New Year, New AI Laws and Focus
The use of artificial intelligence (AI) tools in employment recruiting and hiring is proliferating. Until this past year, legal regulation has not kept pace. However, the tide is quickly turning, with AI legislation taking effect at the beginning of 2026 in three states, bringing overall regulation to five in total.
If you are an employer using any type of algorithmic tool to screen candidates or make employment decisions, and you recruit in multiple states, it is time to pay attention. There is no governing federal law, so states are enacting a patchwork of regulations, creating a compliance challenge for multi-state employers.
How To Get Started
Catalog what you use. Investigate every place and way you have machine learning, statistical modeling, data analytics, or software that helps with, influences, or impacts advertising for positions, recruiting, hiring, and/or employment decision-making.
Many employers may not realize they are using AI to assist with employment decisions. Do you use an applicant tracking system that scores candidates? What about a resume screening tool that auto-rejects applicants? If so, the laws discussed below likely apply to you.
Learn how you use AI tools. Understand and document how AI tools are used, whether auditing is available to create audit trails, what decisions AI has replaced, and what steps involve human oversight.
Be intentional with AI versus human decision making. Decide which steps are acceptable for AI assistance and which require human involvement. Ensure final decisions and outcomes are reviewed and approved by employees. Set routine reviews of audit trails and lookbacks to understand how AI tools have impacted decisions or outcomes.
Understand the scope of recruiting and hiring with AI tools. What is the scope and reach of your job postings? Are they available in all fifty states? Do your job descriptions identify where the position can be filled, that it can be filled in multiple locations, or that it can be filled anywhere as a remote position? Where are your offices and physical locations? Each jurisdiction has different requirements, and a key factor is whether you may be subject to one of the comprehensive state regulations discussed below because you advertise, recruit, and/or hire broadly.
State and Local Laws Governing AI Use in Employment
New York City
In 2023, New York City enacted legislation governing the use of AI in hiring and promotional decisions. The city requires annual bias audits by independent auditors, public posting of audit results, and notice to candidates at least ten business days before using an AI tool relating to them. Penalties range from $375 for first violations to $1,500 for subsequent violations.
California
California enacted a comprehensive scheme effective October 1, 2025, that requires human oversight in all employment decision-making. An employer cannot rely exclusively on AI for final decisions. It also requires four-year record retention of AI criteria and results, applies traditional anti-discrimination protections to AI tools, and extends existing components of the Fair Employment and Housing Act to AI decision-making.
Colorado
In May 2024, Colorado passed the Colorado Artificial Intelligence Act, effective February 1, 2026. The law identifies hiring, compensation, promotion, performance management, and termination as high-risk AI areas. Employers with more than 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 aims to prevent algorithmic discrimination and imposes civil liability on employers who violate it.
Illinois
In August 2024, Illinois passed House Bill 3773, which went into effect on January 1, 2026. This law requires expansive notification of AI use. Employers must notify candidates and employees when using AI for recruitment, hiring, promotion, discipline, and discharge. Illinois also prohibits AI that discriminates against protected classes, with remedies including back pay, reinstatement, emotional distress damages, and attorney’s fees.
Maryland
Similar to Illinois, Maryland began governing the use of facial recognition in 2020. Employers must obtain consent from an applicant before using facial recognition during an interview, demonstrated by the employee providing their name, date of the interview, and confirmation that they have read and understood what they are being asked to sign.
Texas
Effective January 1, 2026, Texas enacted its own version of legislation governing the use of AI in employment decision-making. Texas’ approach is to ban intentional discrimination resulting from AI tools, with the state attorney general having exclusive enforcement power. Employers receive notice and a 60-day cure period before penalties commence, with fines ranging from $12,000 for curable violations to $200,000 for incurable violations, and up to $40,000 per day for continuing violations.
Takeaways
If you use technology for employment decisions, it is crucial to understand what it does, how and where you recruit employees, and what laws apply. AI creates efficiencies and often excellent outcomes. However, employers must remain vigilant and address legal compliance at the outset of AI implementation and use. Getting ahead of potential legal penalties and discrimination claims is worth the upfront compliance costs.
