How the Colorado AI Act Will Impact Employers in 2026

With a June 30th, 2026, deadline rapidly approaching, Colorado employers are facing one of the most significant compliance deadlines in recent memory. The Colorado Artificial Intelligence Act is scheduled to take effect in less than two months, and while there are active efforts to amend or block the law, employers cannot afford to wait and see. 

Here’s what you need to know right now. 

What is the Colorado AI Act?

Enacted in May of 2024, the Colorado Artificial Intelligence Act is the most comprehensive state law regulating the use of artificial intelligence in the United States. It regulates the use of “high-risk artificial intelligence systems.” This includes AI tools used in employment decisions such as hiring, promotion, and termination. 

While the law’s goal seems simple: to protect consumers from algorithmic discrimination, it’s ambitious, and its effect on employers could be substantial. If it takes effect as written, the AI Act will impose significant obligations on Colorado employers, including: 

• Implementation of risk management policies and programs 
• Impact assessments evaluating the potential for algorithmic discrimination 
• Annual reviews of AI systems 
• Disclosures to employees and applicants about the use of AI in employment decisions 
• Reporting obligations related to algorithmic discrimination 

Potential Changes: The Proposed Amendment 

In March 2026, with Governor Jared Polis’s backing, the Colorado AI Policy Work Group released a proposed framework that would significantly scale back the original AI Act’s requirements. If approved, the amendment would also delay the effective date to January 1, 2027.  

The proposal would focus on “automated decision-making tools” (ADMT) used in “consequential decisions” rather than regulating “high-risk AI systems” broadly.  

Some definitions under the proposal:  

What is an ADMT?  

Any technology that processes personal information and uses computation to generate output, including predictions, recommendations, classifications, rankings, scores, or other information that is used to make, guide, or assist a decision, judgment, or determination concerning an individual. 

What is a consequential decision?  

A decision, determination, or action for a consumer, employee, or applicant relating to one or more of several domains, including “employment or an employment opportunity,” and which is “reasonably likely” to materially limit, delay, effectively deny, or otherwise fundamentally alter the individual’s access, eligibility, or opportunity. 

What ADMT is covered?

Only ADMT that “materially influences” a consequential decision — meaning an output that is a non-de minimis factor that affects the outcome. Incidental, trivial, or clerical uses are excluded. Spellcheckers, calculators, and spreadsheets that require human analysis and do not use machine learning are also expressly excluded. 

What the Proposal Would Eliminate 

The proposal removes several of the most burdensome requirements in the original AI Act. Under the streamlined framework, employers would no longer be required to: 

• Implement risk management policies and programs 
• Conduct impact assessments 
• Conduct annual reviews of AI systems 
• Report algorithmic discrimination 

What the Proposal Would Still Require 

Even under the scaled-back Proposal, employers would still need to:  

Notify before use. Employers would be required to notify employees and applicants before covered ADMT is used in a consequential decision. This notice can be provided through a publicly accessible posting at points of interaction. 

Adverse outcome disclosures. If covered ADMT results in an adverse decision (a rejected application, a denial of promotion, a disciplinary action), the employer must notify the affected individual within 30 calendar days. That disclosure must include: 

• A plain-language description of the decision and the role the ADMT played 
• Information about the ADMT system used, including its name, version, developer, and data sources (to the extent known) 
• Instructions for requesting personal data and correcting inaccurate data under Colorado Privacy Law 
• Information about how to request human review or reconsideration 

Human review rights. Individuals affected by an adverse consequential decision would have the right to request meaningful human review and reconsideration of that decision. 

Enforcement. The Colorado Attorney General could still enforce the law, meaning there is no private right of action. However, before bringing an action, the Attorney General must provide 90 days’ written notice and an opportunity to cure. 

A New Complication: The Federal Government and xAI Lawsuit 

On April 24, 2026, the U.S. Department of Justice intervened in a lawsuit filed by xAI, a company owned by Elon Musk, seeking to block the Colorado AI Act entirely. 

The xAI lawsuit, filed on April 9, 2026, seeks a preliminary injunction arguing that the AI Act violates the U.S. Constitution. The DOJ’s intervention marks the first time the federal government has sought to invalidate a state AI law, citing Executive Order 14365, which sets out a federal policy to discourage and challenge state AI regulation. 

The DOJ’s central legal argument invokes the Equal Protection Clause of the Fourteenth Amendment, arguing that in requiring developers and deployers to prevent the “risk” of disparate outcomes based on demographic characteristics, the AI Act counterproductively requires the use of race, sex, religion, and other protected characteristics in building and using AI models. 

The outcome of this could significantly affect whether and how the AI Act takes effect. But unless a court issues an injunction or the legislature acts, the June 30, 2026, effective date stands. 

What Colorado Employers Should Do Now

Given the significant uncertainty, here is what we recommend for Colorado employers: 

1. Audit your use of AI and automated tools in employment decisions. Identify every system or tool that uses automation, algorithms, or machine learning in any part of your hiring, performance management, scheduling, or disciplinary processes.
2. Assess whether those tools fall under covered ADMT. Under both the original AI Act and the proposed framework, coverage depends on whether a tool is used in a “high-risk” or “consequential” employment decision.
3. Review your vendor contracts. The AI Act imposes obligations on both “developers” and “deployers” of AI systems. If your company uses third-party HR technology vendors, review your contracts to understand their compliance obligations and what disclosures they are prepared to make.
4. Prepare your disclosure framework. Whether or not the Proposal is adopted, some form of notice and disclosure obligation is likely to apply. Begin drafting the notices required for ADMT use and adverse decision disclosures now.
5. Establish a human review process. Both the current AI Act and the Proposal contemplate the right to human review of adverse decisions. Employers should identify who in their organization will conduct those reviews and how that process will work in practice.
6. Monitor developments closely. The legislative amendment process, the xAI litigation, and any court orders in that case could all change the compliance landscape significantly

Not Sure How the AI Act Affects Your Business? 

The intersection of employment law and emerging technology is complex, and the rules are changing fast. If your organization uses AI or automated tools in any part of your HR or employment decision-making processes, The AR Group can help you assess your exposure and build a compliance framework that works. Contact us today. 

FAQs

Q: What is the Colorado Artificial Intelligence Act?  

A: The Colorado Artificial Intelligence Act is a first-of-its-kind state law regulating how artificial intelligence is used in decisions that impact individuals, including employment. It is designed to reduce the risk of algorithmic discrimination in “high-risk” AI systems. 

Q. When does the Colorado AI Act go into effect?

A: The law is currently scheduled to take effect on June 30, 2026. However, proposed amendments backed by Jared Polis and the recently filed xAI lawsuit could change the act’s scope and possibly delay its implementation until January 1, 2027.  

Q: What types of AI tools are covered under the law? 

A: The original law applies to “high-risk AI systems,” particularly those used in employment decisions like hiring, promotions, discipline, and termination. 

Under the proposed amendment, coverage would shift to automated decision-making tools (ADMT) that: 

1. Use personal data to generate outputs (e.g., scores, rankings, recommendations) 
2. Materially influence consequential decisions affecting employment opportunities 

Q: What should Colorado employers be doing right now?  

A: Colorado employers should:

1. Audit current AI and automated tools used in HR processes 
2. Determine whether tools influence employment decisions 
3. Review contracts with third-party vendors 
4. Begin drafting required notices and disclosures 
5. Establish internal processes for human review of decisions 
6. Monitor legal and legislative developments closely