AI in Hiring: 2026 Compliance Guide For Illinois Employers

The increased utilization of artificial intelligence (AI) in employment practices has ushered in an era of unprecedented efficiency and innovation. However, with these advancements come new regulatory responsibilities, as demonstrated by Illinois' recent legislative actions. On August 9, 2024, Illinois enacted HB 3773, a landmark law set to take effect on January 1, 2026, that will reshape how employers use AI in employment decisions. This legislation, amending the Illinois Human Rights Act, serves as a critical reminder that the adoption of AI in hiring, promotion, and other employment-related activities must be carefully balanced against the potential risks of discrimination and the need for transparency.

Understanding the Scope and Impact of HB 3773

HB 3773 will establish comprehensive regulations governing the use of AI in the employment lifecycle. The law broadly defines AI as any machine-based system that generates outputs such as predictions, recommendations, or decisions based on input data. This definition encompasses generative AI, which produces content that simulates human output, such as text, images, and multimedia, and more traditional predictive AI, which assists decision-making by producing scores, rankings, and classifications.

Employers in Illinois will be required to provide notice to employees, including apprentices and applicants for apprenticeship, whenever AI is utilized for key employment decisions. These decisions include recruitment, hiring, promotion, renewal of employment, selection for training or apprenticeship, discharge, discipline, tenure, or the terms, privileges, or conditions of employment. Although the law does not explicitly mention job applicants, its language suggests that AI tools used during recruitment will likely fall within its scope.

A critical component of HB 3773 is its prohibition against using AI in a manner that results in discrimination against protected classes under the Illinois Human Rights Act. Employers must also avoid using zip codes as proxies for protected classes in any AI-driven decision-making process. While the specific application of this provision remains somewhat ambiguous, it signals that employers need to be vigilant about the data inputs and algorithms used in AI systems to prevent unintentional bias.

Predictive Analysis and Geographic Discrimination: The Risks of Using Zip Codes

One of the more nuanced risks associated with AI in employment is the potential for predictive analysis to lead to geographic discrimination, particularly when zip codes are used as data points in AI-driven decision-making. Predictive AI systems often analyze large datasets to identify patterns and make decisions based on those patterns. However, when data points like zip codes are included, the AI may inadvertently perpetuate existing societal biases.

For example, zip codes can be highly correlated with demographic factors such as race, socioeconomic status, and education levels. In the context of recruiting, if an AI tool uses zip codes as part of its predictive analysis to rank or score candidates, it might favor candidates from certain areas over others. This could result in a form of geographic discrimination where candidates from less affluent or predominantly minority neighborhoods are unfairly disadvantaged.

Consider a scenario where an AI-driven recruitment tool is designed to predict a candidate's likelihood of success based on various factors, including their home zip code. If the system has been trained on historical hiring data that reflects a bias toward candidates from certain zip codes-perhaps those associated with higher-income, predominantly white neighborhoods-it might rate candidates from those areas higher. Conversely, candidates from zip codes associated with lower-income or predominantly minority communities might receive lower scores, not because of their qualifications but because of the demographic characteristics associated with their geographic location.

This practice can lead to systemic exclusion of qualified candidates who happen to live in certain areas, perpetuating inequalities that the Illinois Human Rights Act seeks to address. Under HB 3773, such use of zip codes could be interpreted as a proxy for racial or socioeconomic discrimination, making it a civil rights violation.

Compliance Challenges and Best Practices

The enactment of HB 3773 reflects a broader regulatory trend that underscores the importance of responsible AI usage in employment. Employers must now navigate this evolving landscape, balancing the benefits of AI with the need to mitigate risks of discrimination and ensure transparency.

Employers should begin by conducting thorough audits of their AI systems. Regular audits can help identify potential biases that may lead to discriminatory outcomes. This process involves scrutinizing the AI-generated outputs and the underlying data inputs and algorithms. Given the broad language of HB 3773, particularly regarding the "effect of subjecting employees to discrimination," employers should be prepared to demonstrate that their AI systems are free from bias and compliant with the new law.

Transparency is another cornerstone of HB 3773. Employers must develop clear communication strategies to inform employees and applicants about the use of AI in employment decisions. This notice should be provided at relevant stages of the employment process and should be easily understandable. Transparency not only fulfills legal requirements but also builds trust with employees and candidates, reinforcing the employer's commitment to fair and equitable practices.

Monitoring developments from the Illinois Department of Human Rights (IDHR) will be essential as the agency issues guidance and rules related to HB 3773's implementation and enforcement. Employers should pay close attention to any directives regarding the timing and method of notice and any additional compliance obligations that may arise.

Finally, HB 3773 does not explicitly mandate audits, but given the potential risks associated with AI-driven decisions, employers should work closely with legal counsel and experienced vendors to assess their AI systems for evidence of bias. Proactive assessments will help mitigate the risk of non-compliance and protect the organization from potential legal challenges.

The Progression of AI in Employment

As AI continues to permeate various aspects of employment, Illinois' HB 3773 joins Colorado and New York City as another benchmark for how states may regulate this technology to prevent discrimination. Employers using AI must now navigate a complex regulatory environment that demands both innovation and caution. While the law introduces new challenges, it also provides an opportunity for employers to lead in the ethical and responsible use of AI.

Employers should view HB 3773 not just as a regulatory hurdle but as an impetus to refine their AI strategies and ensure that these powerful tools enhance fairness and inclusivity. By staying informed and taking proactive steps to comply with the law, employers can harness the benefits of AI while upholding the principles of equity foundational to a fair hiring process.

Parting Thoughts

The enactment of HB 3773 is a clear indication that Illinois is placing AI under increased scrutiny. Employers must take heed to ensure that their use of AI aligns with both legal requirements and ethical standards. The future of AI in employment is bright, but it requires a careful balance of innovation, compliance, and responsibility.

Release Date: September4, 2024