Colorado AI Law: A Complete Guide

Colorado recently made headlines as the first state to introduce comprehensive regulations aimed at controlling the use of high-risk artificial intelligence (AI) systems. These regulations are specifically designed to tackle the pressing issue of algorithmic discrimination, which refers to situations where AI systems inadvertently or intentionally discriminate against certain groups or individuals based on factors like race, gender, or other protected characteristics. In this article, we’ll break down what the Colorado AI Law covers and how it’s enforced. We’ll also explain the specific rules developers and deployers must follow under this law.

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What is Colorado AI Law?

Colorado AI Law is designed to oversee how businesses employ AI systems. Its primary objective is to prevent discriminatory practices and ensure equitable treatment for individuals who are protected under legal provisions. This law imposes obligations on developers, responsible for creating or modifying AI systems, and deployers, who implement these systems, to mitigate potential risks effectively. By enforcing these regulations, the law aims to foster fair and accountable use of AI technologies across various industries.

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When does the Colorado AI Law Take Effect?

Colorado AI Law is scheduled to become effective on February 1, 2026, following a period where the Colorado Attorney General’s Office will develop detailed rules for its implementation over the next year and a half. A legislative task force has also been established to examine the law further and consider any necessary changes during the upcoming legislative session.

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What does Colorado AI Law Regulate? 

Under the Colorado AI Law, the regulation of artificial intelligence systems is outlined with specific definitions and categories:

Artificial Intelligence System

This encompasses any machine-based system that processes inputs to generate outputs such as content, decisions, predictions, or recommendations. These outputs can influence both physical and virtual environments, demonstrating the broad scope of AI applications covered by the law.

High-Risk Artificial Intelligence System

This classification applies to AI systems that play a substantial role in making consequential decisions. These decisions have a significant legal or similarly impactful effect in critical areas like employment, education, healthcare, housing, insurance, and financial services. For example, AI systems involved in hiring processes, loan approvals, medical diagnoses, or insurance coverage assessments fall under this category due to their potential to profoundly affect individuals’ rights and opportunities.

Consequential Decision

This term refers to decisions that materially impact individuals or groups within the sectors outlined by the law. Such decisions can determine access to essential services, opportunities for advancement, or the allocation of resources, thereby influencing people’s lives in significant ways.

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What are the Requirements for Deployers Under Colorado AI Law?

Under Colorado AI Law, employers designated as deployers must adhere to strict guidelines to prevent algorithmic discrimination. Here’s a detailed breakdown:

Risk Management Policy

Employers must create and maintain a robust policy and program to oversee the risks associated with high-risk AI systems. This policy outlines clear principles and detailed processes and assigns responsibilities for identifying and mitigating potential biases and discriminatory outcomes.

Annual Impact Assessments

Employers must conduct annual assessments for each high-risk AI system they use or engage in third-party assessments. These assessments thoroughly evaluate the AI system’s intended purpose, where it is deployed, and the expected benefits. Crucially, they ensure that the AI systems do not unfairly impact employees based on legally protected characteristics.

Employee Notifications

Employers must inform affected employees when AI systems make significant employment decisions such as hiring, promotions, or terminations. This notification ensures transparency by detailing how AI influences decisions that affect their careers and workplace experiences.

Explanation of Decisions

If an employee experiences an adverse decision influenced by an AI system, the employer must provide a comprehensive explanation. This includes disclosing the rationale behind the decision, the role of the AI system in shaping the outcome, and specifics about the data used in the decision-making process.

Appeal Process

Employers must offer affected employees an opportunity to appeal AI-driven decisions for human review, where technically feasible. Employees can use this mechanism to challenge decisions they believe AI systems unfairly influence.

Public Disclosure

Employers must publicly disclose on their official website details about the types of high-risk AI systems they use, how they manage risks of algorithmic discrimination, and specifics about the data processed by these systems. This disclosure fosters accountability and transparency by providing stakeholders, including employees and the public, with insights into AI technologies used in employment practices.

Reporting Requirements

If an employer discovers that their high-risk AI system has caused algorithmic discrimination, they must promptly report this to the Colorado Attorney General within 90 days. This requirement ensures swift action and oversight to address instances of discrimination, with the Attorney General empowered to request additional information to verify compliance with regulatory standards.

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What are the Requirements for Developers Under Colorado’s AI Law?

Here are the comprehensive requirements that developers need to adhere to under Colorado AI Law:

Documentation Requirements

Developers of high-risk AI systems in Colorado must provide comprehensive documentation to ensure transparency and mitigate risks of algorithmic discrimination. This includes a clear statement on the AI system’s potential uses and risks, summaries of data used, limitations, intended purposes and benefits, performance evaluation details, and efforts to prevent discrimination risks. Developers must also provide information to help deployers understand system outputs and monitor performance.

Public Disclosure

Developers must maintain transparency by publicly disclosing information about their high-risk AI systems. This includes summarizing the types of systems they have developed or modified and explaining how they manage the risks of algorithmic discrimination. This disclosure ensures accountability and allows stakeholders to understand the ethical and risk management aspects of AI technology development.

Reporting Requirements

If a developer discovers that their high-risk AI system has caused or may cause algorithmic discrimination, they must promptly report this to the Colorado Attorney General and notify affected deployers or developers within 90 days. This requirement aims to address discriminatory impacts swiftly, promoting ethical practices and compliance with AI regulations.

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How is Colorado AI Law Enforced? 

Enforcing the Colorado AI Law falls to the Attorney General’s office, which treats violations by deployers or developers as unfair or deceptive trade practices under state law. Notably, individuals cannot sue employers directly for these violations. In enforcement, deployers and developers can defend themselves by promptly fixing any issues found. They can also cite compliance with recognized AI risk management frameworks, such as those by the National Institute of Standards and Technology, as a defense the Attorney General accepts.

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What are the steps employers should take now?

Employers can effectively prepare for compliance with the Colorado AI Law by following these practical steps:

Assess AI Use

Begin by reviewing your current and planned use of AI systems, considering whether they might fall under Colorado’s AI Law. Identify AI systems considered high-risk and thus subject to the law’s requirements.

Review Contracts

Take a close look at contracts or agreements with AI developers. Clarify the responsibilities and liabilities related to AI systems that could potentially lead to algorithmic discrimination.

Monitor Rulemaking

Stay informed about the Colorado Attorney General’s rulemaking process. This process will define the specific guidelines and compliance measures that employers must follow under the AI Law.

Understand Other Laws

Familiarize yourself with existing U.S. laws and guidelines concerning AI in employment. This includes understanding guidance from federal agencies like the Equal Employment Opportunity Commission (EEOC) and the Department of Labor, which provide frameworks for ethical AI use. Also, be aware of local regulations in cities and states that have already implemented rules related to AI and hiring practices.

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Conclusion 

In conclusion, the Colorado AI Law introduces important regulations to prevent discrimination in AI systems. Employers should assess their AI setups, review contracts with developers, and stay updated on new rules. By following these steps and understanding existing U.S. laws, employers can ensure fair and ethical AI use, promoting transparency and accountability under Colorado’s new regulations.