employment practices would not be able to use a system that screens out, ranks or prioritizes applicants based on their religious creeds, disabilities or medical conditions unless the factors are job-related.
- Texas’ 88(R) HB 1709:If passed, the Texas Responsible AI Governance Act would establish obligations for developers, deployers, and distributors of “high-risk AI systems.” The proposal adopts a risk-based approach to AI regulation like the European Union’s AI Act. “High risk” systems include those used in consequential decisions, such as employment, healthcare, financial services, and criminal justice.
New York City: Local Law 144 (LL 144)
- Effective Date: July 5, 2023.
- Scope: Prohibits the use of Automated Employment Decision Tools (AEDTs) unless a bias audit is conducted and specific notices are provided.
- Notice Requirements:
- Employers must notify applicants that an AEDT will be used.
- Notice must include information on how to request reasonable accommodations.
- For NYC applicants, notice must be provided at least 10 business days before use, including a description of job qualifications assessed by the AEDT.
- Bias Audits:
- Employers must conduct an audit to check for bias against protected groups (race/ethnicity, sex) before using an AEDT.
- The audit must be performed by an independent third party and repeated annually.
- Results of the audit must be publicly available.
- Applicability:
- Applies to employers and employment agencies using AEDTs in NYC, including jobs based in NYC, remote jobs with a NYC office, or agencies located in NYC.
- Penalties for Non-Compliance:
- $500 fine for the first violation.
- Fines of up to $1,500 for subsequent violations.
What’s Next for Employers?
The Trump administration is unlikely to make a major impact on regulation AI because most AI regulatory efforts are occurring at the state level and local level. It is likely that we will see an uptick in AI regulations in democratic-led states.
Employers that use or are considering using AI to make employment decisions are advised to stay up to date on current legislations and prioritize transparency measures and proactive audits to manage the risk of bias in AI tools.
If you have any questions or concerns regarding use of AI systems for employment decision making, please feel free to contact any member of the Poricanin Law team.