Introduction
The Colorado AI Act [3] [4], effective February 1, 2026 [4], is a legislative measure designed to address algorithmic discrimination by regulating high-risk automated decision-making systems (HRAIS) that impact Colorado residents, particularly in employment contexts [4]. The Act aims to ensure fairness and transparency in the use of AI technologies, emphasizing the prevention of unlawful differential treatment based on characteristics such as age [3], color [3], or race [3].
Description
The Colorado AI Act defines algorithmic discrimination as the unlawful differential treatment based on characteristics such as age [3], color [3], or race [3], and identifies consequential decisions as those with significant legal effects on services like education and employment [3]. A substantial factor in these decisions is the use of AI-generated outcomes [3].
To mitigate the risks associated with AI [1], the Act mandates that deployers of HRAIS exercise reasonable care to prevent algorithmic discrimination and implement comprehensive risk management policies. It requires annual impact assessments to identify and address potential biases, ensuring compliance with state and local AI regulations [4], especially for organizations operating across multiple states [4]. Employers must also notify individuals when certain AI systems are utilized and allow employees to appeal adverse decisions influenced by AI [4].
A key provision of the Act prohibits the use of real-time remote biometric identification in public spaces [1], significantly affecting biometric technology suppliers [1]. Developers of facial recognition technology are required to work towards correcting demographic imbalances in the datasets used for training their models. Human oversight is emphasized [4], with AI serving as a supportive tool rather than a primary decision-maker in employment-related matters [4]. Internal policies must guarantee adequate human involvement in decision-making processes [4].
The enforcement of the law is vested in the state attorney general and district attorneys, who can initiate civil actions against violators [2], seeking civil penalties [2]. The attorney general can also mandate companies to provide records for compliance assessment without needing an active investigation [3]. Violations are classified as unfair trade practices or deceptive trade practices under the Colorado Consumer Protection Act, incurring penalties of up to $20,000 per violation [3], or $50,000 for violations affecting elderly individuals [3]. Individuals harmed by such violations have the right to pursue civil actions to prevent further infractions and recover damages [2], costs [2], and reasonable attorney fees [2].
Companies can benefit from a rebuttable presumption of reasonable care if they comply with the law and regulations [3]. An affirmative defense is available if they adhere to an acceptable AI risk management framework and rectify any violations through feedback solicitation [3], adversarial testing [3], or internal reviews [3]. Vendor agreements should be carefully reviewed to ensure transparency in algorithm functionality [4], compliance with anti-discrimination laws [4], and scrutiny of warranty [4], disclaimer [4], and indemnity clauses [4].
The law includes various exemptions [3], such as allowing the use of HRAIS for fraud detection without facial recognition [3], exempting medical professionals from certain requirements when generating low-risk recommendations [3], and ensuring insurers are compliant while following state insurance regulations on AI [3]. Additionally, certain activities are exempt from being classified as surveillance-based price or wage discrimination [2].
Beyond algorithmic discrimination [1] [3] [4], the Colorado AI Act introduces obligations such as requiring disclosure when using AI-powered chatbots and mandates watermarking for generative AI content [3], although this requirement does not extend to text-based content or information unlikely to mislead a reasonable person [3]. Furthermore, the bill restricts the use of automated analysis of intimate personal data for making inferences that affect an individual’s financial status [2], ensuring that such practices do not lead to unjust discrimination. Staying informed about ongoing legal developments at both federal and state levels is crucial for adapting to new AI regulations and mitigating potential risks [4].
Conclusion
The Colorado AI Act represents a significant step towards ensuring ethical and fair use of AI technologies, particularly in high-stakes areas like employment. By mandating transparency, accountability, and human oversight [4], the Act seeks to prevent algorithmic discrimination and protect individuals from unfair treatment. Organizations must remain vigilant and proactive in complying with these regulations to avoid penalties and contribute to a more equitable technological landscape.
References
[1] https://www.biometricupdate.com/202502/us-states-take-a-page-from-eus-ai-act-but-biometrics-impact-likely-minimal
[2] https://leg.colorado.gov/bills/hb25-1264
[3] https://www.jdsupra.com/legalnews/virginia-s-artificial-intelligence-bill-1086711/
[4] https://www.salary.com/newsletters/law-review/manage-ai-by-monitoring-outcomes/
