The Rise of AI Legislation in the U.S. - A 2026 Labor Compliance Guide

Artificial Intelligence is rapidly reshaping the U.S. labor market. From recruitment to workforce management, AI adoption is becoming mainstream—according to Forbes, 99% of Fortune 500 companies now use AI to screen resumes, and 55% of HR leaders rely on algorithms to support hiring decisions.

As AI becomes more embedded in employment decisions, state-level legislation is accelerating. In the absence of unified federal law, individual states are creating their own frameworks, marking the first wave of AI labor regulation across the U.S.

2026 marks the beginning—not the peak—of AI labor regulation. As more states roll out new rules, employers must treat AI compliance as an urgent and strategic priority. For tailored legal guidance, contact the ILS legal team at contact@consultils.com. We’re here to help your business thrive in the era of AI-driven employment.

Colorado: Colorado Artificial Intelligence Ac

he Colorado Artificial Intelligence Act (CAIA)—one of the most comprehensive state AI laws—will take effect on June 30, 2026. Its core feature is a dual obligation structure for “Developers” and “Deployers.” Employers that use AI in any employment decisions (e.g., hiring, termination, promotion) are categorized as “Deployers.” Any AI system affecting such decisions is considered a “High-Risk System.”

Key employer obligations under CAIA include:

• Risk Management: Employers must implement policies and procedures for managing AI risk and conduct annual impact assessments for each high-risk system to ensure no algorithmic discrimination occurs.

• Notice and Appeal Rights: Job candidates and employees must be informed if AI is used in employment decisions. Where technically feasible, human review must be offered, along with a clear appeals process.

• Timely Reporting: If algorithmic discrimination is discovered, the employer must report it to the State Attorney General within 90 days.

Failing to comply with CAIA may be deemed an “unfair trade practice” under Colorado’s consumer protection laws, with civil penalties up to $20,000 per violation. For example, failing to notify and offer appeals to 10 rejected applicants could trigger $200,000 in cumulative fines.

California: CPPA Regulations & FEHA Amendments

California has amended its Fair Employment and Housing Act (FEHA) to regulate Automated Decision Systems (ADS) used in employment. Effective October 2025, employers cannot use ADS to engage in discriminatory hiring or employment practices. This includes systems using AI, machine learning, or other automated processes.

Employers must:

• Retain ADS-related data for at least 4 years, including input data, outputs (e.g., scores or rankings), criteria used, and results of bias testing.

• Take responsibility for any discriminatory outcomes caused by third-party vendors using ADS.

In parallel, the California Privacy Protection Agency (CPPA) has issued regulations on Automated Decision-Making Technology (ADMT), effective January 1, 2026. Covered employers must:

• Notify candidates or employees in advance if ADMT is used

• Explain how it works

• Inform individuals of their right to opt out of such assessments

These requirements apply only to businesses subject to the California Consumer Privacy Act (CCPA), which include companies that:

• Generate over $25 million in global annual revenue

• Buy, sell, or share data of 100,000+ California residents annually

• Derive 50%+ of revenue from selling or sharing such data

Small businesses not subject to CCPA must still comply with FEHA’s anti-discrimination rules. Voluntarily adopting CPPA standards may strengthen an employer’s defense against bias claims.

Illinois: Human Rights Act Amendments

In 2024, Illinois amended the Illinois Human Rights Act (IHRA) to prohibit employers from using AI systems that result in discriminatory outcomes based on protected characteristics—even unintentionally. Effective January 1, 2026, the law also requires:

• Employers to provide clear notice to applicants and employees when AI is used in hiring or employment decisions.

• Awareness that ZIP codes correlated with protected traits may contribute to indirect discrimination.

  
  

This builds on Illinois’ earlier AI Video Interview Law (2019), which mandates applicant consent before using AI to evaluate interview recordings.

New York City: Local Law 144-21

Effective July 5, 2023, Local Law 144-21 requires employers using Automated Employment Decision Tools (AEDT) for hiring or promotions to:

• Conduct annual bias audits via an independent auditor

• Publicly disclose audit summaries and AEDT deployment dates on their careers page

• Notify applicants/employees in advance, allowing them to opt out or request alternative assessment methods

  
  

Noncompliance may result in fines of $500 to $1,000 per violation.

Texas: The Texas Responsible AI Governance Act

Set to take effect January 1, 2026, TRAIGA adopts a business-friendly approach. It:

• Prohibits only intentional AI-based discrimination

• Does not require audits, impact assessments, or user disclosures

• Grants employers a 60-day notice and cure period for violations

• Assigns enforcement to the Texas Attorney General

  
  

Though lighter on compliance, Texas employers should remain vigilant to avoid harmful discriminatory outcomes from AI use.

Minnesota: The Minnesota Consumer Data Privacy Act

Effective July 31, 2025, MCDPA applies to businesses that:

• Process data of 100,000+ Minnesota residents

• Derive 25%+ of revenue from selling personal data of 25,000+ people

Employers using AI for profiling or automated decision-making (e.g., resume screening, video analysis, behavioral scoring) must:

• Provide prior notice

• Allow individuals to opt out

• Offer human review upon request

• Respond within 45 days

Utah: Utah Artificial Intelligence Policy Act

Effective May 1, 2024, UAIP requires employers using generative AI (e.g., ChatGPT-like tools) to:

• Disclose clearly when a job candidate or employee is interacting with AI, especially when asked

• Accept full responsibility for any discriminatory statements made by AI—such speech is attributed to the employer

• Pay up to $2,500 per violation for noncompliance

2026 marks the beginning—not the peak—of AI labor regulation. As more states roll out new rules, employers must treat AI compliance as an urgent and strategic priority. For tailored legal guidance, contact the ILS legal team at contact@consultils.com. We’re here to help your business thrive in the era of AI-driven employment.

Disclaimer: The materials provided on this website are for general informational purposes only and do not, and are not intended to, constitute legal advice. You should not act or refrain from acting based on any information provided here. Please consult with your own legal counsel regarding your specific situation and legal questions.

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As Partner and Head of Transactions at ILS, Fiona delivers professional legal and strategic support to tech companies—with a focus on AI, medical devices, and fintech. Beyond full-spectrum technology law, she specializes in export control and compliance: supporting tech firms at all growth stages, aiding startups in scaling operations, and helping mature enterprises address regulatory challenges.

Previously, Fiona gained hands-on experience building legal frameworks from scratch. She advised unicorn companies on global expansion and regulatory hurdles, developing deep insight into clients’ growth challenges. Combining legal expertise with commercial judgment, she helps clients establish sustainable legal processes and provides clear guidance to advance their business.

Email:  contact@consultils.com | Phone: 626-344-8949

Susan is specialized in employment law and compliance, with additional experience in cross-border investments. With years of experience advising multinational clients, Susan focuses on employment-related matters, including workforce structuring, employee transfers, terminations, compensation and benefits, and workplace policies. She has extensive experience assisting companies in navigating complex labor regulations, managing cross-border employment issues, and resolving workplace disputes.

In addition to her employment law practice, Susan advises on M&A, private equity, venture capital, and cross-border investments. She has assisted international investors with complex deal structures, including VIE frameworks, and prepared due diligence reports and transaction documents.

Email:  contact@consultils.com | Phone: 626-344