AI & Hiring – The Laws Are Coming

With a college graduate in the family, I’m hearing first hand of the trials and tribulations of the current job market.

One of the items that I hear and read about, is the rising use of AI tools for screening and hiring.

There’s a big hole right now in regulation of this practice, with just a few jurisdictions dipping their toes in the legal waters.

But if your company uses AI or algorithmic tools to screen job candidates or make promotion decisions, you’re about to navigate an increasingly complex compliance landscape. What started with New York City’s Local Law 144 in July 2023 has now expanded with various laws becoming effective shortly.

The trend is clear: jurisdictions across the country are racing to regulate what they call Automated Employment Decision Tools. For multi-state employers, this creates a compliance nightmare without a federal law to supercede them. Here’s a few things you need to know.

Where It Started: NYC Local Law 144

New York City was first out of the gate in 2023 with Local Law 144, regulating Automated Employment Decision Tools or AEDTs. These are computational processes using machine learning, statistical modeling, data analytics, or AI that help make hiring or promotion decisions.

The law’s original requirements remain in effect: annual bias audits by independent auditors, public posting of audit results, and notice to candidates at least 10 business days before using the tool. Penalties range from $375 for first violations to $500-$1,500 for subsequent violations.

Here’s the catch: many employers don’t realize they’re using AEDTs. That applicant tracking system that scores candidates? The video interview platform analyzing facial expressions? The resume screening tool that auto-rejects applicants? These likely qualify.

But NYC’s law has proven fairly toothless in practice. A 2024 study found that among 391 employers examined, only 18 posted audit reports and only 13 posted transparency notices. Why? Because employers can claim they’re not covered if human managers play a predominant role in decisions, even when AI heavily influences those decisions.

The State Takeover: Colorado, Illinois, and California Lead the Charge

Colorado: The Comprehensive Approach

In May 2024, Colorado passed the Colorado Artificial Intelligence Act, effective February 1, 2026. It’s the most comprehensive state AI employment law to date.

Colorado identifies hiring, compensation, promotion, performance management, and termination as high-risk AI areas. Employers with 50+ employees must establish risk management policies, conduct annual impact assessments, and complete new assessments within 90 days of any AI system modifications.

The law is designed to prevent “algorithmic discrimination” and imposes civil liability on employers who violate it. This goes beyond NYC’s approach by requiring ongoing risk management, not just bias audits.

Illinois: Broad Notification Requirements

Illinois passed House Bill 3773 in August 2024, effective January 1, 2026. The law requires employers to notify employees when using AI for recruitment, hiring, promotion, discipline, discharge, or other employment decisions.

The prohibition is straightforward: employers cannot use AI that discriminates against protected classes. The Illinois Department of Human Rights will enforce it, with remedies including back pay, reinstatement, emotional distress damages, and attorney’s fees.

Unlike NYC’s law, Illinois doesn’t focus on bias audits. Instead, it emphasizes transparency through notification and prohibits discriminatory outcomes regardless of intent.

California: Extending Anti-Discrimination Law to AI

California finalized comprehensive AI employment regulations which became effective October 1, 2025. These regulations extend the Fair Employment and Housing Act to automated decision systems.

California’s approach requires human oversight (don’t rely exclusively on AI for final decisions), four-year record retention of AI criteria and results, and applies traditional anti-discrimination protections to AI tools.

The regulations define covered systems broadly to include automated interview scoring, video software analyzing voice or facial expressions, and any tool that screens, evaluates, or recommends candidates.

What Employers Must Do Now

Inventory your tools. Document every piece of software that influences hiring, promotion, or employment decisions. Don’t assume your vendor will tell you if their product is covered.

Understand your exposure by jurisdiction. Where are your employees and candidates located? Each jurisdiction may have different requirements.

Implement human oversight. Don’t let AI make final decisions. Ensure humans review and approve outcomes.

Create audit trails. Document how AI tools are used, what decisions they influence, and what oversight mechanisms exist.

Review vendor contracts. Some proposed laws treat vendors as employer agents, creating additional liability for third-party AI performance.

The Bottom Line

The days of treating HR software as a black box are dwindling. AI hiring tools offer efficiency benefits, but they come with growing legal exposure.

What started as NYC’s modest attempt at regulation has evolved into a nationwide compliance challenge. With federal oversight unlikely, expect more states to enact their own versions in 2025-2026.

The key message: if you’re using technology to help make employment decisions, you need to understand what that technology does, where your employees are located, and which laws apply. The compliance costs of getting ahead of this are far less than the penalties and discrimination claims that result from violations.

If you’re unsure whether your hiring tools comply with applicable state and local laws, it’s worth getting a legal review before 2026’s new requirements take effect.