Illinois Steps Up AI Regulation in Employment: Key Takeaways for Employers

Quick Hits

• Illinois’s new AI regulations under HB 3773 take effect on January 1, 2026, giving employers a limited window to prepare for compliance.
• The law broadly defines “artificial intelligence” to include any machine-based system that generates outputs influencing employment decisions, with no specific exemptions provided.
• Employers must provide notice to employees if AI is used in recruitment, hiring, promotion, or other employment-related decisions.
• HB 3773 represents an additional AI-related law applicable to job applicants in Illinois.

Overview

HB 3773 amends the Illinois Human Rights Act, which applies to any person (with certain limited exceptions) employing one or more employees within Illinois during 20 or more calendar weeks within the calendar year of or preceding the alleged violation, to make it a civil rights violation for employers to use AI in ways that result in unlawful discrimination against protected classes. The law targets the use of AI in various employment processes, including “recruitment, hiring, promotion, renewal of employment, selection for training or apprenticeship, discharge, discipline, tenure or [the] terms, privileges or conditions of employment.” It also addresses the use of zip codes as a proxy for protected classes, recognizing the potential for such practices to lead to discriminatory outcomes.

The law defines “artificial intelligence” broadly to encompass any “machine-based system that, for explicit or implicit objectives, … generate[s] outputs such as predictions, content, recommendations, or decisions that can influence physical or virtual environments.” This includes “generative artificial intelligence,” which is defined by HB 3773 to refer to AI systems capable of producing human-like content, such as essays, images, or multimedia outputs, in response to prompts.

Key provisions of the law include the following:

• Prohibition of discriminatory AI practices. The law explicitly prohibits the use of AI that has the effect of discriminating against employees based on protected characteristics, even if such discrimination is unintentional. As a result, employers may want to assess whether their AI tools might disproportionately impact certain groups—such as those based on race, gender, or age—formally document the assessments, maintain records of the same, and regularly reevaluate the AI tools deployed. Unlike New York City’s and Colorado’s AI laws governing employment, Illinois HB 3773 does not require formal bias or impact assessments. However, these assessments may prove important in defending against alleged violations of the law.
• Notice requirement. Employers are required to notify employees if they use AI for the purposes mentioned above. While the law does not specify the exact form this notice must take, the Illinois Department of Human Rights is tasked with adopting rules to describe the circumstances and conditions requiring employee notice, the timeline for providing that notice, and the means of providing notice to ensure that employees are adequately informed.
• Enforcement and remedies. The Illinois Department of Human Rights, along with the Illinois Human Rights Commission, is tasked with enforcing this law. Employees who believe they have been subjected to discrimination due to AI use can file a charge with the Department. Remedies for proven violations may include back pay, reinstatement, emotional distress damages, and attorneys’ fees.

The broad scope of the law’s AI definition and the prohibition on discriminatory effects, rather than just intent, presents a significant compliance challenge for employers. Unlike other state laws, such as the Colorado Artificial Intelligence (AI) Act, the Illinois law does not offer exemptions or carve-outs for specific types of AI. This means employers will likely want to conduct thorough impact assessments or bias audits to ensure their AI tools do not inadvertently lead to discrimination. This may also necessitate employers closely monitoring updates to each AI tool they use and refreshing their impact assessments or bias audits to ensure new versions of previously evaluated technologies do not subsequently result in discrimination against protected classes.

Moreover, while HB 3773 does not mandate the adoption of a formal risk management policy, employers may want to implement such policies voluntarily. Doing so could help identify potential risks associated with AI use and mitigate them before they result in legal liability. Employers might also consider revising their employee handbooks and training materials to reflect these new requirements and educating their workforces on the proper use of AI in decision-making processes.

Finally, it bears repeating that HB 3773 is yet another AI-related law in Illinois governing use of certain types of AI in the recruiting process. As a reminder, the Artificial Intelligence Video Interview Act, which took effect in 2020, requires Illinois employers that use AI to analyze the performance of applicants undergoing video interviews to notify the applicant, explain how the AI tool being used works, obtain consent to the use of the tool, limit sharing of the videos, and to delete them upon request. Employers relying solely upon AI analysis of a video interview to screen candidates for further in-person interviews must also collect and report demographic data to ensure the AI analysis does not result in bias against any protected classes.

Next Steps

The passage of HB 3773 underscores the growing trend among states to regulate the use of AI, particularly in employment settings. For Illinois employers, the key takeaway is clear: it is essential to evaluate and adjust AI practices to ensure compliance with both the Artificial Intelligence Video Interview Act, this new law, and other applicable laws. Employers that proactively and persistently address these challenges will not only minimize their legal risks but also contribute to a more equitable workplace.

As the January 1, 2026, effective date approaches, employers may want to pay close attention to rules or guidelines issued by the Illinois Department of Human Rights. These developments will be critical in shaping how businesses across the state find their place in the intersection of AI and employment law.

In addition to monitoring for rules implementing these provisions, employers may wish to do the following:

• Identify the AI systems that are currently in use or anticipated to be placed into use on or after January 1, 2026.
• Assess the substance and manner of any notifications that are currently provided to employees and applicants and begin to consider what additional notifications may be required.
• Consider whether privileged audits or other proactive measures may be advisable to address possible impacts of these systems on any of the protected classifications recognized by the Illinois Human Rights Act.
• Commence development of processes to ensure compliance with applicable federal laws or laws in other jurisdictions where the organization conducts business.

Ogletree Deakins will continue to monitor developments and will provide updates on the Cybersecurity and Privacy, Illinois, and Technology blogs.

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