AI Hiring Transparency and Disparate Impact: What Employers Need to Know

As more employers adopt AI technology, some states have set ground rules about its use in hiring and employment decisions. Colorado and Connecticut recently passed laws regulating the use of automated employment tools. At the same time, another state has codified disparate impact protections into state law. This month, we explain what’s changing and what employers can do to keep up.

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Colorado Replaces Broad AI Law with Narrower Requirements

Colorado has replaced a broad AI law before it could take effect, creating narrower requirements for employers that use automated tools to make hiring and employment decisions.

Senate Bill 26-189, which takes effect on Jan. 1, 2027, applies when employers use automated decision-making technology (ADMT) to make decisions involving hiring, promotion, or compensation. Among other things, employers using ADMT will need to take these steps under the new law:

• Clearly inform candidates and employees that ADMT will be used in decision-making.
• Explain the decision and the role ADMT had in an adverse outcome within 30 days.
• Give candidates and employees a way to request correction of inaccurate data and ask for human review.
• Keep records for at least three years after using ADMT to make a decision.

The new law is narrower than the one it replaces, which was set to take effect at the end of June. The original version would have required impact assessments, annual reviews, and steps to prevent algorithmic discrimination.

What Colorado Employers Need to Know

Many employers had already started preparing for the original Colorado AI law. Your organization can use this extra time to refocus your efforts on the requirements in the new law.

• Review employment tools: Review the technology you use for recruiting, screening, and hiring decisions. Determine whether those tools count as ADMT under the new law.
• Create workflows: Set up processes for providing notices, handling data correction, and retaining records. Document those procedures and begin training HR teams and hiring managers on the workflows.
• Prepare for a human review process: Identify who will handle requests for human review and train them to understand the AI tool and its limitations.

Connecticut Adds New Rules for AI in Employment Decisions

Connecticut employers face new requirements when using automated tools for employment decisions. Beginning Oct. 1, 2027, employers must notify applicants and employees when using automated employment-related decision technology (AEDT) for hiring, promotion, and discipline-related matters.

Employers using those tools must tell candidates and employees when they’re interacting with AEDT. In addition, before using AEDT to make a decision, an employer must provide a written notice with this information:

• That employer is using AEDT
• The purpose of the AEDT and nature of the decision
• The trade name of the AEDT
• The categories of personal data the tool analyzes and what it considers
• The sources of personal data
• Contact information for the employer

The law also makes clear that relying on an automated tool does not protect an employer from a discrimination claim. Although bias testing is not required, documented efforts to identify and address bias may be considered if there’s a complaint made.

What Connecticut Employers Need to Know

If you hire or manage employees in Connecticut, consider taking these steps:

• Audit your tools: Take an inventory of the technology you use for hiring and employment decisions, and determine whether outputs play a substantial role in decision-making.
• Prepare notices: Develop templates to explain the tool’s purpose, trade name, data sources, and how it considers personal information.
• Conduct bias testing: While not required under the law, consider whether to implement bias testing for AEDT used in hiring and employment decisions. Keep records of testing results and any corrective steps you take.

Illinois Codifies Disparate Impact Protections

Illinois has put long-standing disparate impact protections directly into state law. The Civil Rights Safeguard Act will expressly prohibit employers from using seemingly neutral policies that disproportionately affect protected groups.

The law applies to “criteria or methods” employers use to make decisions about employment practices, such as hiring requirements, background screening policies, automated tools, and disciplinary rules. Those criteria or methods cannot unfairly affect protected groups, even if a policy appears neutral on paper, unless the employer can demonstrate that they are job related for the position in question and consistent with business necessity. A practice may also be challenged when a less discriminatory alternative could meet the same business need.

The law does not create a new type of discrimination claim. It makes the existing standard explicit under Illinois law as federal enforcement priorities shift.

What Illinois Employers Need to Know

Illinois employers may not need to make changes if they already review practices for disparate impact. Still, you can use this time to confirm hiring, screening, promotion, and discipline standards directly relate to the job and have a clear business need.

Background check policies should be part of that review. Match your screening criteria to the responsibilities and risks of each role, and determine whether broad requirements unnecessarily screen out qualified candidates.

Strengthen Your Screening Compliance with InCheck

New AI laws call for more transparency around automated technology in employment decisions, while Illinois has reinforced protections against discriminatory outcomes. For employers, the next steps may include reviewing how you use automated tools and checking that your screening workflows serve a specific business need.

InCheck can help you review your screening process and build a program around your needs. We combine tailored screening packages with practical compliance support to help you understand background check requirements. Contact us to talk through your questions and find an approach that fits your hiring needs.