Colorado's AI Business Regulations: A First in the U.S.

As we continue to learn and understand the wild digital frontier of Artificial Intelligence (AI) in the workplace, regulations are still taking form. The Federal Government previously addressed the safe and ethical use of AI with the Executive Order on AI in October 2023.

On May 17, 2024, Colorado Governor Jared Polis signed Consumer Protections for Artificial Intelligence, or SB 24-205, into law. This marks a significant milestone in consumer protection in interactions with AI for Colorado, which may set an example to follow in other states.

What is SB 24-205?

It is important to note that Colorado is one of many states that have addressed the responsible use of AI. For example, Utah's Artificial Intelligence Policy Act already went into effect on May 1, 2024, requiring disclosure obligations whenever someone interacts with AI. However, Colorado is the first to enact a broader, more comprehensive set of rules and restrictions on private companies using AI state-wide.

The legislation is an addition to Title 6 of the Colorado Consumer Protection Act, which will go into effect on February 1, 2026. SB 24-205 aims to prevent algorithmic discrimination affecting "consequential decisions," including employment-related decisions used by private businesses. The law intends to ensure that Colorado businesses act responsibly and promote fairness and transparency for consumers and employees.

Key points employers need to know

SB 24-205 involves a broad spectrum of regulations that can affect the employment process and general business practices in Colorado. Here are some key points of the law:

• Developer Responsibility: Developers of high-risk AI systems must take steps to protect consumers from potential AI discrimination.
• Consumer Rights: Deployers of high-risk AI systems must inform consumers about their right to opt out of personal data processing.
• Adverse Decisions: Deployers must provide consumers with a statement explaining the main reasons for any adverse decisions made by a high-risk AI system, including the degree to which they used AI to make the decision.
• Public Disclosure: Deployers must post a public statement on their website about the types of high-risk AI systems they use, how they manage discrimination risks, and the nature and extent of information collected.
• AI Interaction: When an AI system is designed to interact with Colorado consumers, the deployer or developer must inform each consumer that they are interacting with an AI system.
• Consumer Appeal Rights: Colorado consumers have the right to correct incorrect personal data used in consequential decisions and to appeal adverse decisions. When possible, the appeal process must allow for human review.

The bill does, however, allow exceptions for certain deployers, such as small businesses with fewer than 50 employees, and permits withholding trade secrets or legally protected information. Take a closer look here for the full details and original text.

Potential future restrictions on the use of AI

Colorado's new law has the potential to set a precedent for future legislation in other states detailing and addressing responsible AI on a larger scale. It highlights the need for transparency, fairness, and accountability in AI systems, particularly those used in employment decisions. Other states are quickly proposing and enforcing policies to combat potential safety and privacy risks associated with the misuse of AI, too. California, Connecticut, and Virginia have also proposed similar laws in 2024.

As AI becomes more widely integrated into HR processes and new laws emerge to address safety, privacy, and transparency, understanding and complying with rules governing the responsible use of AI will become increasingly important. Employers using AI in their hiring practices should consult with their legal counsel to review any laws or governance that may affect the use of AI during any part of the employment process. Verified Credentials will attempt to provide updates on AI regulations across the United States as they become available.