Colorado Passes Groundbreaking AI Discrimination Law Impacting Employers
Employers in Colorado must prepare for the significant compliance burdens imposed by SB205, which will likely lead to broader scrutiny and regulation of AI systems nationwide.
Colorado is poised to become the first state in the U.S. to enact a comprehensive law addressing the use of artificial intelligence (AI) in employment and other critical areas. The state legislature passed Senate Bill 24-205 (SB205) on May 8, and it now awaits the signature of Governor Jared Polis. This legislation, if signed into law, will take full effect in 2026 and aims to prevent algorithmic discrimination, requiring both developers and users of high-risk AI systems to adopt rigorous compliance measures.
Definition and Scope of AI Under the Act
SB205 defines "high-risk artificial intelligence systems" as machine-based algorithms that significantly influence decisions in areas such as:
Employment and employment opportunities
Education enrollment and opportunities
Financial or lending services
Essential government services
Healthcare services
Housing
Insurance
Legal services
These AI systems are considered high-risk if they make or substantially contribute to consequential decisions impacting individuals or groups, potentially leading to differential treatment based on protected classifications such as age, disability, race, religion, or sex.
Who Is Affected?
The Act applies to both developers and deployers of high-risk AI systems:
Developers: Any entity in Colorado that develops or significantly modifies an AI system.
Deployers: Any entity in Colorado that uses a high-risk AI system.
Small businesses with fewer than 50 full-time employees may be exempt from some of these requirements.
Compliance Obligations
If signed into law, starting February 1, 2026, affected businesses must adhere to several stringent requirements:
For Developers:
Provide extensive information to deployers, including known harmful uses and data summaries.
Publish a public statement on their website detailing the types of AI systems developed and their risk management strategies.
Disclose all known risks of algorithmic discrimination to the attorney general.
For Deployers:
Implement and regularly review a comprehensive risk management policy.
Conduct impact assessments of AI systems annually and within 90 days of significant modifications.
Notify consumers when a high-risk AI system will be used to make consequential decisions, including detailed disclosures on their website.
Ensure consumers are aware they are interacting with an AI system unless it is obvious to a reasonable person.
General Requirements:
Both developers and deployers must use reasonable care to avoid algorithmic discrimination, with a rebuttable presumption of compliance if they follow the rules.
Deployers must notify the attorney general of any discriminatory outcomes detected by their AI systems.
Developers must inform the attorney general and all known deployers of any new risks of discrimination discovered.
Consumer Rights and Notifications
The Act mandates that businesses using high-risk AI systems provide detailed notices to individuals affected by these systems, including:
The purpose and nature of the AI system.
The type of decision being influenced by the AI.
The right to opt out of profiling in decisions with significant legal effects.
Contact information and details on how to access the public statement on AI use.
Enforcement
The Colorado attorney general will have exclusive authority to enforce SB205, treating violations as unfair and deceptive trade practices. There is no private right of action under this law, but businesses can assert an affirmative defense if they discover and cure violations through feedback or internal review processes.
Parting Thoughts
Employers in Colorado must prepare for the significant compliance burdens imposed by SB205, which will likely lead to broader scrutiny and regulation of AI systems nationwide. Companies must develop robust AI risk management programs, conduct regular impact assessments, and provide transparent disclosures to comply with this landmark legislation. Employers outside Colorado should also be alert, as similar laws are being considered in other states, signaling a nationwide trend toward stricter AI regulations.
Release Date: May 28, 2024
Alonzo Martinez
Alonzo Martinez is Associate General Counsel at HireRight, where he supports the company’s compliance, legal research, and thought leadership initiatives in the background screening industry. As a senior contributor at Forbes, Alonzo writes on employment legislation, criminal history reform, pay equity, AI discrimination laws, and the impact of legalized cannabis on employers. Recognized as an industry influencer, he shares insights through his weekly video updates, media appearances, podcasts, and HireRight's compliance webinar series. Alonzo's commitment to advancing industry knowledge ensures HireRight remains at the forefront of creating actionable compliance content.